overview
orientation
tulips
steam age
jazz & plastic
property
fleece
inflections
snapshot
dotcoms
telcos
peaks
au bubble
actors
media
fiction
accounting
regulators
clean-ups
bubble 2.0?
sinobubble
landmarks
related
Guides:
Economy
Governance
Networks
eCapital
related
Profiles:
Rail
Broadcast
|
steam age
This page offers context by considering booms, bubbles
and crashes in the steam age.
It covers -
the
UK railway booms
The first UK railway bubble followed an economic decline
in the 1830s that was associated with cheap labour and
materials and with low interest rates. That encouraged
borrowing for the construction of lines (although many
lines remained plans rather than actual infrastructure),
particularly once early lines began paying 10% dividends,
ie over four times the contemporary interest rate.
Between 1830 and 1850 around £193 million (an estimated
36% of UK GDP in 1850 and equivalent to roughly £9.7
billion in 2002 values) was invested in UK railways. Private
and government investment in US, Austrian, French, German,
Russian, Australian and other railways during that century
was of a similar scale.
Individual networks involved significant capital and expertise;
their assessment - as noted in profiles here
and here
- formed the basis of modern corporate analysis. The first
stages of the UK Great Western Railway, under engineer
Isambard Kingdom Brunel, for example cost over £6
million (up from an estimated £2.5 million), perhaps
equivalent to £18 billion in terms of the same proportion
of 2002 UK GDP.
Charles Dickens' 1846 Dombey & Son commented
that
There
were railway patterns in its drapers' shops and
railway journals in the windows of its newsmen. There
were railway hotels, office-houses, lodging houses,
boarding houses; railway plans, maps, views, wrappers,
bottles, sandwich boxes, and railway time-tables; railway
hackney- coach and cab stands; railway omnibuses, railway
streets and buildings, railway hangers-on and parasites,
and flatterers out of all calculation. There was even
railway time observed in clocks, as if the sun itself
had given in.
The UK railway industry was marked by two manias in 1837
and 1845. Only 970 miles had been sanctioned by Parliament
prior to 1836, but 955 miles were approved in 1836 and
a further 543 miles in 1837. Speculative investment -
exacerbated by uncertain statistics and inexperience in
forecasting traffic/revenue - interacted with entrepreneurs
who sought to outbuild each other (or merely to build
networks to particular locations while the opportunity
was available) and who in some cases expected to make
money by through fees for civil engineering rather than
operating a line.
As a result some lines were not economical, some could
not be completed because costs overran projections, much
money was absorbed in promotional or regulatory costs
and many schemes collapsed ingloriously. Market capitalisation
of UK railways hit a peak in July 1845; by 1850 those
shares were worth less than half the capital spent on
them, some were worthless and the overall dividend rate
had sunk to 2%.
Investors returned to the market because traffic and the
revenue of surviving companies continued to grow (albeit
more slowly than initially projected), because survivors
were able to acquire assets at a discount and introduce
economies of scale, and because broader growth of the
economy meant that capital was available.
Herbert Spencer's 1854 Railway Morals & Railway
Policy identified discrepancies between community
perceptions of railway finances and actual activity. He
charged, somewhat unfairly, that the public equated railways
with financial malpractice
Associating
the ideas of wealth and respectability, and habitually
using respectability of synonymous with morality, it
seems to them incredible that many of the large capitalists
administration to administer railway affairs should
be guilty indirectly enriching themselves in the expense
of their constituents.
Although
he cited instances of company boards maintaining corporate
records in cypher, false share registers, gaps in corporate
minutes and 'men of straw' holding large shares on behalf
of directors - the extent of malpractice has been questioned
in works such as A Arnold & S McCartney's 2001
Bricks Without Straw
(PDF)
and George Robb's White-Collar Crime in Modern England
Financial Fraud and Business Morality, 1845-1929
(Cambridge: Cambridge Uni Press 2003).
By 1844 UK networks amounted to around 2,000 miles (linking
London, Dover, Southampton, Brighton, Birmingham, Manchester,
Leeds, Newcastle, Bristol and Exeter). After the first
crash most operators were profitable, resulting in a second
boom that saw 1,263 schemes (with capital of £1,123m)
in the pipeline. The Manchester Guardian noted
that during one week 89 new ventures (requiring capital
of £84 million) had been advertised in three newspapers,
with some 357 schemes advertised in those papers for an
estimated £332 million.
Many of the proposals were unsuccessful and some lines
were later acquired by the major operators at a discount
of up to 93% but by 1853 total UK lines had increased
to 7,000 miles, essentially the same network in place
in 1965. Aggregate construction costs to 1870 are estimated
at £250 million (relative to the UK GDP of £1bn
per year in 1866). Gross revenues reached £5m pa
in 1844 and tripled by 1852 (when freight overtook passengers
for the first time), rising to £23m by 1870.
and in the US and Continent
Similar phenomena were experienced in France, in Germany
and Austria (where the railway mania of the early 1870s
ended with a short but particular sharp crisis in banking)
and in the US, with a cycle of construction, stockmarket
bubble and corporate rationalisation roughly every twenty
years from the 1850s to 1913.
Thoreau complained in 1846 that
Men
have an indistinct notion that if they keep up this
activity of joint stocks and spades long enough all
will at length ride somewhere, in next to no time, and
for nothing; but though a crowd rushes to the depot,
and the conductor shouts 'All aboard!' when the smoke
is blown away and the vapor condensed, it will be perceived
that a few are riding, but the rest are run over.
During the depression of 1859 US commentator Henry Carey
Baird complained that
our
railroad system has cost more than $1,000,000 and has
brought ruin upon nearly everyone connected with it,
the nation included
In 1860 the US had 30,000 miles of track; by 1914 that
had increased to 253,000 miles.
studies
Charles Mackay's Extraordinary Popular Delusions and
the Madness of Crowds, first published in 1841 (coinciding
with the second UK Railway Bubble), frequently reprinted
and available here,
remains one of the more entertaining - if distinctly less
analytical - accounts of financial speculation. Context
is provided by Mary Poovey's 2002 'Writing about Finance
in Victorian England: Disclosure and Secrecy in the Culture
of Investment' in 45 Victorian Studies 1.
Fans of Mackay might turn instead to Elias Canetti's quirky
but penetrating Crowds & Power and more recent
academic writing about behavioural finance noted above
or to the persuasive revisionist study
railway.com: Parallels between the early British railways
and the ICT revolution (London: IEA 2003) by Robert
Miller and 2003 paper
by Andrew Odlyzko on The Many Paradoxes of Broadband.
Odlyzko's site features a copy of John Palmer's 1959 bibliographic
guide to the 19th century British railway press (PDF).
We have highlighted other work on the railway bubbles
in discussing railways
as a precursor of the internet.
Those of particular significance include Alfred Chandler's
Strategy & Structure: Chapters in the History of
the Industrial Enterprise (Cambridge: MIT Press 1962),
Railroads, the Nation's First Big Business (New
York: Columbia Uni Press 1965) and Henry Varnum Poor
- Business Editor, Analyst & Reformer (Cambridge:
Harvard Uni Press 1956), Timothy Alborn's Conceiving
Companies: Joint-Stock Politics in Victorian England
(London: Routledge 1998), Robert Fogel's Railroads
& American Economic Growth: Essays in Econometric
History (Baltimore: Johns Hopkins Uni Press 1964)
and Terence Gourvish's Railways & the British
Economy 1830-1914 (London: Macmillan 1980).
For excitement in 1907 see The Panic of 1907
(New York: Wiley 2007) by Robert Bruner & Sean Carr
next page
(jazz & plastic)
|
|
