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Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber
active measures, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Black Swan, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, joint-stock company, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War
Contrariwise, the crisis of 1809–10 had ‘two separate causes: a reaction from the speculation in South America; and a loosening and then tightening of the continental blockade’.79 There was a postwar boom in exports to Europe and the United States in 1815–16 that was larger then the amount that could be sold, plus a fall in the price of wheat. Canals and South American government bonds and mines combined in 1825; British exports, cotton, land sales in the United States, and the beginning of the railroad mania contributed to the crisis in the mid-1830s. The crisis of 1847 was caused by the railway mania, the potato blight, a wheat crop failure one year and a bumper crop the next, followed by revolution in Europe. Thus at least two objects of speculation were involved in most of the significant crises. Just as the national markets were connected, so the speculation was connected by the underlying credit conditions. But when a crisis like that of 1847 arises from objects as disparate as railroads and wheat, there is some basis for suggesting that the crisis is accidental in origin unless the monetary weakness that feeds it is systematic.
In addition to stealing, misrepresentation, and lying, other dubious practices include diversion of funds from the stated use to another, paying dividends out of capital or with borrowed funds, dealing in company stock on inside knowledge, selling securities without full disclosure of new knowledge, using company funds for non-competitive purchases from or loans to insider interests, taking orders but not executing them, and altering the company’s books. George Hudson, who may have been the greatest figure in British railroad history, practiced nearly all of these at the same time in the 1846 railway mania. At one time he was chairman of four railways, and he mistakenly believed he was above the law that applied to his less powerful competitors. His accounts were muddled, and he may not have understood that he had appropriated shares or funds belonging to the York and North Midland railway. As a private individual he made contracts with various companies of which he was an officer, in direct violation of the Companies Clauses Consolidation Act.
The Bank resolved to lend only in the old way ‘on notes of respectable parties’ but a few years later the Bank began a regular mortgage business on the ground that the volume of discounts and especially the income from discounts had collapsed – a private rather than a public purpose.53 At one stage the Bank made loans on the security of a mortgage on a plantation in the West Indies (ultimately the Bank foreclosed on this loan54) and on unimproved land in England. The land was unencumbered by a mortgage but belonged to a duke, an indication that collateral and the character (or status) of the borrower were not unrelated. Loans were not made on land in Scotland and in Ireland.55 With the growth of railroads, the discounts of the Bank of England were made on the collateral of railroad debentures. In 1842, as the second railway mania got underway, the Bank voted to make occasional loans to firms in difficulty and to well-tried firms for development.56 The Bank of France began lending to a railroad syndicate in 1852; in fact, it was accused of supporting, if not starting, the feverish speculation in railroads.57 Bagehot thought the Bank of England mistaken for not lending on railroad debentures when it did so on Consols and Indian securities; Bagehot stated that a railway was less liable to unforeseen accidents than the Empire of India.58 But Indian securities were guaranteed by the Colonial Office and in effect were British government obligations.
Blood, Iron, and Gold: How the Railways Transformed the World by Christian Wolmar
banking crisis, Beeching cuts, British Empire, Cape to Cairo, invention of the wheel, James Watt: steam engine, joint-stock company, Khartoum Gordon, Kickstarter, Mahatma Gandhi, railway mania, refrigerator car, side project, South China Sea, transcontinental railway, tulip mania, urban sprawl
Britain’s more advanced industrialized position allowed it to keep ahead of its European counterparts and as a result it was the first nation to exploit fully the boundless potential of this new technology. It would retain that lead for some time, experiencing a series of railway manias, most notably in the early 1840s, the opening years of Queen Victoria’s reign, that would result in the construction of over 7,000 miles of railway within two decades of the opening of the Liverpool & Manchester. While other countries would also undergo such periods of railway mania, the British version was the first and one of the most fruitful. 11 Britain was, too, the first country to experience a railway scandal. George Hudson, who melded together a vast railway empire controlled by the Midland Railway, for a time Britain’s largest railway company, was exposed as a fraudster who cheated investors out of their money.
Most losses occurred when promoters, either fraudulent, stupid or simply over-optimistic, obtained huge sums of money for lines that were never completed so that investors lost all their cash. Investors were most vulnerable during the railway manias which raged through different countries at various times and were swept up in the rush simply because everyone else seemed to think it was a good idea. Railway bubbles simply fit into the history of similar scandals from the Dutch tulip mania of 1637 to the recent banking crisis. There’s no shortage of elegantly embellished but completely valueless railway company share certificates still adorning living-room walls, dating from the various railway manias of the nineteenth century. However, it was when governments became involved that unbelievably huge sums could be purloined by corrupt promoters and the world centre for such activity was the United States, where several later scams dwarfed even the dodgy dealings outlined in Chapter 6 during the construction of the first transcontinental.
Over the next three years, work on the railway, which involved a 500-metre tunnel and two bridges over the River Elbe, was completed in stages. At the grand opening on 7 April 1839, the first train consisted of fifteen coaches, in three different classes, hauled by two locomotives, one of which was named Robert Stephenson, and driven by another Englishman, a Lieutenant Peters. By the time of the full opening of the line, railways across Germany were expanding as a railway mania was taking hold. The German plains were filling up with lines as speculators began to realize that there was enormous potential for making money out of the railways, and the state governments were becoming aware of the powerful economic impact of the iron road. Prussia even passed a railway law regulating the industry before any lines were built in anticipation of this bonanza. In Bavaria, the king had granted a concession in 1836 to the München-Augsburger Eisenbahn Gesellschaft to build a forty-mile line between Munich and Augsburg, but the start of construction, as with so many early railway schemes, was delayed for two years because of difficulties in raising finance.
The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein
asset allocation, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, stocks for the long run, stocks for the long term, survivorship bias, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game
No less than Prime Minister Robert Peel warned, “Direct interference on our part with the mania of railway speculation seems impracticable. The only question is whether public attention might not be called to the impending danger, through the public press.” In short, Britain’s most brilliant prime minister did everything but shout “irrational exuberance!” at the top of his lungs in Parliament. The United States underwent its own railway mania in the post-Civil War period. But even taking into account the clocklike regularity of railroad bankruptcy and the Credit Mobilier scandal (in which this construction arm of Union Pacific plundered the parent company, not unlike the recent Enron scandal), things were a bit tamer here than in England. This was because U.S. companies were mainly financed with bonds, which are not as prone to bubbles as equity.
On the other hand, the Federal Reserve’s mishandling of the liquidity crunch brought on by the 1929 crash magnified its effects, resulting in the Great Depression, which scarred the national psyche for decades. The collapse of railroad shares in 1845 was equally catastrophic; a worldwide depression nearly swept away the Bank of England. Only hard money retained its value. The most long-lasting effect of the railway mania is that Britain, to this day, is cursed with a disorganized bramble of a rail network. Even casual visitors cannot help but notice the contrast with France’s more efficient layout, which was first surveyed by military engineers and then let out for private construction bids. Minsky’s criteria for bubbles work just as well in reverse with busts. A generalized loss in the faith of the new technologies to cure the system’s ills is usually the triggering factor.
The Bubble Act, which had actually precipitated the collapse, required a parliamentary charter for all new companies. Aside from wasting Parliament’s time and energy, the Bubble Act mainly served to hinder the formation of new enterprises. Parliament almost outlawed stockbrokering and made illegal short sales, futures, and options. These devices serve to make the capital markets more liquid and efficient, and their absence undoubtedly served to make subsequent crises more difficult to manage. The railway mania itself is a case in point; had investors been able to sell short railway shares, the bubble and subsequent collapse would likely have been much less violent. A similar reaction occurred in the United States in the wake of the 1929 crash that should give pause to many involved in the most recent speculative excess. At the center of this titanic story was a brilliant attorney of Sicilian origin, Ferdinand Pecora.
