The Lead Up To The Great Railway Mania - Should They Have Seen It Coming?

 

Steam-powered railways started to change Britain in the 1820s. Due to railway firms being privately owned, construction of them required landowners to give up some of their land along the proposed path, meaning government approval for the creation of these railways was required. The British government sanctioned the first railway in 1821, which was formally opened in 1825.

In 1830, the second railway was built. This quickly became a success, particularly among the shareholders, who were earning a dividend rate of about 10%. This prompted others to present the government with nationwide railroad plans. 1500 miles of new rail had been authorized by 1837. Between May 1835 and May 1837, the prices of railway shares had increased by 65% and decreased by 45%. This initial sign of a bubble, known as the "first railway mania", foreshadowed what would happen a few years later...

Few railways were approved due to declining share prices, and some were even abandoned, until William Gladstone proposed in 1843 that a recovery in economic conditions may re-stimulate railway development. As a result of this proposal, a ‘Railway Act’ was passed in 1844. Due to media coverage of these new plans and improved investor beliefs, enthusiasm was increasing and share prices began rising.

Parliament was flooded with railroad proposals and because the Railway Board, which was established to prevent line duplication, was abolished in 1845, there was a massive increase in railway development as Parliament approved a lot more miles. However, in 1847, this began to slow down.