The First Stock Market Bubble On Record Shows Us How This One Will Burst

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Many consider Alexander Pope to be one of the greatest poets of all time. But he also happened to grow up in the early 1700s during the earliest period of financial speculation. The Dutch had floated the first stock market, and brokers — known in those days as “stockjobbers” — handled transactions of many popular historical figures such as Richard Cantillon and Isaac Newton.

It was exactly a century after the Tulip Bubble that Pope got to experience and document the South Sea Bubble, the first speculative mania in the history of stock markets. How it inflated was eerily similar to the modern-day manias we have become accustomed to. A new technology, a new innovation, or a pie-in-the-sky vision, never fails to inflate a new bubble.

In 1719, the desire to profit from the South Sea Company’s government-sponsored trade monopoly with Spanish and South American colonies produced a mania. In exchange for these trading powers, the company agreed to privatize the British government’s national debt, converting it into company shares, along with a 6% annual interest payment.

The South Sea Company’s real motive, however, was to boost the price of its shares. Founder John Blunt and various co-conspirators devised a scheme resembling the modern-day “pump and dump”. Through various accounting tricks and excellent perception management, the company’s share price rose from £125 in early 1719 peaking at £1050 in late-June 1720, earning huge profits for Blunt and his friends.