The Great Railroad Revolution by Christian Wolmar
1919 Motor Transport Corps convoy, accounting loophole / creative accounting, banking crisis, Bay Area Rapid Transit, big-box store, Charles Lindbergh, collective bargaining, cross-subsidies, intermodal, James Watt: steam engine, Kickstarter, Ponzi scheme, quantitative easing, railway mania, Ralph Waldo Emerson, refrigerator car, Silicon Valley, strikebreaker, too big to fail, trade route, transcontinental railway, traveling salesman, union organizing, urban sprawl
See also Carriages Pullman News, 185–186 Pullman strike, 186, 235–238, 262 Rail network, US (2010), xvi–xvii (map) Rail World, 354 Railroad Bureau, 100, 103 Railroad Safety Appliance Act, 199–200 Railroad Temperance Society, 206 “Railroad wars,” xxii, 94, 107, 173–174 Railroads 1850, xv (map) 1880, x–xi (map) 1916, xii–xiii (map) Rails iron-covered, 3, 45–46 L-shaped, 3–4 steel, 196 toothed, 15 T-shaped, 45–46 Railway barons, 238–252, 255–256, 290, 298, 355 Railway charters, 11, 12, 17, 19–20, 23, 26, 29, 48 Railway companies and antitrust legislation, 274, 290–291 consolidation, 68, 123–124, 165, 167, 200–201, 238, 248, 256, 259–262, 293–299, 347, 358 labor relations, 231–238 (see also Labor unions) management structures, 229–232 monopoly powers, 30, 65, 205, 216, 238, 255, 259, 271, 273, 294, 316 public hostility, 119, 204–206, 216, 238–239, 243, 245, 250–257, 271, 290, 295, 355–356 and regulation, 256–257, 272–274 Railway company agents, 169, 172 Railway construction, 25–50 costs, 46–48 labor, 38–40 promotion, 33–36, 37, 38 See also Transcontinental railroads Railway manias, 23, 85, 124, 163 Railway travel collective travel, 222–223 connections, 84 experiences, 73–85, 161–162, 167–168, 208–213 luxury and prestige services, 181–190, 263–268, 300–303, 308, 309–315, 324, 325, 327–328, 329 (see also Passenger services) nighttime, 81, 83 and segregation, 208, 212–213 Sunday travel, 83 Railways achievements and impact, 216–230 British investment, 124 deregulation, 347–350 early opposition, 27, 63, 86–87, 92 government support, 28–34, 51, 52, 85, 129, 153, 166, 173, 233, 341–345, 356 and immigration, 169–173 interwar boom, 307–308 nationalization, 291–292 postwar expansion, 121–124, 159–165 regulation, 192–193, 256–257, 295–296, 297–298, 311, 347 route mileages, 68, 72, 85, 90, 123–124, 159, 174–175, 215, 259, 261, 288–289, 306, 307, 308, 318–319, 349–350 vertical integration, 48 Western expansion, 168–180 Rainhill Trials, 16, 17 Ramsey, Joseph, 247 Raquette Lake Railroad, 224 Raton Pass, 173 Rea, Samuel, 290 Redfield, William, 53, 125 Refrigerated wagons, 179, 255, 333 Reno brothers’ gang, 202, 203 Rensselaer & Saratoga Railroad, 23 Reutter, Mark, 62 Richmond, Fredericksburg & Potomac Railroad, 106 Richmond & Petersburg Railroad, 103 Rifkind, Simon, 325 Ripley, William Z., 296 River transportation, 6 Roads, 10–14 “corduroy roads,” 10 and government funding, 12, 332, 343, 356 interstate highways, 304–306, 308, 321, 332 plank roads, 69, 70 safety, 318 “shunpikes,” 12 turnpikes, 8, 11–13, 26–28, 29, 31, 48, 217, 303–304 Robber gangs, 202–206 Robinson, John and Lester, 132 Rockefeller, John D., 225 Rocket, 16 Roosevelt, Franklin D., 308, 322 Roosevelt, Theodore, 272 Rosecrans, William, 113 Roulette, 4 Royal Blue, 264–265 Royal Gorge, 173–174 “Runners,” 84 Russia, 171–172, 294, 357 Russian Revolution, 294 Ruth, Babe, 227 Sacramento Valley Railroad, 128, 129, 132 Safety, 48, 80, 190–200, 251, 256, 318, 323, 351, 354 Saint, Eva Marie, 266 Salamanca, 15 San Francisco Examiner, 237 Sand Creek massacre, 148 Sandboxes, 45 Santa Fe Railroad.
Ultimately, the Baltimore & Ohio became more important because the railroads in the North developed in a far more sophisticated way than their southern counterparts. In particular, they were prepared to go over state boundaries to provide long-distance services, unlike in the South, where the railroads largely stayed within individual state borders. These two railroads were part of a wider spurt of railroad activity, a mini version of the “railroad manias” that characterized future developments not just in the United States but across the world. In addition to the two longer coal railroads in Pennsylvania, New York State’s first railroad, the Mohawk & Hudson, which provided a shortcut to a circuitous section of the Erie Canal, had been chartered in 1826. However, financial and political difficulties meant that work did not start until the summer of 1830, and a 16-mile route between Albany and Schenectady opened a year later.
It was speed that stimulated the boom that saw the mileage of railroads, which in 1840 was around the same as that of the canals, increase almost exponentially, whereas canal building all but stopped. In the 1840s only 375 miles of new canal were added to the network, and closures of the economically weak waterways had already begun. Railroads like the Hudson River Railroad, and indeed the Erie, were being laid parallel to existing canals or river routes, and consequently even the steamboats were beginning to feel the pinch. The decade of the 1850s was a period of railroad mania. Whereas New England had benefited from most of the growth in the 1840s, the focus now shifted to the plains of what is now known as the Midwest but was then called the Northwest. The huge size of the territory meant that in the 1850s, Illinois and Ohio vied for the prize of building the most miles of railroad, a contest that the Land of Lincoln shaded with more than 2,600 miles of track—just 300 more than Ohio.
The World's First Railway System: Enterprise, Competition, and Regulation on the Railway Network in Victorian Britain by Mark Casson
banking crisis, barriers to entry, Beeching cuts, British Empire, business cycle, combinatorial explosion, Corn Laws, corporate social responsibility, David Ricardo: comparative advantage, intermodal, iterative process, joint-stock company, joint-stock limited liability company, Kickstarter, knowledge economy, linear programming, Network effects, New Urbanism, performance metric, railway mania, rent-seeking, strikebreaker, the market place, transaction costs
The Committee saw the selection problem as a technical issue, to be decided by applying rational principles to documentary evidence, while MPs believed the issue should be resolved by persuasion, involving public debate conducted through hired legal advocates. After the collapse of the Railway Mania in 1846, commentators highlighted the capital losses sustained by shareholders, and the enormous expenditure on legal fees. They denounced Mania schemes as dishonest, whereas, in fact, most of the schemes were honest attempts to meet the commonly agreed requirements of the regions they planned to serve. The term Mania created a misleading impression, suggesting that the schemes were foolish and that investors were stupid. This study suggests that the failings of the Railway Mania were political and cultural rather than purely psychological. It was bad decision-making, rather than Wnancial speculation, that was the most serious problem. The Railway Mania represented a turning point in the history of the UK railway system.
Railway projects ‘took off ’ in the 1830s, with a peak in the 1860s. The first Railway Mania year occurred in the period 1844–46. The railways promoted during this period were authorized with a one-year lag in the period 1845–47. There were 119 railway Acts in 1845, 263 in 1846, and 187 in 1847. Many small investors lost their life savings in the speculation that surrounded the Mania. It was a long time before the public regained its confidence in railway investment, but when it did, a second—less virulent—Mania developed. It began in 1861, when 160 railway schemes were authorized. The number rose to 251 in 1865, falling slightly to 199 in 1866. The Mania ended with the collapse of Overend Gurney bankers in 1866—an apparently respectable firm that had been heavily involved in railway finance. During the Second Railway Mania, many of the schemes that had failed in the first Mania were re-launched under new names and new management.
To allow for the counterfactual network to include a Severn Tunnel would, however, be incompatible with the premises on which the counterfactual has been constructed. The counterfactual represents an integrated system which could, in principle, have been designed at the time of the Railway Mania. Furthermore, because it is smaller than the actual network, it could have been completed more quickly and would therefore have enjoyed a longer economic life. The cost of this approach, however, is that the whole network has to use technology that was available at the time of the Railway Mania, or shortly afterwards, and this does not include tunnelling under a major river. The penalty to network performance incurred by the omission of the Severn Tunnel is much lower than might be expected, however, for a number of reasons. To begin with, the operational beneWts turned out to be rather modest.
