Isaac Newton Lost the Modern Equivalent of £4 Million Buying Back Into the South Sea Bubble

The South Sea Company, founded in 1711, never made much money in the South Seas. Spain controlled the trade routes; the company earned mostly nominal returns from a peculiar deal to convert British government debt into its shares. In January 1720 the directors offered to take on the entire national debt — about £30 million — in exchange for the right to issue more stock at whatever price the market would bear. Parliament agreed in April. The point of the scheme, from the company's side, was to issue shares at a high price and pocket the difference. The point, from the politicians' side, was that many of them had been quietly given shares with the option to sell back at the future market price, with no actual payment required up front.

The price duly went up. From £128 in January 1720, shares hit £175 in February, £330 in March, £550 in late May, and traded near £1,000 in early August. London turned briefly into a casino: stalls in Exchange Alley let domestic servants buy fractions of shares, and dozens of imitator companies issued prospectuses for similarly nebulous ventures. (One famously described "a company for carrying on an undertaking of great advantage, but nobody to know what it is.") Parliament's response was the Bubble Act of June 1720, which banned unauthorized joint-stock companies and stayed on the books until 1825.

Then the bubble burst. By Christmas the price was back near £100. Isaac Newton, who had sold early for a doubling of his money, had bought back in near the peak. He lost about £20,000 — perhaps £4.2 million in today's terms — and reportedly remarked that he could "calculate the movement of the stars, but not the madness of men."