Railway Mania
During the British Railway Mania, which occurred between 1843 and the autumn of 1845, the prices of railway shares doubled, and thousands of new railway lines were projected. However, share prices then fell dramatically, and the railway industry endured a sustained downturn.
The central cause of the Mania was the myopic expectations of investors, who hoped that recent improvements in the profitability of the railway industry would continue long-term. However an economic downturn and overexpansion by the railways led to a substantial deterioration in financial performance.
The Mania was exacerbated by the widespread availability of leverage, which amplified returns, and allowed investors to pay for their shares in instalments. The enthusiasm for investing in new schemes led to a major promotion boom, with hundreds of new railways being proposed. However, investors found it difficult to make the required payments and many schemes were abandoned.
Contrary to popular opinion, the Mania was not driven by naive investors. Most of the capital was provided by experienced individuals, often with local knowledge. Similarly, the media cannot be blamed for hyping investments. Several publications maintained negative attitudes to the Mania, and even amongst railway industry papers the tone was usually restrained and focused on providing factual information.
Government policy during the Mania, and prior to the Commercial Crisis of 1847, was mostly ineffective. The administration was, like others before and since, faced with the challenge of legislating in the midst of uncertainty. It was policies introduced in the midst of the crisis, when bolder action became more feasible, which were most successful.
The central cause of the Mania was the myopic expectations of investors, who hoped that recent improvements in the profitability of the railway industry would continue long-term. However an economic downturn and overexpansion by the railways led to a substantial deterioration in financial performance.
The Mania was exacerbated by the widespread availability of leverage, which amplified returns, and allowed investors to pay for their shares in instalments. The enthusiasm for investing in new schemes led to a major promotion boom, with hundreds of new railways being proposed. However, investors found it difficult to make the required payments and many schemes were abandoned.
Contrary to popular opinion, the Mania was not driven by naive investors. Most of the capital was provided by experienced individuals, often with local knowledge. Similarly, the media cannot be blamed for hyping investments. Several publications maintained negative attitudes to the Mania, and even amongst railway industry papers the tone was usually restrained and focused on providing factual information.
Government policy during the Mania, and prior to the Commercial Crisis of 1847, was mostly ineffective. The administration was, like others before and since, faced with the challenge of legislating in the midst of uncertainty. It was policies introduced in the midst of the crisis, when bolder action became more feasible, which were most successful.