Fire and Steam: A New History of the Railways in Britain by Christian Wolmar
accounting loophole / creative accounting, Beeching cuts, carbon footprint, collective bargaining, computer age, Corn Laws, creative destruction, cross-subsidies, financial independence, hiring and firing, James Watt: steam engine, joint-stock company, low cost airline, railway mania, rising living standards, Silicon Valley, South Sea Bubble, strikebreaker, union organizing, upwardly mobile, working poor, yield management
The expression ‘calm before the storm’ does not do justice to the events of the middle of the decade when Parliament was inundated with bills and the whole economy of the country was, it seemed, geared towards constructing more and more railways. While there were previous and subsequent periods of booms in railway promotion, the years 1845–7 are rightly known as the period of the ‘railway mania’ because of their widespread impact and lasting effect. FIVE RAILWAYS EVERYWHERE Like all booms, the railway mania started imperceptibly. By the mid-1840s, investing in the railways had become an attractive proposition once again and schemes for new lines began to be drawn up in every region of the country. The financial climate had changed and there was optimism in the air with an upturn in the economic cycle. Interest rates had plummeted, encouraging people to look for a better rate of return on their savings than from government securities, and by the spring of 1844 there was more money available for railway investment than ever before.1 Moreover, the value of existing railway shares had begun to grow and naturally this encouraged promoters to bring forward new schemes which would appeal to the large pool of potential investors eager to make capital gains.
Manchester and its Lancashire hinterland was the centre of the cotton trade while Liverpool had been built up on a rather more sinister industry – slavery – and despite the decline of that trade remained Britain’s second most important port, thanks to the burgeoning imports of cotton from the USA. The Liverpool & Manchester represented the start of the railway age – just as it marked a significant advance in the technology – and was far grander in scale and conception than any of its predecessors. While work had progressed on the Stockton & Darlington, there had been something of a mini railway mania, the first of several over the next few decades, as various enterprising promoters put forward ideas for schemes to criss-cross Britain. Lines worth a total of £22m (about £1.32bn today),1 an unprecedented amount of capital at the time, including an ambitious scheme for a London–Edinburgh railway, were put forward in 1824–5, though most never got further than a prospectus and a vague scrawl on a map.
The railways had begun their long spread across Britain, but it was to be a stuttering process, with times of rapid expansion alternating with periods of little or no construction. FOUR CHANGING BRITAIN By 1843, just thirteen years after the opening of the Liverpool & Manchester, Britain had the makings of a railway network. The year was a notable one because it marked the end of the first phase of construction and the start of a brief hiatus before the railway mania of the second half of the decade began. There was, too, a lull in activity by the promoters. Once again, times were bad, both economically and politically, following a severe depression in trade caused by a series of failed harvests and the terrible Irish potato famine. There were also genuine doubts about whether Britain needed any more railways. A long article in the literary magazine the Athenaeum in May 1843 argued that several million pounds had been wasted in building parallel railways, such as the Midland Counties and the Birmingham & Derby, which both ran north out of Birmingham.
The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer
"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, forward guidance, Francis Fukuyama: the end of history, George Akerlof, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve
Charting the “Rise of the West”: Manuscripts and printed books in Europe; A long-term perspective from the sixth through eighteenth centuries. The Journal of Economic History, 69(2), 409–445. 3 George Hudson and the 1840s railway mania. (2012). Yale School of Management Case Studies [online]. Available at https://som.yale.edu/our-approach/teaching-method/case-research-and-development/cases-directory/george-hudson-and-1840s 4 Brookes, M., and Wahhaj, Z. (2000). Is the internet better than electricity? Goldman Sachs Global Economics Paper No. 49. 5 For discussion, see, see Odlyzko, A. (2010). Collective hallucinations and inefficient markets: The British railway mania of the 1840s. SSRN [online]. Available at https://ssrn.com/abstract=1537338 6 https://www.fhs.swiss/eng/statistics.html 7 McNary, D. (2019, Jan. 2). 2018 worldwide box office hits record as Disney dominates.
., Armstrong, W. J., and Devoldere, B. (2018). Two centuries of innovations and stock market bubbles. Marketing Science Journal, 37(4), 507–684. 13 See Frehen, R. G. P., Goetzmann, W. N., and Rouwenhorst, K. G. (2013). New evidence on the first financial bubble. Journal of Financial Economics, 108(3), 585–607. 14 Odlyzko, A. (2010). Collective hallucinations and inefficient markets: The British railway mania of the 1840s. SSRN [online]. Available at https://ssrn.com/abstract=1537338 15 Evans, How (not) to invest like Sir Isaac Newton. 16 Lucibello, A. (2014). Panic of 1873. In D. Leab (Ed.), Encyclopedia of American recessions and depressions (pp. 227–276). Santa Barbara, CA: ABC-CLIO. 17 Browne, E. (2001). Does Japan offer any lessons for the United States? New England Economic Review, 3, 3–18. 18 Stephen King of HSBC wrote a report ‘Bubble Trouble’ in which he identified significant risks of overvaluations and potential economic consequences before the technology bubble burst in 2000. 19 See Masson, P. (2001).
Journal of Financial Economics, 108(3), 585–607. Fukuyama, F. (1989). The end of history? The National Interest, 16, 3–18. Gagnon, J., Raskin, M., Remache, J., and Sack, B. (2011). The financial market effects of the Federal Reserve's large-scale asset purchases. International Journal of Central Banking, 7(1), 3–43. Galbraith, J. K. (1955). The great crash, 1929. Boston: Houghton Mifflin Harcourt. George Hudson and the 1840s railway mania. (2012). Yale School of Management Case Studies [online]. Available at https://som.yale.edu/our-approach/teaching-method/case-research-and-development/cases-directory/george-hudson-and-1840s Gilchrist, S., and Zakrajsek, E. (2013). The impact of the Federal Reserve's large-scale asset purchase programs on corporate credit risk. NBER Working Paper No. 19337 [online]. Available at https://www.nber.org/papers/w19337 Goobey, G.
Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez
agricultural Revolution, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, business cycle, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, knowledge economy, late capitalism, market fundamentalism, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Robert Shiller, Sand Hill Road, Silicon Valley, Simon Kuznets, South Sea Bubble, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, Washington Consensus
A decade after the first industrial revolution opened the world of mechanization in England and led to the rapid extension of the network of roads, bridges, ports and canals to support a growing flow of trade, there was canal mania and, later, canal panic. About 15 years after the Liverpool– 3 4 Technological Revolutions and Financial Capital Manchester rail line inaugurated the Age of Steam and Railroads, there was an amazing investment boom in the stock of companies constructing railways, a veritable ‘railway mania’ which ended in panic and collapse in 1847. After Andrew Carnegie’s Bessemer steel mill in 1875 gave the big-bang for the Age of Steel and heavy engineering, a huge transformation began to change the economy of the whole world, with transcontinental trade and travel, by rail and steamship, accompanied by international telegraph and electricity. The growth of the stock markets in the 1880s and 1890s was now, not only in railways but also in industry, not mainly national but more and more truly international.
This is a phase of fierce ‘free’ competition, perhaps the closest to what the textbooks say, though gradually leading in the end, and depending on the general degree of concentration of the epoch, to oligopolies or cartels by industry.63 Individualism flourishes both in business and in political thinking, sometimes confronted by anti-technology or anti-system ideas or groups. But the turbulent nature of this period emerges from its fundamental tensions. The wealth that has grown and concentrated in relatively few hands is greater than can be absorbed by real investment. Much of this excess money is poured into furthering the technological revolution, especially its infrastructure (canal mania, railway mania, Internet mania), often leading to overinvestment that might not fulfill expectations. So at this time there tends to be a sort of gambling economy with asset inflation in the stock market,64 looking like a miraculous multiplication of wealth. Confidence in the brilliance of financial geniuses grows and attempts at regulation are seen as hindering the way to a successful society.65 This new capacity of money to make money attracts more 62. 63. 64. 65.
big-bang 1971 1875 Age of Steel, Electricity and Heavy Engineering USA and Germany overtaking Britain 3rd to continent and USA) 1829 1771 IRRUPTION INSTALLATION Five successive surges, recurrent parallel periods and major financial crises Age of Steam and Railways 2nd Britain (spreading 1st GREAT SURGE Figure 7.2 78 Technological Revolutions and Financial Capital Financial Capital and Production Capital 79 The figure shows the truly major collapses located about two or three decades after the big-bang of each revolution. Apart from the relatively regular timing, it is interesting to note that these particular bubbles have tended to bear the name of the infrastructure of the corresponding revolution: canal mania, railway mania and now the Internet bubble, so that in these cases the ‘main objects of speculation,’ as defined in the Kindleberger model,93 happen to be of a technological nature. Other regularities are worth noting: ● ● ● collapses are less likely during Irruption and Synergy,94 though frequent at the passage from the installation to the deployment period and vice versa; there is a bunching of crises in the turbulent economy of the frenzy phase and in the decelerating economy of the maturity phase; and the passage from the early to the late phase of each period is sometimes marked by a financial crisis.
