Britain's Railway system.
And how did it get to become the first and best?
Did great minds come together in parliament and make it so?
Did the Queen foresee a future where trains would carry not just iron, but people?
Did someone realize the preference for people to segregate into groups of their own status and commute to their jobs instead of living close to their jobs?
Not at all.
It's foundation was foolishness, greed, & fraud, followed by opportunist and survivors.
After a false start in 1835, the English railway system began it's life in 1843, after England ended it's outrageous Opium War with China, causing the banks to raise their interest rates, which resulted in people putting their money in the banks rather than the economy.
Once they finally killed a great deal of Chinese and stole their ports, they signed a treaty and stopped the war, thus the interest rates lowered, and people sought somewhere else to put their money.
The word on the street was you couldn't go wrong investing in Railways.
At first, it was an incredibly successful investment. And you know what success breeds, right? That's right: A flock of sheep to be sheared.
For only 10% down, you could buy a share of stock (the remaining amount callable at anytime by company) In modern terms, this is called buying on margin.
Sadly, two things happened:
1) The burgeoning middle class would not just invest in railways, but they would buy more shares than they could have ever bought outright, since they paid only 10% of the cost. They were assured the stock value would continue to soar to infinity and thus the other 90% would never be an issue.
2) Making a profit on 'margin' is hard enough, but impossible when Scam artists proliferate the market, which was the case. Mostly, because the Parliament made it easy. While Parliament had to approve each request to build a railway, they did not bother to verify if the person requesting the permit had a viable business plan, sufficient capital, nor knowledge or experience necessary to build the requested railway.
The only time a project got rejected was when a) no parliament members where invested in it AND the project was clearly a scam since it was impossible to build a railway in the location they wanted.
With such a low bar to jump, in two years, over 8,000 miles of railway were authorized by the Parliament.
Chart Source: Andrew Odlyzko
Thus, a great deal of stocks were sold at 10% down and never a link of rail was laid for 20% of the companies. When they grew short of funds to pay dividends, they just called in some of the bonds and demanded payment in full.
It was the middle-class who bore most of the pain of these swindels. They would have no recourse, especially since one of the early 'investors' in the scam would probably be a parliament member who paid little to get in and made a fortune with the inflated stock prices.
Amazingly, 6,220 miles of railway were actually built, which means some companies were truly serious about creating a business and not just about scamming people or they were scamming people but built the railroads to provide credibility and increase the price of their stock.
Whichever the case, the rails were created.
In 1845 the banks once again raised their interest rate, and finally, in,1846, Reality burst the Railway bubble and stock prices plummeted overnight. The least savvy investors, the middle class, were also the least likely to get out before they lost everything. The companies would demand the remaining payments at once, and many a middle-class man went destitute in paying it. What had just been a small amount compared to the price value of his stock, was now an astronomical debt and a complete loss of savings.
Chart Source: Andrew Odlyzko
For the railways, the result was a massive consolidation in which the larger, stronger, real companies would offer to buy investors shares for pennies on the dollar. But pennies were better than nothing at all, so they sold, and these surviving companies acquired railways for far less than it would cost them to build their own. However, they did have to mesh all these railways together and that meant Parliament approved a great many new track requests in the years following the fallout to the surviving railway companies.
The consolidations continued until there were only four strong companies.
So who actually built England's fabulous railway system?
The British People who were conned into believing railways were a risk free investment and invested.
The incompetent Parliament who made no effort to protect the investors from scams and fraud and approved almost anything that was requested.
Or the savvy Railway operators who had sufficient funds on hand or loyal wealthy investors who provided the cash flow to buy out the majority of competitors who did not have the means to survive the bubble burst.
I believe the answer is a little of all three. Had the Parliament been more diligent in their approvals, the industry might have grown slower, with fewer peopled fleeced of their savings, but I believe the bubble would have formed in either case. It is very hard not to invest in something with such potential, that continues to soar in market value.
Once you have success in creating easy wealth, you don't want it to end. Instead of selling out and saying "I am lucky to have earned far more than I thought possible", you are more likely to say, "if I buy more stock, I can earn enough to own a house in a better section of town".
And you think of those who got in before you and had now accumulated such wealth. You wish to follow their footsteps. So you do...right off the cliff.
So in my opinion, the British Railways was built, despite Parliament incompetency on the backs of naive investors of the middle and upper classes. I expect most savvy investors got out in 1845 when the banks raised the interest rates. If you look at the price chart, there's a small dip in the price then, which means for a brief moment, there were more sellers than buyers. But soon after, anxious buyers desperate to get into the game sent the price rocketing.
I would be very surprised if ANY parliment members still owned stock at this time. If they did, they were incredibly stupid, because they had to know the shaky grounds of these companies.
And thus concludes my discourse of how the British railway came to be.
Finally, the poor could move to lower cost areas and commute to work by trains in the 3rd class coach for only a penny.
This is the only image I could find for 3rd class. It appears the railway companies didn't wish to take pictures of their lesser sections.
The rich could move to wealthy areas with better lighting and policing, where the people they met on the street were their own kind, while traveling locally via horse carriage, electric carriage, or the automobile. And when traveling afar they could enjoy their elegant first class sleeping car and meet others of their class in the parlor car and have finely cooked meals in the dining car.
Liza O'Connor is the author the oft humorous, romantic, delightful, Late Victorian sleuth series, The Adventures of Xavier & Vic.
Xavier is the finest sleuth in all of England and
Vic is a young woman who dresses as a man so she can do interesting things, like assist Xavier in solving crimes.
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