From Winton Group:
Railway Mania
All aboard the gravy train (1845 - 1947). The advent of
steam travel sparked a boom in railway stocks in England and even
Austria. But as the boom hit the skids, families were ruined and several
banks failed.
Steam
trains, still a new phenomenon, seized the English public’s imagination
in 1842 following Queen Victoria’s first railway trip. With investment
decisions decoupling from reality, however, the boom soon became a
runaway train which slammed into the buffers in October 1845.
The country is an asylum of railway lunatics
Getting a Full Head of Steam
When steam engines first appeared in the 1820s, they were met with
widespread hostility. It was feared that they would prevent hens from
laying eggs and cattle from grazing, that their noxious fumes would
blacken the fleeces of sheep, and that passengers travelling at breakneck
speeds of 12.5 mph would be atomised. Landowners were also concerned
that locomotives would shatter the tranquillity of their estates and
injure land values.
Notwithstanding such apprehensions, there were two early speculative
flurries: the first following the establishment of the Stockton and
Darlington Railway in 1825, and the second after the opening of the
Liverpool and Manchester Railway six years later.
Yet both of these were fairly short lived and by the late 1830s, with
2,000 miles of track in place, many felt the national network was
complete. Journey times from London to Glasgow had been reduced to 24
hours, prompting the Railway Times to ask: ‘What more could any
reasonable man want?’
By the early 1840s, speculative interest in the railways was
beginning to pick up again. Much of the earlier opposition had
diminished and most could now see the benefits of steam travel compared
to other modes of transport, and when Queen Victoria made her first train
trip in 1842 railways became quite the rage.
Investors fawned upon railway companies, lured by their plummy
dividends, and commonly believed they would be ‘safe in midst of panic’,
encouraging promoters to rush through plans for new lines and issue new
scrip. Share subscriptions sold instantly and commanded huge premiums,
even for the most dubious projects.
Railway schemes were typically projected in the following
way. Advertisements for a new company would flood the newspapers,
including a list of ‘committeemen’ (company trustees) and the promise of
a 10% dividend. If the subscription went well, the committeemen would
retain a large share allocation, creating a scarcity, and then get their
friends in the railway press to ‘puff’ the stock, whereupon they would
sell it at a premium.
Although the committeemen were wont to be billed as upstanding
members of the local community, they were often, according to The Times,
‘the most notorious scamps, alias swindlers’, whose sole interest was
personal gain. Many politicians were also in on the game, acting as
committeemen and hawking their parliamentary votes in return for shares.
Emergency Announcements
Some public figures, notably Alexander Baring and William Gladstone,
urged caution and called for tighter regulation but their appeals fell
upon deaf ears – hardly surprising, given that most MPs were in on the
game. Prime Minister Peel refused to intervene, believing that the
previous year’s Bank Act (which stipulated that notes must be fully
convertible) had prevented all undue speculation.
Speculation had reached fever pitch by summer 1845. By June there
were twelve schemes coming before Parliament each week and plans for
over 8,000 miles of new track. The whole country was consumed with
railway mania, and heaving with ‘railway hotels, office-houses,
lodging-houses, boarding-houses; railway plans, maps, views, wrappers,
bottles, sandwich-boxes, and timetables…’, as Charles Dickens observed
in Dombey and Son.
Speculative fervour pervaded all sections of society and blurred
class divides. ‘Men who were known to have been penniless a year before,
suddenly kept their broughams or started barouches. Valuable diamonds
gleamed from fingers which had hitherto been guiltless of the bright
adornment.’ Female speculators also became a common sight, ‘Duchesses’
delicate fingers handled scrip; old maids inquired with trembling
eagerness the price of stocks; young ladies’ eyes ceased to scan the
marriage list – deserting this for the table of shares, and startling
their lovers with questions respecting the operations of bulls and
bears.’...
Great Western’s share price collapsed in October 1845
after the Bank of
England raised its discount rate and
the onset of the Irish potato
famine.
...
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