St Pancras Station by Simon Bradley
All looked rosy for the Midland at this point, for its system included part of the only railway route to York and the north, by means of a junction at Rugby with the London and Birmingham’s line to Euston. However, the end of this monopoly was soon in sight: in 1846 the Great Northern Railway was enacted, on a more direct course between York and its new terminus at King’s Cross. The newcomer was one of the more successful promotions of the ‘Railway Mania’ of 1844–7, a classic bubble in which railway shares took on the false lustre of licences to print money and hosts of extravagant and contradictory schemes contended for the capital of the propertied classes. Hudson managed one strategic master-stroke during this heady time by absorbing the new railway from Birmingham to Bristol into the Midland’s system. When the bubble burst, however, the company still had no line of its own to London, and a bad odour was emanating from its account books.
Williams’s company history of 1876 was pretty belligerent about all this: the London and North Western’s policy is summarised as being ‘by open attack and by secret treaties, to sap the resources of the Midland and to draw around it a cincture which should cripple it in every limb’. The mixed metaphors from war, statecraft and biology are telling; the Midland is at once a living organism seeking natural growth and an innocent nation-state subjected to the sinister machinations of a rival power. Conflicts of this kind followed inevitably from the state’s refusal to do much more than impose a modest framework of regulation on the industry. The Railway Mania saw the consequences at their lunatic height: at one point 815 railway ventures were before Parliament, costed at a total of six times the national annual expenditure. It was quite different abroad, where the entire network was sometimes centrally [ 137 ] St Pancras.indb 137 13/9/07 12:12:15 planned from the beginning, as in Belgium. Likewise, the railway approaches to Paris were determined by the state on strategic grounds.
G. 17, 20, 50 jam, manufacture of 152–3 Jerrold, Blanchard 126–7 Jersey City station 79 Jones, Owen 106 K Keats, John 28 Kempthorne, Sampson 30–31 Kew Palace 26 King, Revd Samuel 30 King’s Cross Station 1, 14, 63–6, 68–9, 72, 78, 82–3, 85–6, 88–9, 92, 95, 98, 100, 136, 138, 157–8, 162, 164, 168, 171 Great Northern Hotel 63–6, 95–6, 131 Kipps 143–4 L Ladykillers, The 14 Lansley, Alastair 164 Las Vegas 109 Leeds 98, 125, 137 Leicester 14, 96, 135, 138, 153, 162 Lewis, Joseph 46 Limerick, Earl of 112 Liverpool 149 Cathedral 22 Lime Street Station 63, 74 Liverpool and Manchester Railway 132–4 London: 1860s improvements 8 Agar Town 8–9, 158 Albert Memorial 17, 41, 107 British Library 138, 163 [ 188 ] St Pancras.indb 188 13/9/07 12:12:20 Buckingham Palace Hotel 128 Camberwell 22, 37 Camden Town 83 Crystal Palace 61, 67, 70, 80, 83 Euston Road 1–2, 8, 12, 59, 63 Fleet river 7, 68 Foreign Office 45–7, 54, 86, 159 Grand Hotel, Trafalgar Square 128 Grosvenor Hotel 96, 108 Homerton 30 Hotel Cecil 128 Houses of Parliament 28 Kentish Town 68 Langham Hotel 108, 128 Olympic zone 173 Regent’s Canal 68 Ritz Hotel 128 Royal Courts of Justice 50 Savoy Hotel 108–9, 128 Somers Town 9 Victoria and Albert Museum 111 Westminster Abbey 20–21 Westminster Hall 89 Westminster Palace Hotel 108, 128 Whitechapel 126–7 see also St Pancras Station, St Pancras (churches and churchyards), other railway stations by name London and Birmingham Railway 60, 135 London and Continental Railways 96, 163 London and Greenwich Railway 68 London and North Western Railway 74, 135–7 London Bridge Station 68 London, Brighton and South Coast Railway 96 London, Chatham and Dover Railway 69, 97 London, Midland and Scottish Railway 61, 129, 146 M Manchester 56, 97, 120, 137, 161 Manchester Central Station/G-MEX 79 [ 189 ] St Pancras.indb 189 13/9/07 12:12:20 Manchester and Leeds Railway 143 Manhattan Loft Corporation 163, 168 Maré, Eric de 158 Margarot, Maurice 9 Marriott Hotels 163, 170 Marylebone Station 96, 139, 145 Melton Mowbray 150–51 Metropolitan Railway 2, 8, 69 Midland Grand Hotel see St Pancras Station Midland Railway 6, 22, 46, 54–5, 58, 61, 67, 69, 73, 81, 92, 96, 98, 100, 104, 112, 119–20, 128, 133–40, 151, 154, 161 London extension 6, 54, 69, 96–7, 134–8 milk, supply of 149–50 Modernism 34, 46, 84–5 Moffatt, William Bonythorn 31 Morris, William 53–4, 56–8 N Nairn, Ian 76, 102 Nash, Paul 129–30 New York, Grand Central Station 79, 81, 83, 145 Newcastle upon Tyne, Central Station 91–3 Newington church (Kent) 173 Newman, John Henry 172 O Ordish, Rowland Mason 67 Otis, Elisha 108 Oxford 23, 37, 41 P Paddington Station 1, 65–6, 88, 91, 96 Great Western Hotel 66, 128, 131 Palmerston, Lord 45 Paris 14, 26, 79, 138, 151, 162 Eiffel Tower 80 Galérie des Machines 79–80 Gare du Nord 83 Paxton, Joseph 61 Peabody, George 126 Pendleton, John 154 Pennsylvania Railroad 79 Pevsner, (Sir) Nikolaus 46, 86, 158 Poor Law rooms 30–31 [ 190 ] St Pancras.indb 190 13/9/07 12:12:20 Roberts, Henry 30 Rohe, Mies van der 84 Roman de la Rose 113 Royal Academy (London) 20 Royal Institute of British Architects 20, 129 Rugby 135–6 Ruskin, John 40, 46, 53, 54–6, 58, 84, 173 Seven Lamps of Architecture 40, 53, 56 pork pies, manufacture of 150–51 Portland, 5th Duke of 143 printing industry 148–9 Private Eye 11 Pugin, Augustus Welby Northmore 28, 32–6, 44, 53, 56, 83–4, 91 Contrasts 30–31 True Principles of Pointed or Christian Architecture, The 34 Pullman carriages 144 Punch 127 S Q Quarterly Review 57, 83, 87 Queen Anne style 51–2 R Rail Link Engineering 164 Railway Magazine 125 Railway Mania (1840s) 135, 137 Reading Gaol 31, 112 Red House 53–4 RHWL (architects) 168 Richard III (film) 14 Richard Griffiths Architects 170 Richards, J. M. 85 St Pancras (saint) 1, 4–5 St Pancras (churches and churchyard) 1, 5–6, 9, 14–15, 26–7, 69, 166, 173 St Pancras Station 1–4, 8–10, 14–16, 28, 38–9, 41–50, 58, 65, 82, 86–8, 92, 96–8, 132, 134, 138–40, 144, 155–72, 174 booking hall 42, 104, 160, 170 conversion, 2004–7 4, 10, 162–8 conversion proposals, 1960s–90s 160–63 goods depots and yards 136, 138, 150, 161–3, 171 [ 191 ] St Pancras.indb 191 13/9/07 12:12:21 Midland Grand Hotel 2–4, 10–14, 17, 22, 38–9, 42–50, 54, 59, 61, 77–8, 82–3, 95–6, 98–131, 142, 144, 157–64, 168–71; bathrooms, 118–9; Billiard Room, 114; closure (1935), 10, 127– 31; conversion, 2006 onwards, 4, 168–70; Coffee Room, 113–14; dining room, 114; entrance hall 106–7, 170; guests’ rooms 116–18; Hairdressing Room, 114; Ladies’ Coffee/Smoking Room, 114–15, 129; lavatories, 115; lifts, 108–9; Smoking Room, 114; service rooms, 122–3; staff dormitories, 124–5; staircase 42, 102, 109–14 restoration, 1990s 163 threatened redundancy, 1960s 157–60 train shed 59, 66–82, 98–9, 104, 106, 116, 127, 139, 157, 161, 164–8 Underground station 121, 162, 166–8 Sang, Frederick 116 Schopenhauer, Friedrich 40 Scott, (Sir) George Gilbert 4, 15–22, 27–31, 36–42, 44–50, 52, 54, 56–7, 67, 76–7, 80, 83, 86, 94, 98– 100, 104, 110–11, 120–21, 159–60, 170, 172 Personal and Professional Recollections 22, 29, 36–7, 41, 46, 77 Remarks on Secular and Domestic Architecture 38–9, 44, 83, 111 Scott, George Gilbert, junior 9, 22, 50 Scott, Sir Giles Gilbert 22 Scott, Sir Walter 28 Society for the Protection of Ancient Buildings 56 Shaw, Norman 50 sickle-truss roofs 73–6 Simmons, Jack 8 Skidmore, Messrs 111 Smith, P.
