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South Sea Bubble 1720

Sister Bubbles and Schemes of 1720

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What Were the Sister Bubbles and Schemes of 1720?

The South Sea Bubble was not an isolated speculative episode—it was accompanied by a proliferation of other joint-stock schemes, each seeking to capitalize on the investor appetite that the South Sea success had demonstrated. These "sister bubbles" ranged from plausible commercial ventures with inflated valuations to outright frauds promoting imaginary technologies and nonexistent commercial opportunities. Their simultaneous appearance and collapse illustrates how speculative fever spreads across an asset class, how successful bubbles spawn imitative schemes, and why the Bubble Act of 1720 was passed even before the South Sea collapse—and yet failed to prevent it.

Quick definition: The sister bubbles of 1720 were the dozens of unauthorized joint-stock company schemes that appeared alongside the South Sea Bubble, seeking to capture investor enthusiasm for equity speculation by promoting ventures ranging from insurance companies and mining operations to a company memorably described as operating "for carrying on an undertaking of great advantage, but no one to know what it is."

Key takeaways​

  • The South Sea Bubble's success attracted hundreds of imitators, some legitimate and some fraudulent.
  • Contemporary accounts documented schemes for importing walnut trees from Virginia, improving England's roads, and making salt water fresh.
  • The most famous fraudulent scheme—described as "of great advantage but no one to know what it is"—reportedly raised £2,000 in one morning before the promoter disappeared.
  • These competing schemes drew capital away from the South Sea Company, contributing to the South Sea directors' support for the Bubble Act.
  • The Bubble Act of June 1720, intended to suppress competition, did not prevent the South Sea collapse and may have accelerated it by creating uncertainty.
  • The sister bubbles illustrate how successful speculative episodes generate imitative excess in ways that cannot be contained by moderate regulatory intervention.

The landscape of 1720 schemes​

The spring and summer of 1720 saw an explosion of joint-stock company promotions. Contemporary sources catalog dozens of schemes, and historians have identified well over a hundred distinct promotional ventures from the period. These ranged in legitimacy from insurance ventures that became enduring institutions (the Royal Exchange Assurance and London Assurance were chartered in 1720 and survived for centuries) to naked frauds designed to extract subscription money from investors who never received any commercial return.

The schemes exploited the same financial innovations that had powered the South Sea Company: subscription-based share offerings, installment payment structures that enabled broad participation with limited immediate capital, and the circulation of promotional materials through coffeehouse networks. The promotional vocabulary was similar across schemes—references to commercial monopolies, new technologies, and the transformative potential of the venture—and the investor response was similarly uncritical during the bubble's peak.

Several schemes offered partial descriptions of their commercial purpose, relying on the mystery itself as a promotional tool. The principle that a promising-sounding secret venture might be more valuable than a fully disclosed mediocre one—a genuinely clever exploitation of information asymmetry—attracted subscription capital even in the absence of any coherent commercial description.

Notable schemes​

Among the more colorful entries in the catalog of 1720 schemes were companies proposing to:

  • Import large timber from Virginia (plausible but heavily promoted)
  • Supply London with fresh water using a new technology
  • Improve England's roads through private enterprise
  • Trade in human hair
  • Make salt water fresh for drinking purposes
  • Breed horses for profit
  • Extract silver from lead ore (technically possible but promoted well beyond realistic projections)

The scheme most cited in subsequent literature was promoted by an anonymous operator who reportedly opened a subscription office in Exchange Alley for "a company for carrying on an undertaking of great advantage, but no one to know what it is." According to the account—whose details have been embellished in the retelling—the promoter raised £2,000 in subscriptions by promising investors that each £2 investment would return £100 per year, then disappeared before the day was out. The total amount raised and the precise details are uncertain, but the account captures the speculative atmosphere of the period accurately enough to have survived.

The competitive dynamic and the Bubble Act​

The proliferation of competing schemes created a commercial problem for the South Sea Company: capital was being diverted from South Sea subscriptions to other ventures. The South Sea directors had strong financial incentives to suppress competition and lobbied Parliament to restrict the formation of unauthorized joint-stock companies.

The Bubble Act of June 1720 responded to this pressure by prohibiting the formation of joint-stock companies without royal charter or Parliamentary authority. The Act was passed in June—at the height of the bubble—and was intended primarily to channel investment toward authorized companies (prominently including the South Sea Company) rather than to suppress speculation generally.

The Act's effects were perverse. By restricting the formation of competing companies, it may have temporarily directed more capital into the South Sea Company, contributing to the final phase of the price rise. But the uncertainty it created about the legal status of existing unauthorized companies also contributed to a general loss of confidence in speculative equities—which accelerated when the South Sea price began to fall.

