Increasing the top rate of income tax

The South Sea Bubble

What are bubbles and how do they arise?

Debates about the cause of the financial crisis of the late 2000s often refer to the ‘bubble’ that burst. Helen Paul highlights the main features of the South Sea Bubble, which hit England in the eighteenth century, and shows how well-known financial theories can help our understanding

Answers to the questions in this article are provided online at www.hoddereducation.co.uk/economicreviewextras

The South Sea Bubble was a financial ‘bubble’ on the London stock market in 1720. It is one of the earliest and most famous bubbles. Share prices rose sharply for all companies traded on the London stock market before prices crashed in late 1720. The South Sea Company was particularly affected and it has given its name to the episode.