The Trains Now Departed: Sixteen Excursions Into the Lost Delights of Britain's Railways by Michael Williams
Otherwise little remains of what was once an important terminus with three platforms and all the paraphernalia of a commodious country junction – waiting rooms, ticket and parcels office and signal box. So no dream this – the name lives on today in maps and bus timetables, even though the last train departed nearly half a century ago. A clue as to how this surreal rural outpost of the world’s first urban railway could ever have come into existence lies in the blind and almost suicidal panic with which new railways were promoted in the railway mania of the middle of the nineteenth century. Like every economic bubble since, investors scrambled to put their money into rival schemes vying often to connect the same places no matter how economically or socially viable they might be. It was a boom in which the reputations and fortunes of promoters were either transformed beyond dreams or cruelly shattered. With the economy booming and interest rates low, the new-fangled railways seemed to many like an ideal way to get rich quick.
Journeying by train from Leeds City station today, it is hard to imagine anyone battling to lay claim to this drab railway hinterland through post-industrial West Yorkshire, yet so vicious was the rivalry between the North Midland Railway and the Great Northern Railway to get their trains to the promised land of Leeds in the 1840s that it led to the notorious Methley Junction Incident – one of the nastiest episodes in the railway mania that gripped Britain at the time. When the GNR refused to yield to the Midland’s demand not to build its own line to Leeds, the Midland threatened unsuccessfully to stop its trains and levy a toll on every passenger. On the eve of the opening GNR officials, suspicious that the Midland might be up to something dastardly, sent a light engine along the track and found the points had been removed at Methley, a junction just outside the city.
Even those that have been saved for other purposes, such as Manchester Central, now preserved as an exhibition hall, have in a real sense ceased to be. Minus the ebb and flow of passengers, the arrival and departure of trains, they are little more than mausolea. The fire and steam that forged them has been doused, leaving them as dead things, devoid of spirit. In mitigation it may be argued that some were victims of a necessary rationalisation, redundant products of that nineteenth-century railway mania during which rival companies insanely vied to block each other’s moves on the railway chessboard. In Britain as a whole, because of the intense rivalry of the train companies, only four major cities – Newcastle, Aberdeen, Stoke-on-Trent and Carlisle – managed to amalgamate their railway traffic into a single station. Manchester and Glasgow had four central stations, Leeds, Liverpool, Leicester, Belfast, Plymouth and Nottingham three, and Birmingham, Sheffield, Edinburgh, Bradford and Bath two.
Running Money by Andy Kessler
Andy Kessler, Apple II, bioinformatics, Bob Noyce, British Empire, business intelligence, buy and hold, buy low sell high, call centre, Corn Laws, Douglas Engelbart, family office, full employment, George Gilder, happiness index / gross national happiness, interest rate swap, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, knowledge worker, Leonard Kleinrock, Long Term Capital Management, mail merge, Marc Andreessen, margin call, market bubble, Maui Hawaii, Menlo Park, Metcalfe’s law, Mitch Kapor, Network effects, packet switching, pattern recognition, pets.com, railway mania, risk tolerance, Robert Metcalfe, Sand Hill Road, Silicon Valley, South China Sea, spinning jenny, Steve Jobs, Steve Wozniak, Toyota Production System, zero-sum game
Joint-stock companies became the rage, and the stock market was all too happy to step in and provide capital. Then more capital. And then too much capital. By the 1840s, a railroad mania was raging, stocks selling on multiples of passenger miles, a precursor for multiples of page views that Yahoo stock would trade on 150 years later. An inven- B&W IPO 93 tor named Charles Babbage complained that “the railroad mania withdrew from other pursuits the most intellectual and skilful draftsmen” and sought to invent a machine that might replace them, and make Yahoo possible. Charles Dickens marveled at railroad wealth. Investors made money, investors lost money, but in the best and worst of times, the railroads got built, and people and goods were shufﬂed about more and more cheaply. The Industrial Revolution hit its stride. Railroad mania hit the U.S. after the Civil War. It gave the New York Stock Exchange something to trade besides government debt.
It gave the New York Stock Exchange something to trade besides government debt. Railroads helped create the pools of capital that funded innovation in the U.S. for the next century. Man, I’d like to short horse stocks right here. Railroads look interesting, especially since they need some government mandate for the right of way between two destinations. Put up $650 grand to make that much in fees each year—no wonder there was a railroad mania. Gotta make sure to jump off this one when ticket and hauling prices start to crack. Ocean steamships and propellers: The next barrier was a steampowered Atlantic crossing. There was only one problem—how to carry enough coal to keep the steam engine cranking for that long trip. A self-proclaimed expert on the subject, Reverend Dionysius Lardner, announced in 1837 that the longest theoretical distance a steamship that carried its own coal could travel was 2,500 miles.
Great Continental Railway Journeys by Michael Portillo
When the line finally opened, it was a British driver at the helm of a locomotive called Robert Stephenson. The presence of the British was not always appreciated by a German populace being stirred by a new-found nationalism. However, there were benefits too. Thomas Worsdell (1788–1862) established a manufacturing base in Germany during a four-year spell as locomotive, carriage and wagon superintendent for the Leipzig railway. A form of railway mania soon infected all the German states, eager to reap the benefits. Keen to have its own prestigious network, the Prussian government guaranteed the investments of those who put money into railway construction. As investors had nothing to lose, funds flowed freely into the German railroads. This rapid expansion meant home-grown talents were fostered and highly valued. Slowly, the business of railways cascaded away from the British and into the laps of a new generation of industrialists.
Far from perfect in its outcomes, it nonetheless remodelled the thinking of a nation with the slogan ‘liberty, equality, fraternity’, virtues which would now no longer be the preserve of the wealthy few. The charismatic Napoleon, whose era came next in French history, was equally egalitarian in his approach. Working people everywhere saw hope for a better future. The royals and the aristocracy, by contrast, were horrified. The freedoms that had been fought for in France were dearly held and there was genuine concern that the ideals of the revolution should not be lost in a flurry of railway mania. Sometimes it happened, usually on the most popular routes. Those people using the train to get to the South of France were unconcerned about who was profiting when they bought their tickets. If they hadn’t seen some of the great paintings of the region, they almost certainly had seen glamorous posters which cropped up at stations and in hotels. Leisure time was more keenly sought-after than ever before, with swimming, cycling, golf and yachting just a few of the sporting options.
Significantly, the view of Miquel Biada Bunyol had been shaped overseas rather than in his homeland. Still that hesitancy is reflected too in the length of time that the people of Barcelona had to wait for the construction of the city’s metro, even after official agreement had been given. These delays may well have worked in Spain’s favour. French investors were looking for fertile new ground after their domestic system approached capacity. Eventually, it attracted English money as the railway mania bubble burst in Britain in the 1840s, leaving speculators looking outside the UK, where the profitable aspects of the railway network were already in place, to countries like Spain. Sadly, much of the good work was undone in the Spanish Civil War in the 1930s, and it would take years to bring the system back to a high mark. For Mallorca, the principle ‘small is best’ held good. The island’s railway link between the capital Palma and ‘market garden’ Sóller was built expressly to carry fruit to new markets.
