The first widely described 'bull' and 'bear' market: The 1700s' South Sea Bubble : The Indicator from Planet Money Have you ever wondered where the terms 'bull' and 'bear' markets originated from? Today on the show, we're journeying back to the 1700s to find out how a particular financial event popularized these animal terms.

Where 'bull market' and 'bear market' come from

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We live in a bear market. We used to live in a bull market, and that was nice. Stocks were up. That bull statue on Wall Street stood proudly as a mascot, forever growing wealth. But it didn't last forever. The stock market has declined by more than 20% from its peak, and that means a bear market.


Bears and bulls, these animal terms in finance - I think it's fair to say that, here at THE INDICATOR, they've always captured our imagination. And so we started wondering, now that everybody's talking about it, where did these terms come from? Like, were they just the invention of CNBC or the Wall Street Journal? Or is there a story behind them?

WOODS: And the answer we learned doesn't lie on Wall Street at all. Instead, we need to take a cruise across the Atlantic Ocean and a time machine back 300 years to learn about the very first widely anointed bull and then bear market.


MA: And I'm Adrian Ma. Today on the show - how the terms bull and bear market proliferated around what's known as the South Sea bubble. It's a story of financial innovation, but also a dark story of greed, bribery and the cruelty of enslavement. It shaped the economic world we live in today and how we talk about it.


WOODS: The terms bull market and bear market are a bit of a linguistic mystery. We know they emerged in London around the early 1700s, but no one knows exactly the first time the phrases were used. And there are a few leading theories.

MA: One theory begins in this time with men in knee-high silk stockings, long waistcoats and three-cornered hats - so far, so civilized. But now add to your mental picture of this scene these men standing around a pit, cheering as dogs are attacking a chained-up bear.


MA: And this is just like a sport to them, right? They're trying to see which of these animals will win. Now, around the corner, same deal - but picture this time in the pit is a bull being attacked by dogs.


WOODS: This is a PETA nightmare fever dream. And this London is the backdrop to where the terms bull and bear markets came from. The evidence is unclear whether or not these blood sports directly led to the phrases, but that is our starting point for how a lot of Londoners at the time saw live bulls and bears together in the same place in real life. Helen Paul is a lecturer in economics and economic history at the University of Southampton.

HELEN PAUL: I've certainly heard different explanations - the idea that the bull throws things up and the bear pulls things down, selling the bear skin before you've caught the bear.

MA: Selling the bear skin before you've caught the bear - that was an idiom circulating around London at the time. It's kind of like saying, don't count your chickens before they've hatched.

WOODS: So bear skins were associated with the language of commerce in the 1700s in Britain. And then, Helen says, the words bull to refer to a boom in the market and bear for a bust in the market just exploded in written plays and poems around 1720.

PAUL: Susanna Centlivre, who's a female playwright of importance in her day, mentioning bull and bear.

WOODS: The play assumed the audience already had familiarity with these terms, so they must have been in circulation already.

PAUL: You do get anonymous pamphlet writers around that time writing diatribes about what not to do in the stock market or writing playlets of some sort or a little poem.

MA: I feel like that's our type of poet - right? - writing about market crashes and not love or tragedy or nature.

WOODS: Yeah. I mean, a lot of these poets and playwrights had vested interest in this. They were invested - famous names like Jonathan Swift and Alexander Pope. And they're invested in one big company, in particular, the South Sea Company.

MA: The South Sea Company is part of a notorious episode in British financial history, which cemented the terms bull and bear market as widely used phrases in writing. This event is called the South Sea bubble. And so here is the story of what happened. The South Sea bubble started when British government debt had gotten completely out of hand in the early 1700s. The country had been fighting these expensive wars around Europe, funding them by borrowing from rich aristocrats and bankers at home and abroad. But it wasn't like the British government, as a single thing, borrowed all the funds. It was actually individual government departments that did the borrowing.

So, like, the British army would borrow money one way, and then the Navy would raise money another way. And this resulted in different departments having different interest rates, different terms and conditions, and a lot of paperwork and no clear plan about how to pay it back. In fact, some of these departments did miss payments and the situation was getting so bad that it threatened Britain's defense force.

PAUL: Naval contractors start to get seriously fed up with not being paid at all. They've had long terms of credit, but even they have a limit.

WOODS: So the British head of the treasury, known as the Chancellor of the Exchequer, Robert Harley, and a guy named John Blunt, came up with a scheme - they'd bunch all that debt together and give it to a new company called the South Sea Company. So if you're owed money by the British government, you now have shares in the South Sea Company instead.

MA: From there, the government would fund interest payments plus any operating expenses. And the South Sea Company would try to make money to help ease the government's debt burden. And remember - this is the 1700s. It was a time when the enslaving and trading of people was a global industry. And so the primary way that the South Sea Company would make money was by selling enslaved Africans to Central and South America.

PAUL: So they've got a foot into the Spanish American colonies. They've got the opportunity to trade with them. That is seen as potentially lucrative.

WOODS: Shares in the South Sea Company would be easily tradable with the public.

PAUL: You could actually buy this in a coffee house, so you didn't need to know anyone in particular.

WOODS: So it's kind of like the 1700s version of Robinhood - an innovation that allowed a broader range of people to be able to get in on investments.

PAUL: Exactly. Although a lot of the time, the early move is going to be people who are better informed and better connected. But certainly, you start to see all kinds of people buying shares. You get the odd servant or a woman investor appearing amongst all of these well-connected men.

MA: And over the next several years, the company traded some goods and trafficked tens of thousands of enslaved Africans in an often-deadly journey to South and Central America. And while this scheme isn't particularly profitable, by 1720, the company is doing everything it can to inflate its stock price. And one way they did this was they gave important aristocrats shares of stock.

WOODS: How generous of them.

MA: Oh, yeah, totally - and no expectations. But hopefully by getting this free stock, the aristocrats had an incentive to, you know, sort of be boosters for the South Sea Company. And the company itself could use these big names to market shares to the public. But the shenanigans did not stop there. The company also started rumors about potential new trade opportunities, which also drove up the stock price.

WOODS: And this is where the bull market kicks in. Within a few months, the stock price doubles. It then doubles again and doubles once more. A frenzy has begun, and people seem to be getting rich until the bubble pops. Payments are due for people who have borrowed to buy those shares, and other bubbles have burst overseas. The bull market turns into a bear. Everyone's racing to sell their shares. The South Sea Company's share price collapses just as fast as it shot up. And there is so much public anger that parliament is recalled, and an investigation is launched.

PAUL: A lot of speeches about how terrible the scandal was. The directors were hauled before parliament. They had their estates recorded so that confiscations could be made. The Chancellor of the Exchequer was put in the Tower of London. Some people get punished, and others don't. But ultimately, the whole ship of state sails onwards.

MA: The South Sea Company does stay afloat, albeit with a vastly shrunken share price, and the dramatic story of the South Sea bubble triggers an avalanche of poems and plays and writings about this new metaphor - the bull and bear market.

WOODS: And although individual investors suffered losses, it doesn't trigger much in the way of a wider economic crash. Of course, these financial hits were incomparable to the many lives destroyed by the South Sea Company's role facilitating slavery.

MA: This episode was produced by Jess Kung with engineering from Robert Rodriguez. It was fact-checked by Catherine Yang (ph). Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.

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