Newton's Madness

What actually happened

Newton was no naif: he was Master of the Royal Mint, the man who had rebuilt England's coinage. His first trade was rational: take the doubling, walk away. What the bubble then attacked wasn't his intellect but his composure: everyone around him kept getting richer for three more months.

He re-entered with size in the summer; the stock collapsed in the autumn. The famous line was first recorded secondhand thirty-six years later, and the episode captions it as attributed: that he 'could calculate the motions of the heavenly bodies, but not the madness of people.'

Modern reconstructions of his accounts (Odlyzko) confirm the shape: early profit, late re-entry, heavy loss.

The longer arc

The South Sea Company had almost no real trade behind it. Parliament chartered it in 1711 mainly as a vehicle to convert government debt into company shares, granting it a monopoly on trade with Spanish South America that Spain never meaningfully allowed it to use. The company's real business became financial engineering: in 1720 it absorbed a huge share of the national debt in exchange for the right to keep issuing more stock, and rising confidence in the share price, not any cargo or profit, was the entire point.

Parliament's cleanup was blunt. A January 1721 act barred South Sea directors from leaving England or sitting on the boards of the Bank of England or East India Company, and investigators then inventoried and confiscated the directors' personal estates, roughly £2 million, to repay victims. John Blunt, the scheme's chief architect, saw his fortune cut from over £180,000 to £1,000. Newton, who had no part in running the company, kept his post as Master of the Royal Mint until his death in 1727; his scientific reputation survived the bubble far better than his bank account did.