How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler
Albert Einstein, Andy Kessler, animal electricity, automated trading system, bank run, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Claude Shannon: information theory, Corn Laws, Douglas Engelbart, Edward Lloyd's coffeehouse, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Kickstarter, Leonard Kleinrock, Marc Andreessen, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, Mitch Kapor, packet switching, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, supply-chain management, supply-chain management software, trade route, transatlantic slave trade, tulip mania, Turing machine, Turing test, undersea cable, William Shockley: the traitorous eight
You could put in a 20-mile railroad for the equivalent of $650,000 and collect that much in fees every year. Joint stock companies were the rage, and the stock market was all too happy to step in and provide capital. And more capital. And then too much capital. TRANSPORTATION ELASTICITY 49 By the 1840’s, a “Railroad Mania” was raging, with stocks selling on multiples of passenger miles, a precursor for multiples of page views that Yahoo stock would trade on 150 years later. An inventor named Charles Babbage complained that “the railroad mania withdrew from other pursuits the most intellectual and skilful draftsmen.” He sought to invent a machine that might replace them, and although he couldn’t have foreseen it, make Yahoo possible. This is when Charles Dickens marveled at railroad wealth. Investors made money, investors lost money, but in the best and worst of times, the railroads got built, and people and goods were shuffled about.
The size of a house, it would need a steam engine to operate but it would solve differential equations. Great idea, poor execution. A few small-scale models were demonstrated, but the engine was ahead of its time, by probably 100 years. After 10 years of trying, he gave up. He brooded around for a while and then in 1837 announced a somewhat less ambitious plan, the Analytic Engine, which would do math faster and to a larger scale than a Pascaline. Babbage complained that a Railroad Mania, then raging, hired away all the skilled workers and his Computing Engines were, at least partially, an attempt to do without them. The daughter of poet Lord Byron, the lovely Augusta Ada King, Countess of Lovelace, was his assistant. This was key in getting government funding. Again, a few models were demonstrated, but like his Difference Engine, the Babbage Analytic Engine never actually worked.
Lying for Money: How Fraud Makes the World Go Round by Daniel Davies
bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, short selling, social web, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, web of trust
The 3-6-3 rule became a 12-6-12 rule: if you’re paying 12 per cent on deposits but still only getting 6 per cent on loans, you’ll be bankrupt within twelve months. Because it was the early 1980s and the Reagan Revolution was beginning to find its form, the solution to the S&Ls’ problems had to involve deregulation. The idea that the main problem of finance is excessive red tape and that all problems can be solved by leaving things to the market has been a constant since the Victorian Railway Mania. And so, successive rounds of deregulation took place. The first one removed size limits on S&Ls, in the hope that they would be able to ‘grow out of trouble’. Immediately, a wave of mergers began. This had the short-term effect of improving things. Because of an accounting quirk – not itself dishonest, but open to abuse – merging an insolvent S&L with a borderline-solvent one tended to make the accounts look better.* To finance this growth, they were allowed to borrow from sources other than small depositors, including the junk bond market.
Looking back at the era, it is strange to see that repeated episodes not just of frauds, but of waves of exactly similar frauds, took a very long time to result in any measures from the authorities, and that the ‘market discipline’ which ought to have driven out bad operators and created a demand for professional auditing and verifiable accounts, didn’t work. A clue as to why this might have been the case can be gleaned from some of the names given to the fraud waves; there was the Railway Mania, the Finance Company Mania, the Mining Mania and so on. There was, in fact, huge wealth and value being created by mobilising the savings of the British middle class to finance productive industry. And this was the priority of Victorian England. Fraudsters and crooked bankers are stock characters in Dickens, Trollope and Thackeray, and it has been estimated that as much as one-sixth of the stock market flotations between 1866 and 1883 were frauds.
A. 201–3,205 Henry VIII 216 high-net worth investors tendency to have time on hands 109 tax strategies of a proportion of 266–8 Hippocratic Oath 134 hire purchase scam (Leslie Payne) 36, 39–40 homomorphism 209, 212 Hooley, Ernest ‘The Millionaire’ 230 hotel bills 37 House of Commons 1 Howe, Sarah 90, 116–19, 222 HSBC 188, 189, 280 Hudson Oil 249, 251 Humphery, John Stanley 228 I IBM 64–8 Iceland 218–22 Inca Empire 226–7 Incentives 13, 22, 62, 74, 115, 135, 159, 165, 174, 185–6, 205, 210 incidental fraud vs entrepreneurial 213, 215, 287, 288 Infinity Game 92–9 information 24, 71, 199–208, 211–15, 238 control of by fraudsters 41, 65, 71, 115, 173 insider, securities fraud 23, 239–42, 260 inheritance 117, 217, 218–22, 235, 266 insider dealing 23, 106, 129, 241–43, 260 insurance 36, 39–40, 65, 163–4, 171, 225, 228 medical 74–7, 84 Payment Protection Insurance (PPI) 187–97 insurance scam (Leslie Payne) 40–41 International Reply Coupons see Ponzi, Charles investors 1, 16 in OPM leases 65–7, 69–71 Charles Ponzi’s 86–9 hedge fund 96, 104–9, 113 in pigeons 100, 103 institutional 104 nineteenth century female 118–20 mining 126–30 reliance on accounts 142–54 expectations of UK banks 188 Victorian 228, 231 Retail 240–43 in Piggly Wiggly 256–61 IRS vs UBS 263–4 Israel, Sam see Bayou Capital drug habit of as potential indicator something was wrong 116 J Jehoash (high priest) 217 John Bull 230 K Keating Five 182 Keating, Charles 177–83, 214 Kennedy, John Fitzgerald 61 Kerviel, Jerome 165 King, Don 163 Knights of Industry 234, 237 Kolnische Volkszeitung 232, 234, 236, 237 KPMG 150 Kray, Ronnie and Reggie 26–7, 31, 36, 39, 41 Kutz Method 152–3 KYC (know your customer) 281 L Lab fraud anaemia 74 Ladies’ Deposit Bank (Boston) 116–19 lawyers 19, 27, 33–4, 39, 45, 71, 115, 117, 161, 180, 182, 194, 196, 225, 267, 271, 272, 281 (they’re usually in the background even when not specifically mentioned) professional qualifications of 114 extreme expensiveness of 234 leasing tax advantages of 64 see also OPM Leasing importance of residual value 66 accountancy issues 152 Leeson, Nick 17, 165–73, 285 Lehman Brothers collapse 13 relationship with OPM Leasing 65, 71 Lehnert, Lothar 235–7 Lernout & Hauspie 150 Let’s Gowex see Gowex letterhead 31, 70, 80, 122 Levi, Michael 81, 216, 283 Levy, Jonathan 224 libel 77, 236–8 LIBOR 1–4, 12–16, 193, 205, 215, 244 Liman & Co 235–6 limited liability 34, 225, 231 Lincoln Savings & Loan 177–8, 180, 182–3 livestock 100 Livingstone, Jesse 259 Lloyd’s of London 164, 225 Lomuscio, Joe 59 Long firms 21, 23, 27, 29, 35, 41–2, 43–50, 61, 63, 72, 73–5, 77, 79–82, 96, 141, 142, 163, 164, 212, 224, 283, 284 ‘sledge-drivers’ 232–4 against government 271–4 Lucifer’s Banker 263 M MacGregor, Gregor 5, 8, 9, 17, 77, 78, 214 dubious knighthood of 7, 162 military career 7 previous frauds 18 Madden, Steve 147 Madoff, Bernard 96, 104–5, 113 Mafia 41, 253 Mahler, Russ 249–53 management scientific 19, 200, 206–12, 215 risk management 212–13, 287 strategic 248 public sector 264 marginal cost pricing 248 Marino, Dan (fraudster) 107–9, 113, 115 Marino, Dan (quarterback) 107 maritime capitalism 34, 224–6 market corner 259 market crimes 23, 24, 58, 194, 239–62, 271, 282, 289 markets general characteristics of 23, 197, 201–4, 208, 278, 289 financial 3, 4, 8, 13, 26, 58–60, 99, 100, 107–8, 129, 132, 142–5, 147–8, 149, 150–56, 161, 163, 166, 171–2, 176, 195, 230–31, 239–40, 242–4, 256–61 pharmaceutical, ‘grey’ 136–7 drugs, illegal 43–50 prime bank securities 110–11, 184 real estate 179–80 supermarkets 213, 255 Marx, Groucho 66 Marx, Karl 84, 232, 247 McGregor, Ewan 165, 173 McVitie, Jack ‘The Hat’ 26, 41 Medicare 73–6,134–5, 199, 289 Merchant of Venice 34 Merck Pharmaceuticals 138–40 Michaela, Maria 215, 222 military planning 204, 207, 211 Milken, Michael 177, 183 Miller, Norman 52 mis-selling 194–6 money