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Concept
Railway Mania
Summary
Railway Mania was an instance of a stock market bubble in the United Kingdom of Great Britain and Ireland in the 1840s. It followed a common pattern: as the price of railway shares increased, speculators invested more money, which further increased the price of railway shares, until the share price collapsed. The mania reached its zenith in 1846, when 263 Acts of Parliament for setting up new railway companies were passed, with the proposed routes totalling . About a third of the railways authorised were never built—the companies either collapsed due to poor financial planning, were bought out by larger competitors before they could build their line, or turned out to be fraudulent enterprises to channel investors' money into other businesses.
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 (£ adjusted for 2015).
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 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 also had a large, literate section of population with savings to invest.
Official source
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