Railroads were one of the first disruptive innovations: they changed England from an island of moderate, agrarian towns into a quick, urban, industrialized country. Railroads increased productivity, diminished production costs and encouraged working class customers to purchase factory produced merchandise. Due to their job as the driving innovation of the industrial revolution, the nineteenth century got known as the “railway age.”
Railroad trains and their related infra were created during the span of quite a few decades starting in the late eighteenth century, but they entered a time of serious development around 1830. In that year England had 98 miles of railroad track; by 1840 there were around 1,500 miles of track, and by 1849 England had a system of 6,000 miles connecting the entirety of its significant urban communities.
The structure of a railroad required intense capital, and, persuaded of the extraordinary capability of the innovation, speculators surged in. By 1850, around 36 percent of the nation’s yearly GDP had been poured into railroad improvement.
The railroad age was dominated by business visionaries, who drove the confounded cycle of financing, building, and operating many miles of railroad lines. Among the most acclaimed of these industrialists was George Hudson. The child of a Yorkshire farmer, Hudson rose to become one of the best businessmen in Victorian England. At the pinnacle of his success, he controlled 33% of the railroad lines in the nation, he was a powerful Member of Parliament.
However, railroad shares experienced extraordinary instability, set apart by a mania during the 1840s. Share prices peaked in 1845, and afterward the market crashed. By 1850 railroad shares were worth not even 50% of their earlier worth, and profit percentages had tumbled from as much as seven percent to two percent.
When the mania came to an end, it was revealed that Hudson had engaged in a massive fraud. Generally, Hudson worked his railroads through a Ponzi plot, in which outsized dividends were circulated to old investors from the capital contributed by new investors. Hudson left his directorships, lost his seat in Parliament, and spent the rest of his days living in obscurity.
However, unlike the typical bubble which usually sees the entire value being wiped off when it bursts, the British railway sector underwent massive reform and redevelopment and eventually went on to become one of the best in the world.
Image credits: The Bubble Bubble
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