Chapter 4 - Democratising Speculation: The Great Railway Mania

Summary

Chapter 4 examines the bubble in railway shares which occurred in the UK in the mid-1840s. Railway share prices more than doubled between 1843 and the autumn of 1845. In addition, there was a promotion boom with hundreds of new railways being authorised by Parliament. By the autumn of 1845, 562 new railway schemes had been submitted to Parliament. Following several major newspaper editorials regarding this folly, the bubble came to an end. The chapter then moves on to discuss the causes of the bubble. The incorporation of hundreds of railway companies by Parliament resulted in an increase in marketability. In terms of money and credit, interest rates were at an historical low and part-paid shares leveraged the buying of shares. The railway bubble witnessed the democratisation of speculation, with many middle-class individuals buying shares for the first time. The spark which set the bubble fire alight was the Railway Act. This Act signalled that railways had the potential to be very remunerative investments. It also created the Railway Board, which was a means of coordinating applications to build railways so that a national rail network was constructed. The chapter concludes by examining the consequences of the bubble, arguing that the bubble was a deeply inefficient way to create a national rail network, and much too wasteful to be considered useful.