laundering 278–82 Monopolies Commission (UK) 247 mortgages 38, 77, 101, 175–9, 188, 191, 194, 215, 238 multi-level marketing 94–5 N New England Journal of Medicine 139 New Zealand 9, 172, 241 newspapers 9, 125, 152, 230, 237, 252, 262 Nichols, Robert Booth 110–12 Nikkei index 170–71, 173 nobility Scottish 7 phony scottish 5–9, see Gregor MacGregor phony 223 North Wales Railway Company 229 notaries 114, 125, 133 indiscriminate stamping of documents by in 1920s Portugal 121–2 O ODL Securities 112–13 OECD 268 oil recycling 249–54 OODA loop 208 operations research 204, 208–10, 289 OPM Leasing 63–72 snowball effect of interest expense 98 accounting trick 152–3 options markets 163–4, 171–2 Optitz, Gustav 235–7 Opus Dei 53, 57 Original Dinner Party 92 Other People’s Money 63, 285 P Paddington Buys A Share 20, 43 Parmalat 155 Patsies see fronts Payment Protection Insurance (PPI) 187–97 Payne, Leslie 26–8, 30, 33–6, 39–42, 67, 73, 98, 163, 237, 283 petrol stations 190, 247–8 pharmaceutical industry 133–41 track and trace 136 Philadelphia Savings Fund 70–71 Pigeon King International see Galbraith, Arlan pigeons, racing 100–103 Piggly Wiggly 255–61 Ponzi, Charles 84–90, 96, 109, 116 trial of 90 takeover of Hanover Trust 88–9 launch of scheme 86 Portuguese Banknote Affair 120–25 Powers, Austin 263 Poyais 5–9, 15, 78, 121, 162, 215, 219, 287, 297 prime bank securities 110–13, 122, 184 Prince 135 Prince Albert 228 Princess Caraboo see Baker, Mary Princesses 6, 223 Principles of Scientific Management 206 Prison 18, 61, 112, 119, 125, 173, 208, 252, 270 debtor’s 34, 225 private equity 144 psychology 17, 87 public choice theory 210–11 pump and dump 147 pyramid schemes 91–5, 116, 184, 222 Q Quakers 118 quality control 184, 207, 213–15, 287 Quanta Resources 251–2 Quarterly Review 162 Queen Victoria 228 Queenan, Joe 10 Qwest 150 R Rabelais, Francois 120 Railway Mania 176, 231 Ranbaxy Laboratories 137 Reagan, Ronald 174–5, 251 real estate 89, 177–81, 214, 281 Reddit 48 regulators financial 2, 4, 14, 18, 99, 165, 177–83, 194–5, 240, 260–61, 280–81, 289 softness of in 1960s London 40 environmental 250–51 pharmaceutical 136, 137, 140 Reuschel, Rollo (Stanislaus Reu) 232–8 libel case 237 Richmond-Fairfield 107 Robb, George 228 Rockwell Industries 66–71 Rogers, Will 283 rogue traders 98, 165–73, 215 Royal Canadian Mounted Police 129 S salting (mining fraud technique) 127 Sarbanes-Oxley 194, 202 Saunders, Clarence 255–61 Savings and Loans 174–84, 185, 196, 285, 289 economic theories of failure 174 business model 175 settlement, securities 60, 107, 108, 112, 163, 257, 261 Sherman Antitrust Act 246 shipowners 10, 116, 117, 164, 224–6 ships 164, 207, 221, 224–6 US Navy 89, 249 short firm 73–5, 93 short selling 147, 258–9, 261, 283 shotgun/rifle technique 76–7, 134 signatures, forged 67, 123 Silk Road (online market) 44, 47–8, 50 simplified summary which hopefully captures the important structural features see homomorphism Sketch of the Mosquito Shore 8, 162 Skilling, Jeff 17, 142, 153 slaves 34, 219–21, 225 ‘sledge-drivers’ 232–8 SLK Securities 108, 115 Smith, Adam 11, 213 on cartels 246 snowball effect see compound interest societies, high and low trust 10, 16, 62, 125, 166–7, 264, 287 Soviet planning 204, 208, 227 Sparrow, Malcolm 74, 76 St Joseph (fictitious city) 5 stock exchanges Alberta 11, 129 Toronto 129 Vancouver 11, 126 London 9, 117 New York 59–60,147, 228–31, 256–61 Chicago 59–60, 256 Singapore 170–72 Osaka 170 Tokyo in general 142–5, 147, 163–4,241–2 NASDAQ 240 Strangeways, Thomas 162, see also Gregor MacGregor Strathclyde Genetics see Galbraith, Arlan Stratton Oakmont 145–8 Sufficient Variety, Law of 209 Sullivan, Scott 154 Susquehanna River 251, 252 T tacit knowledge 202–3 Tarantino, Quentin 105 tax 32, 64, 69, 98, 155, 159, 177, 191, 263–71 value added see VAT Taylor, F.
On the Wrong Line: How Ideology and Incompetence Wrecked Britain's Railways by Christian Wolmar
Agriculture prospered because of the better links between town and country which allowed farmers to get most of their products, from fruit and milk to chickens and cattle, to markets more quickly and cheaply; areas of the country which could not be reached easily before were suddenly opened up; labour became much more mobile; tourism became possible; and even the fish and chip shop owes its existence to the faster transit of fish inland.⁵ The growing importance of the railways ensured that the government was forced to react in 1844 when the infamous ‘railway mania’ began threatening the finances not only of existing railways but of many hapless investors in new railway schemes. With the main lines already largely mapped out, the railway mania saw an explosion of speculative and ill-conceived railway projects. Between 1844 and 1847, plans were laid before Parliament that, cumulatively, would have created 20,000 miles of new railways, many in direct competition with one another. (In fact, the whole network peaked in the Edwardian age at around 23,000 miles.)
While the early railways were highly profitable, since they clearly met a need, the second wave struggled because many linked towns of insufficient size or were built to compete with existing lines. Consequently, they suffered perennially from under-investment. Nevertheless, the construction of the railways could, arguably, be considered the finest achievement of the Victorians, a success all the more remarkable because, while the development of the whole network took some seventy-five years, the core of today’s system was already in place by the end of the first ‘railway mania’ in 1852. By then there were 6,600 miles of railway route open compared with just 100 in 1830.¹ It was inevitable that even Victorian governments, with their laissez-faire ethos, should become involved in what rapidly became the country’s largest industry and one which had all kinds of social, political and economic ramifications. The politicians were, however, usually at least one step behind, legislating too late in order to remedy past ills, rather than addressing the future, not least because the railways were as new and bewildering to Victorian legislators as the Internet is to Western politicians today.
In many European countries there was an additional factor, in that railways, which for the first time allowed the rapid mobilisation and movement of armies, were considered a vital strategic asset and the military took a close interest in their development. But in free-enterprise Britain, government meddling, whatever the motive, was anathema while developers continued to believe that great fortunes could be made out of the railways. In the event, however, the lines built in the wake of the railway mania, with a few exceptions, turned out to be mildly profitable at best or, in the case of most rural services, uneconomic from the outset. Gladstone’s Act did also introduce a key measure, the Parliamentary Train, which greatly widened the market for railway travel, which had hitherto been confined to the relatively affluent. Third-class travellers, who often endured appalling conditions, had to be offered at least one train a day, stopping at all stations and averaging no less than 12mph with fares not exceeding one (old) penny per mile.
The Railways: Nation, Network and People by Simon Bradley
Alfred Russel Wallace, back-to-the-land, Beeching cuts, British Empire, clean water, Corn Laws, cross-subsidies, David Brooks, Etonian, intermodal, joint-stock company, loose coupling, low cost airline, oil shale / tar sands, period drama, railway mania, Ralph Waldo Emerson
More miles of canals than of railways were built in the 1830s, and just one new railway bill passed through the parliamentary sessions of 1840 and 1841. For the Railway Times, it was quite good enough that Scotland could be reached after 1840 by fast steamship from the new rail-connected port at Fleetwood, Lancashire (‘What more can any reasonable man want?’). But the picture changed again as the high dividends on railway shares were noted – so much so that the mid 1840s were remembered for the ‘Railway Mania’. This was a textbook boom in which stock was oversubscribed and prices were inflated by speculators who got in early in order to sell up at an immediate profit; hence Karl Marx’s description of the phenomenon in Kapital as ‘the first great railway swindle’. Everything then came down with a crash, so that more than a third of the railway mileage authorised in these years was never built. Even so, the speculative peak of 1844–5 was followed by a mighty wave of construction as the paid-up lines took shape, with the peak of activity in 1847.
