Railway Mania
Railway Mania was a
Causes
The world's first recognizably modern inter-city railway, the Liverpool and Manchester Railway (the L&M), opened its railway in 1830 and proved to be successful for transporting both passengers and freight. In the late 1830s and early 1840s, the British economy slowed. Interest rates rose, making it more attractive to invest money in government bonds—the main source of investment at the time, and political and social unrest deterred banks and businesses from investing the huge sums of money required to build railways; the L&M cost £637,000 (£55,210,000 adjusted for 2015).[3]
By the mid-1840s, the economy was improving and the manufacturing industries were once again growing. The Bank of England cut interest rates, making government bonds less attractive investments, and existing railway companies' shares began to boom as they moved ever-increasing amounts of cargo and people, making people willing to invest in new railways.
Crucially, there were more investors in British business. The
The British government promoted an almost totally 'laissez-faire' system of non-regulation in the railways. Companies had to submit a bill to Parliament to gain the right to acquire land for the line, which required the route of the proposed railway to be approved, but there were no limits on the number of companies and no real checks on the financial viability of a line. Anyone could form a company, gain investment and submit a bill to Parliament. Since many Members of Parliament (MPs) were heavy investors in such schemes, it was rare for a bill to not pass during the peak of the mania in 1846, although Parliament did reject schemes that were blatantly misleading or impossible to construct.
Magnates like George Hudson developed routes in the North and Midlands by amalgamating small railway companies and rationalising routes. He was also an MP, but ultimately failed owing to his fraudulent practices of, for example, paying dividends from capital.
The end of the mania
As with other bubbles, the Railway Mania became a self-promoting cycle based purely on over-optimistic speculation. As the dozens of companies formed began to operate and the simple unviability of many of them became clear, investors began to realise that railways were not all as lucrative and as easy to build as they had been led to believe. Coupled to this, in late 1845 the Bank of England increased interest rates. As banks began to re-invest in bonds, the money began to flow out of railways, undercutting the boom.
The share prices of railways slowed in their rise, then leveled out. As they began to fall, investment stopped virtually overnight[when?], leaving numerous companies without funding and numerous investors with no prospect of any return on their investment. The larger railway companies such as the Great Western Railway and the nascent Midland began to buy up strategic failed lines to expand their network. These lines could be purchased at a fraction of their real value as given a choice between a below-value offer for their shares or the total loss of their investment, shareholders naturally chose the former. Many middle class families on modest incomes had sunk their entire savings into new companies during the mania, and they lost everything when the speculation collapsed.
The boom-and-bust cycle of early-industrial Britain was still in effect, and the boom that had created the conditions for Railway Mania began to cool and then a decline set in. The number of new railway companies fell away to almost nothing in the late 1840s and early 1850s, with the only new lines constructed being by the large companies. Economic upturns in the 1850s and 1860s saw smaller booms in railway construction, but these never reached anywhere near the scale of the mania—partly due to more thoughtful (if still very limited) government control, partly due to more cautious investors and partly because the UK railway network was approaching maturity, with none of the 'blank canvas' available to numerous companies as in the 1840s.
Results
Unlike some
Comparisons
Railway and
See also
- History of rail transport in Great Britain
- List of early British railway companies
- Balloonomania
- Bike boom
- Timeline of transportation technology
References
- ISBN 978-0-19-968866-1
- ISBN 9780199213979. Retrieved 6 December 2019.
- ^ UK Retail Price Index inflation figures are based on data from Clark, Gregory (2017). "The Annual RPI and Average Earnings for Britain, 1209 to Present (New Series)". MeasuringWorth. Retrieved 11 June 2022.
- ISBN 9780521526128. Retrieved 6 December 2019.
Bibliography
- Wolmar, C, 2007, Fire & Steam: A History of the Railways in Britain, Atlantic Book (London) ISBN 978-1-84354-629-0
External links
- Report and Resolutions of a Public Meeting, Held at Glasgow, on Friday, 20 March 1846, in Support of Sir Robert Peel's Suggestions in Reference to Railways—Peel had commented upon the impolity and danger of allowing too much capital to be invested in railways in too short a period. The merchants of Glasgow evidently agreed in large numbers. From Google Book Search
- RailwayMania.co.uk—Narrative of events and links to recent research
- The Railway Mania: Not so Great Expectations—Economic article which argues that during the British Railway Mania of the 1840s, railway shares were not obviously overpriced, even at the market peak, but prices still fell dramatically.
- Odlyzko, Andrew. Collective hallucinations and inefficient markets: The British Railway Mania of the 1840s, 2010.