Railway Mania

Railway Mania is the term given to the speculative frenzy in Britain in the 1840s. It followed a common pattern: as the price of railway shares increased, more and more money was poured in by speculators, until the inevitable collapse. It reached its zenith in 1846, when no fewer than 272 Acts of Parliament were passed, setting up new railway companies, and the proposed routes totalled 9,500 miles of new railway. Around a third of the railways authorised were never built - the company either collapsed due to poor financial planning, was bought out by a larger competitor before it could build its line, or turned out to be a fraudulent enterprise to channel investors' money into another business.

Causes

Britain's (and the world's) first recognisably modern inter-city railway, the Liverpool and Manchester, opened in 1830 and proved to be highly successful for transporting both passengers and freight. However, the late 1830s and early 1840s saw the British economy slow down. 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 - about £38 million in modern money).

However, by the mid-1840s the economy was improving and the manufacturing industries were 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 Industrial Revolution was creating a new, increasingly-affluent middle class. While earlier business ventures had relied on a small number of banks, businessmen and wealthy aristocrats for investment, a prospective railway company had (on top of these sources) a large, literate section of population with savings to invest. New media such as newspapers and the emergence of the modern stock market made it easy for companies to promote themselves and provide the means for the general public to invest. Many families invested their entire savings in prospective railway companies - and many of those lost everything when the bubble collapsed.

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 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 - at the Mania's peak there were several schemes floated for 'direct' railways which ran in vast, straight lines across swathes of countryside that would have been difficult to construct and nearly impossible for the locomotives of the day to work on.

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 put up interest rates. As banks began to re-invest in bonds, the money began to flow out of railways, under-cutting the boom. The share prices of railways slowed in their rise, then levelled out. As they began to fall, investment stopped virtually overnight, 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.

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 any where 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 stock market bubbles, however, there was actually a net tangible result from all the investment: a vast expansion of the British railway system, though perhaps at an inflated cost. A total of 6,220 miles of railway line were built as a result of projects authorised between 1844 and 1846 - by comparison, the total route mileage of the modern UK railway network is around 11,000 miles.

The line in Lewis Carroll's "The Hunting of the Snark", "They threatened its life with a railway share" [http://carroll.classicauthors.net/snark/snark6.html] , is a reference to the Railway Mania and those who lost money investing in it.

Comparisons

Railway Mania can be compared with a similar mania in the 1990s in the stock of telecom companies. The telecom mania resulted in the installation and deployment of a vast amount of fibre-optic telecommunications infrastructure, ironically spurred on from the realisation that the same railway rights-of-way could make affordable conduits for fibre optics.

ee also

* List of early British railway companies
* History of rail transport in Great Britain
* George Hudson

External links

* [http://books.google.com/books?vid=OCLC25957831&id=UkSY-K5qAS4C&printsec=titlepage&dq=Report+and+Resolutions+of+a+Public+Meeting,+Held+at+Glasgow Report and Resolutions of a Public Meeting, Held at Glasgow, on Friday, March 20 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

ources

Wolmar, C, 2007, "Fire & Steam: A History of the Railways in Britain", Atlantic Book (London) ISBN 978-1-84354-629-0