The Great British Railway Mania

  Many middle-class speculators with very little to lose were involved in the Railway Mania. In the UK in 1847, pressures were high due to the government raising interest rates, resulting in a financial crisis and causing the railway share prices to crash. The Railway Mania didn’t cause this, but it made money market pressures worse. Many people paid for their shares in instalments and as calls were made for these payments , this money had to come from somewhere, increasing pressure on money markets. According to John Eatwell, the Railway Mania was a 'prima facie example of a useful bubble' as investments with social value were left behind when the bubble burst . The national rail network that was developed as a result of the Mania was revolutionary.    The reduction in time and costs of travelling made journeys possible, and more frequent and comfortable, for the middle and upper class. According to Lardner, there were seven coaches a day operating between London ...

  There were several newspapers dedicated to commenting on the railway industry. The Railway Times had the largest circulation, with The Times and the Economist also being very influential.   The Railway Times had a favourable view of the railway industry but was primarily dependent on advertising from rail companies, so had incentive to inflate stock prices . To meet the increasing demand for advertising, they started publishing up to three weekly supplements in 1845. The railway share index reached its tipping point while the promotional activities increased.   The Economist criticized the speculation in railway shares and warned that the new railway construction would drain the nation of available capital and that the degree of railway promotion was unsustainable.   Speculation received harsh criticism from The Times as well and critics at the time accused The Times of bearing the market for financial gain and ultimately causing the market for railway ...

Many believed it would be impossible to persuade people to switch from horse drawn carriages to unfamiliar railways. The Liverpool-Manchester railway defied all expectations and was a success. Rail passengers outnumbered coach passengers, which made the railway extremely profitable and provided investors with high returns . This served as the early evidence to investors that railroads would be profitable .     I nvestors thought they were on track for dividends of 10%. Since railways were privately owned, it was possible to charge high fares and  make large profits. This was see n to be true in the beginning, and investors' expectations of high returns were justified. This created high demand for railway shares, leading to increased share prices.       Investors remained enthusiastic in the early 1840s, as share prices were rising, but as time went by, they realised they were not receiving the returns they expected.       The Econom...