Real-world examples​

The sister bubble phenomenon has appeared in every major speculative episode. During the dot-com boom, the success of early internet companies (Amazon, Yahoo, eBay) generated hundreds of imitators, from companies with plausible but overvalued business models to outright frauds. The pattern of legitimate early success spawning increasingly marginal imitations, culminating in fraudulent schemes that exploited investor enthusiasm, is consistent across speculative eras.

The 2017 ICO (Initial Coin Offering) boom replicated the 1720 pattern with near-perfect structural fidelity: Bitcoin's success generated hundreds of imitators, many with legitimate technological ambitions but inflated valuations, some with no commercial substance whatsoever. SEC enforcement actions subsequently identified numerous ICOs as fraudulent securities offerings—the 1720 "great advantage but no one to know what it is" had a direct counterpart in the "whitepaper-only" cryptocurrency projects of 2017.

Common mistakes​

Treating the sister bubbles as a separate phenomenon from the main bubble. The sister bubbles and the South Sea Bubble were part of the same speculative episode, driven by the same investor psychology and social dynamics. The distinction between the South Sea Company and the schemes it coexisted with was one of degree and legitimacy, not fundamental character.

Assuming the Bubble Act was designed to prevent speculation. The Bubble Act was designed to suppress competition for the South Sea Company, not to address speculative excess per se. The fact that it was passed while the main bubble was at its height illustrates that it was a commercial lobbying measure rather than a regulatory reform.

Using the fraudulent schemes to characterize all 1720 investors as naive. Many investors understood they were speculating on companies with uncertain commercial prospects. The fraudulent schemes attracted a subset of investors; others participated in more legitimate ventures at inflated prices—a different form of speculative excess but not the same as outright fraud.

Ignoring the legitimate companies that survived. The Royal Exchange Assurance, chartered in 1720, became an enduring institution of British insurance. The bubble context in which it was founded does not negate its genuine commercial value.

FAQ​

How many schemes were active during the 1720 bubble?​

Contemporary and historical accounts identify dozens to hundreds of distinct schemes, depending on how "scheme" is defined and which sources are used. Some scholars cite figures of 190 or more distinct promotional ventures; others, using stricter definitions, identify a smaller number. The precise count is less important than the pattern of rapid proliferation.

Did any bubble scheme investors receive criminal redress?​

A few promoters of the most blatant frauds faced legal consequences, but systematic prosecution was limited by the same institutional constraints that characterized the post-South Sea political response: inadequate legal frameworks for financial fraud, limited investigative capacity, and the difficulty of proving intent when promoters could claim they had merely been optimistic.

What distinguished the legitimate schemes from the fraudulent ones?​

The distinction was not always clear in advance. Insurance companies with real commercial models were promoted alongside fraudulent schemes using similar language and marketing approaches. The key differences were the existence of a plausible commercial model, the use of subscription funds for genuine commercial investment rather than promoter enrichment, and the maintainance of ongoing commercial operations after the bubble period. These distinctions were often difficult to assess from subscription prospectuses alone.

Were any sister bubble companies more successful than the South Sea Company itself?​

The Royal Exchange Assurance and London Assurance—both chartered in 1720—were more commercially successful than the South Sea Company in the long run. They conducted genuine insurance underwriting rather than financial engineering, and their business survived the bubble period to become substantial institutions.

How did the Bubble Act affect long-term British business development?​

The Bubble Act, which remained in force until 1825, created significant obstacles to the formation of joint-stock companies in Britain during a period when such companies were becoming important in other countries. Some historians argue that the Act constrained British industrial development during the Industrial Revolution; others dispute this conclusion. Its eventual repeal reflected the recognition that the eighteenth-century restrictions were no longer appropriate for nineteenth-century industrial finance.

Summary​

The sister bubbles and schemes of 1720 were the predictable consequence of the South Sea Company's visible success: hundreds of imitators sought to capitalize on investor enthusiasm, ranging from legitimate insurance companies to fraudulent schemes with no commercial substance. Their proliferation illustrates how successful speculative episodes generate imitative excess across the broader investor landscape, how commercial competition between speculative promoters amplifies the overall bubble, and how regulatory responses (the Bubble Act) designed to address specific competitive dynamics rather than the speculative excess itself typically fail to contain the broader phenomenon. The pattern—main bubble success, proliferation of imitators, regulatory response to competition rather than speculation, collapse of the entire speculative complex—has repeated across every major bubble since.

Next​

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