The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 36

Charting the South Seas

There's been little news of any importance for centuries in the financial markets. New twists? Sure! But the keys to making and hanging on to money don't change. For example, avoid manias. Financial manias have been with us almost forever. I first read about them in Charles Mackay's classic book from 1841, Extraordinary Popular Delusions and the Madness of Crowds. It covers gyrations like the Dutch Tulipmania of 1636, the French “Mississippi Scheme” of 1720, and the 1720 English South Seas Bubble. Some say 1720 was the first Kondratieff wave peak (see Chart 84). This never-before-published chart chronicles the South Seas mania that started in 1711 when Lord Treasurer Robert Harley chartered the South Sea Company (SSC), made himself its governor, and granted it sole rights to the South Seas trade (basically the Pacific Ocean). No one could really assess the commercial potential. Manias often involve phenomena that can't be detailed precisely—that's how they get speculative.

The SSC was contrived by financial promoters who were less keen on South Seas trade than on doing deals. As stocks soared in 1719, they concocted a scheme to swap the entire English national debt for SSC stock—plus more of the future take from their South Seas pipe dream. Parliament loved the something-for-nothing nature of it. As the scheme unfolded, ever more people, particularly politicians, who were generally rich in those days, bought SSC stock. Other stocks boomed too—like ...