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Railway Mania was a stock market bubble in the rail transportation industry of the United Kingdom of Great Britain and Ireland in the 1840s. It followed a common pattern: as the price of railway shares increased, speculators invested more money, which further increased the price of railway shares, until the share price collapsed. The mania reached its zenith in 1846, when 263 Acts of Parliament for setting up new railway companies were passed, with the proposed routes totalling . About a third of the railways authorised were never built—the companies either collapsed because of poor financial planning, were bought out by larger competitors before they could build their line, or turned out to be fraudulent enterprises to channel investors' money into other businesses.
By the mid-1840s, the economy was improving and the manufacturing industries were once again growing. The Bank of England cut interest rates, making government bonds less attractive investments, and existing railway companies' shares began to boom as they moved ever-increasing amounts of cargo and people, making people willing to invest in new railways.
Crucially, there were more investors in British business. The Industrial Revolution was creating a new, increasingly affluent middle class. While earlier business ventures had relied on a small number of , businessmen and wealthy aristocrats for investment, a prospective railway company also had a large, literate section of population with savings to invest. In 1825 the government had repealed the Bubble Act, brought in during the near-disastrous South Sea Bubble of 1720, which had put close limits on the formation of new business ventures and, importantly, had limited joint stock companies to a maximum of five separate investors. With these limits removed, anyone could invest money (and hopefully earn a return) on a new company, and railways were heavily promoted as a foolproof venture. New media such as and the emergence of the modern international financial and trade markets made it easy for companies to promote themselves and provide the means for the general public to invest. Shares could be purchased for a 10% deposit, with the railway company holding the right to call in the remainder at any time. The railways were so heavily promoted as a foolproof venture that thousands of investors on modest incomes bought large numbers of shares, whilst only being able to afford the deposit. Many families invested their entire savings in prospective railway companies—and many of those lost everything when the bubble collapsed and the companies called in the remainder of their due payments.
The British government promoted an almost totally 'laissez-faire' system of non-regulation in the railways. Companies had to submit a bill to Parliament to gain the right to acquire land for the line, which required the route of the proposed railway to be approved, but there were no limits on the number of companies and no real checks on the financial viability of a line. Anyone could form a company, gain investment and submit a bill to Parliament. Since many Members of Parliament (MPs) were heavy investors in such schemes, it was rare for a bill to not pass during the peak of the mania in 1846, although Parliament did reject schemes that were blatantly misleading or impossible to construct.
Magnates like George Hudson developed routes in the North and Midlands by amalgamating small railway companies and rationalising routes. He was also an MP, but ultimately failed because of his fraudulent practices of, for example, paying from capital.
The share prices of railways slowed in their rise, then leveled 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 Railway 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 incomes had sunk their entire savings into new companies during the mania, and they 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 because of more thoughtful (if still very limited) government control, partly because of 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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