The End of The Mania
As with other bubbles, the Railway Mania became a self-promoting cycle based purely on over-optimistic speculation. As the dozens of companies formed began to operate and the simple unviability of many of them became clear, investors began to realise that railways were not all as lucrative and as easy to build as they had been led to believe. Coupled to this, in late 1845 the Bank of England put up interest rates. As banks began to re-invest in bonds, the money began to flow out of railways, under-cutting the boom. The share prices of railways slowed in their rise, then levelled out. As they began to fall, investment stopped virtually overnight, leaving numerous companies without funding and numerous investors with no prospect of any return on their investment. The larger railway companies such as the Great Western Railway and the nascent Midland began to buy up strategic failed lines to expand their network. These lines could be purchased at a fraction of their real value as given a choice between a below-value offer for their shares or the total loss of their investment, shareholders naturally chose the former.
Many middle class families on modest (but comfortable) incomes had sunk their entire savings into new companies during the Mania, and lost everything when the speculation collapsed.
The boom-and-bust cycle of early-industrial Britain was still in effect, and the boom that had created the conditions for Railway Mania began to cool and then a decline set in. The number of new railway companies fell away to almost nothing in the late 1840s and early 1850s, with the only new lines constructed being by the large companies. Economic upturns in the 1850s and 1860s saw smaller booms in railway construction, but these never reached anywhere near the scale of the Mania – partly due to more thoughtful (if still very limited) government control, partly due to more cautious investors and partly because the UK railway network was approaching maturity, with none of the 'blank canvas' available to numerous companies as in the 1840s.
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