South Sea Scheme (or BUBBLE) was originated by Harley (q.v.), Earl of Oxford, in 1711, with the view of restoring public credit and providing for the extinction of the floating national debt, which at that time amounted to £10,000,000. This debt was taken up by a number of eminent merchants, to whom the government agreed to guarantee for a certain period the annual payment of £600,000 (being 6 per cent. interest), a sum which was to be obtained by rendering permanent a number of import duties. The monopoly of the trade to the South Seas was also secured to these merchants, who were accordingly incorporated as the 'South Sea Company,' and at once rose to a high position in the mercantile world. The extravagant ideas then current respecting the riches of the South American continent were carefully fostered by the Company, who also spread the belief that Spain was prepared to admit them to a share of its South American trade. In 1717 the Company advanced to government other 5 millions. Their shares nevertheless rose day by day; and even when the outbreak of war with Spain in 1718 deprived the most sanguine of the slightest hope of sharing in the treasures of the South Seas, the Company continued to flourish. Far from being alarmed at the expected failure of the Mississippi Scheme (q.v.), the South Sea Company believed sincerely in the feasibility of Law's scheme, and resolved to avoid what they considered as his errors. In the spring of 1720 they proposed to take upon themselves practically the whole national debt (at that time upwards of 30 millions), on being guaranteed 5 per cent. per annum for 7½ years, at the end of which time the debt might be redeemed if the government chose, and the interest reduced to 4 per cent. The directors of the Bank of England, jealous of the prospective benefit and influence which would thus accrue to the South Sea Company, submitted to government a counter-proposal; but the more dazzling nature of their rivals' offer, in spite of protest from Walpole and other long-headed leaders, secured its acceptance by parliament. During the passing of their bill the Company's stock rose steadily to 330 on April 7, falling to 290 on the following day.
Up till this date the scheme had been honestly promoted; but now, seeing before them the prospect of speedily amassing abundant wealth, the directors seem to have thrown aside all scruples and made use of every effective means at their command for keeping up the factitious value of the stock. Their zealous endeavours were crowned with success; the £100 shares were quoted at 550 on May 28, and 890 on June 1. A mania of gambling seized the nation; preposterous companies of all kinds were floated, some of which were even prosecuted by the South Sea Company (under the 'Bubble Act') and exposed as swindling schemes. A general impression having by this time gained ground that the Company's stock had reached its maximum, so many holders rushed to realise that the price fell to 640 on June 3. Thereupon the directors sent agents to buy up eagerly; and on the evening of June 3, 750 was the quoted price. This and similar artifices were employed as required, and had the effect of ultimately raising the shares to 1000 in the beginning of August, when the chairman of the Company and some of the principal directors sold out. On this becoming known a wide-spread uneasiness seized the holders of stock, every one was eager to part with his shares, and on September 12 they fell to 400. The consternation of those who had been either unwilling or unable to part with their scrip was now extreme; many capitalists absconded, either to avoid ruinous bankruptcy or to secure their ill-gotten gains, and the government became seriously alarmed at the excited state of public feeling. Vain attempts were made to prevail on the Bank to come to the rescue by circulating some millions of Company's bonds.
The country was now wound up to a most alarming pitch of excitement; the punishment of the fraudulent directors was clamorously demanded; and parliament was hastily summoned (December 8) to deliberate on the best means of mitigating this great calamity. Both Houses, however, proved to be in as impetuous a mood as the public; and, in spite of the moderate counsels of Walpole, it was resolved to punish the authors of the national distresses, though hitherto no fraudulent acts had been proved against them. An examination of the proceedings of the Company was at once commenced, with results discreditable to the management; the private property of the directors was confiscated (to the amount of upwards of 2 millions) for the benefit of those who had suffered; seven millions due to the government were remitted; various eminent persons in and about the government were openly charged with receiving direct money bribes from the Company; the Chancellor of the Exchequer, Aislabie, being found clearly guilty, was expelled from the House of Commons, and imprisoned in the Tower. The ruin wrought by the Bubble was incalculable. See the histories of Stanhope and Lecky, and Coxe's Walpole.
The South Sea House in Threadneedle Street was the headquarters of the South Sea Company. When the company ceased to be a trading concern its capital was converted into annuity stock; and its premises are now subdivided into numerous offices. John Lamb was a clerk in South Sea House; and his brother Charles was admitted here to learn book-keeping.