The ladies of London walked into the trading alley under their veils, and the boats on the Thames sold their subsistence boats and went into the cafes to buy and sell stocks. The share price has doubled seven times in half a year, making the prostitutes rich and the male servants living in luxurious mansions. In the summer of 1720, London was staring at only one number: the share price of the South China Sea Company.

Fundraising for war

According to historical records, the birth of the London financial market was directly related to the war on the European continent in 1688-1697. At that time, the French King Louis XIV expanded his territory in Europe and was resisted by the alliance of many European countries.

In order to raise funds for the war, the British ruling authorities began to gradually establish a securities exchange market with modern financial market elements in London in 1690. In 1694, the central bank, the Bank of England, was established, which issued the first batch of government bonds in history and began to issue bills of exchange. It is a voucher with a "commitment to pay". At that time, lottery tickets, annuities, stock companies, insurance companies, and all kinds of money-making financial plans began to prevail. The London financial market continued to grow during this time.

Nanhai company's transactions with the government

At this time, the Nanhai Company has been established for two years, and its main business is overseas trade and a shareholding system. It made a deal with the government to buy out the Spanish South China Sea trade contract from the government, and then the government bonds issued by the government were packaged and handed over to the South China Sea Company for management, and interest was paid every year.

Those who bought the national debt can convert the bills into shares of the Nanhai Company, and change from a government creditor to a shareholder of the Nanhai Company, instead of taking interest on the debt, but instead taking dividends. Treasury bonds cannot be traded, but the shares of Nanhai Company can be traded. The government turned its creditors from countless members of the public into one, the Nanhai Company.

South China Sea’s founding shareholders include Chancellor of the Exchequer Robert Harley and financier John Blunt. Blunt was knighted because he founded the South China Sea Company.

The South China Sea Company cooperated with the veteran slave trading company "Royal Africa Company" to transport thousands of slaves from the Atlantic to South America, and was also escorted by the Royal Navy. This has deepened the public's speculation that Nanhai Company is backed by the government, so it is more assured and eager about its stock.

In the summer of 1720, the shares of the Nanhai Company were overvalued, which drove the market to rise, and the stock prices of other companies also rose. Part of the reason was that many novices entered the stock market blindly following the crowd. Another reason was the collapse of the French stock market at that time, and a lot of investment funds flowed into London, fueling the London stock market bubble. However, the South American trade activities and huge profits promised to shareholders by Nanhai Company have never been realized, and the company's behavior is becoming more and more like a bank, beginning to lend money to potential investors of its own stocks to maintain market demand and push up prices. , Consolidate the bubble.

Historian Dr. Alice Marples pointed out that the number of shares sold to investors at that time was more than twice the actual number of shares that could be traded, and the money from new shareholders was used to pay the high dividends promised to old shareholders. Some people now describe it as a Ponzi scheme in the 18th century.

Some people make a fortune, some lose their fortunes

From 1719 to the end of 1720, the shares of Nanhai Company soared 10 times, peaked in August 1720, then fell off a cliff, and fell below the initial price by the end of the year. The stock market crash has left almost all sectors of society with no exception. The elite class and institutions with huge investments have been hit particularly hard, including the physics giant Isaac Newton (Isaac Newton). He left a famous saying: I can calculate the movement of celestial bodies, but I cannot calculate the madness of human beings.

However, there are also lucky and savvy investors who have reaped the opportunity during the stock market turmoil in the past few months. For example, stationery company Thomas Guy sold his holdings when the stock price of Nanhai Company fell from its peak to half. It made a lot of money, and in 1721 the money was used to build the Thomas Guy Hospital on the banks of the Thames in London, which was recorded in the annals of history.