By fostering both national and specialist markets for publications, the railways also opened the floodgates to press advertising of every kind, keeping cover prices down. Railway companies themselves added considerably to this acreage of newsprint. Established lines placed regular notices concerning services and traffic, especially small ‘non-display’ advertisements in local papers. New ventures burnt through piles of money in self-advertisement, and for the associated legal notices. This kind of outlay peaked early with the Railway Mania of the mid 1840s. For a time during 1845, the Morning Post came with a supplement devoted entirely to railway matters. In three months of the same year, the Direct London, Holyhead & Porth Dinllaen Railway, a representative Mania project, spent £1,255 18s 8d on self-promotion in the press and still came to nothing. As to consumption, there was nothing to match the thronged railway station for a captive market.
The board of the little St Andrews Railway in Fife, opened in 1852 with Thomas Bouch as engineer, were dismayed to discover a few years later that the economical Bouch had built bridges from scanty untreated timbers and made the interval between the sleepers a foot wider than specified in the contract. Huish’s basic point may seem obvious enough, but many companies in the 1830s and 1840s had done nothing to safeguard their futures in this way, preferring to dish out their surpluses in big dividends instead. One contributory cause of the Railway Mania was the mirage of permanent enrichment from railway shares which these payments helped to induce. Another creature of the Mania years was George Hudson (1800–71), one of those plausible rogues who rise to the surface of financial bubbles. Hudson used an inherited fortune to build a municipal power base at York, from which he secured election as chairman of the York & North Midland Railway in 1836.
Company: A Short History of a Revolutionary Idea by John Micklethwait, Adrian Wooldridge
affirmative action, barriers to entry, Bonfire of the Vanities, borderless world, business process, Charles Lindbergh, Corn Laws, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, double entry bookkeeping, Etonian, hiring and firing, industrial cluster, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, knowledge worker, laissez-faire capitalism, manufacturing employment, market bubble, mittelstand, new economy, North Sea oil, race to the bottom, railway mania, Ronald Coase, Silicon Valley, six sigma, South Sea Bubble, Steve Jobs, Steve Wozniak, strikebreaker, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, tulip mania, wage slave, William Shockley: the traitorous eight
In 1830, George Stephenson’s Rocket began steaming down the Liverpool-Manchester line, the world’s first regular passenger railway. By 1840, two thousand miles of track, the bare bones of a national network, had been built—all by chartered joint-stock companies. Acts of Parliament were required for every line: there were five a year from 1827 to 1836, when the number jumped to twenty-nine. In the same year, parliament, trying to stop the growing “railway mania,” limited loans to one-third of the chartered railways’ capital, and it also banned any borrowing until half their share capital had been paid up. In the 1844 Railway Act, the state reserved the right to buy back any line that had operated for twenty-one years—a right that came in surprisingly useful during the nationalization mania a century later. It still did not stop the rush: there were 120 Railway Acts in 1845, 272 in 1846, and 170 in 1847 (involving some £40 million worth of capital).18 Although these companies were publicly traded, most of the real money for railways came from government and local businessmen (who had the most to gain from connecting their town to the network).
“We will venture to assert,” decided an 1835 circular to London bankers, “that taking into account all the railways north of Manchester not one twentieth part of the capital was provided by members of the stock exchange.”19 But the importance of tradable equities increased, particularly once the railways started issuing preference shares, which provided a guaranteed dividend rate (making their value easier to work out for investors), yet counted as equity under the government’s debt-to-equity rules: by 1849, they accounted for two-thirds of the railways’ share capital.20 Most of these shares were traded on local exchanges, such as Lancaster—out of reach of Lombard Street, which was still more interested in public debt than private equity. Railway mania was fanned by a growing number of railway papers, such as the Railway Express, Railway Globe, and Railway Standard. In its first issue in 1843, the Economist devoted less than a tenth of its “commercial markets” column to money-market and stock prices. It bitterly condemned the railway speculation, forecasting a “universal domestic affliction.” But in 1845 it launched its own highly profitable nine-page section, the Railway Monitor, professing that no financial paper could be without one.21 The railway was not the only force for change.
Britain's 100 Best Railway Stations by Simon Jenkins
A Victorian historian, John Francis, recorded that ‘the most cautious of men … heard the cry at every dinner, uttered by solemn, solid men, upon the glories of the rail; they read of princes mounting tenders, of peers as provisional committeemen, of marquesses trundling wheelbarrows and of privy councillors cutting turf on correct geometrical principles. Their clerks left them to become railway jobbers. Their domestic servants studied railway journals. They saw the whole world railway mad.’ The period became known as the Mania, by which I refer to it throughout this book. Railway mania: John Bull drunkenly accepts proposals for investing in railways, cartoon, 1836 In November 1845, The Times calculated that parliament had that year projected 1,200 new railways in Britain, notionally requiring £500m in public subscription (or £50bn today). Some were for lines along parallel routes, some for trains running the length and breadth of the land. The freedom of the market place was given the job of regulating the industry, with no attempt to impose network coherence or national plan.
Men whose practical imagination was necessarily radical sought to reassure their customers with the old and the familiar. To study Huddersfield’s Palladianism, Battle’s monasticism or Great Malvern’s naturalism is to wonder at the variety of messages the new industry was seeking to convey. As we have seen, few designers of these stations were noted architects. They were engineers who had emerged from the chaos and opportunities of the early railway Mania. Their imagination was derivative and vernacular. We can almost imagine that, in matters of design, the rail industry, especially in its early years, felt constrained by some innate conservatism, by a desire to be thought not too radical, let alone dangerous. For commercial reasons explained earlier, British stations came nowhere near to the scale and grandiloquence of the great continental termini.
The Future of Technology by Tom Standage
air freight, barriers to entry, business process, business process outsourcing, call centre, Clayton Christensen, computer vision, connected car, corporate governance, creative destruction, disintermediation, disruptive innovation, distributed generation, double helix, experimental economics, full employment, hydrogen economy, industrial robot, informal economy, information asymmetry, interchangeable parts, job satisfaction, labour market flexibility, Marc Andreessen, market design, Menlo Park, millennium bug, moral hazard, natural language processing, Network effects, new economy, Nicholas Carr, optical character recognition, railway mania, rent-seeking, RFID, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, six sigma, Skype, smart grid, software as a service, spectrum auction, speech recognition, stem cell, Steve Ballmer, technology bubble, telemarketer, transcontinental railway, Y2K
vi Foreword o understand the future of technology, start by looking at its past. From the industrial revolution to the railway age, through the era of electrification, the advent of mass production and finally to the information age, the same pattern keeps repeating itself. An exciting, vibrant phase of innovation and financial speculation is followed by a crash; then begins a longer, more stately period during which the technology is widely deployed. Consider the railway mania of the 19th century, the dotcom technology of its day. Despite the boom and bust, railways subsequently proved to be a genuinely important technology and are still in use today – though they are not any longer regarded as technology by most people, but as merely a normal part of daily life. Having just emerged from its own boom and bust, the informationtechnology industry is at the beginning of its long deployment phase.
Equally important, buyers are starting to spend their it budgets more wisely. Meanwhile, the industry’s relationship with government is becoming closer. All this suggests that the technology industry has already gone greyish at the temples since the bubble popped, and is likely to turn greyer still. Sooner or later the sector will enter its “golden age”, just as the railways did. When Britain’s railway mania collapsed in 1847, railroad shares plunged by 85%, and hundreds of businesses went belly-up. But train traffic in Britain levelled off only briefly, and in the following two decades grew by 400%. So are the it industry’s best days yet to come? There are still plenty of opportunities, but if the example of the railways is anything to go by, most it firms will have to make do with a smaller piece of the pie.
Optimists hope that surfers will soon be able to roam around freely and remain continuously connected to the internet. And small radio chips called rfid tags will make it possible to track everything and anything, promising to make supply chains much more efficient. But even a new killer application is unlikely to bring back the good old times. “After a crash, much of the glamour of the new technology is gone,” writes Brian Arthur, an economist at the Santa Fe Institute. The years after the British railway mania, for instance, were “years of build-out rather than novelty, years of confidence and steady growth, years of orderliness.” This kind of “new normal”, in the words of Accenture, another it consultancy, may be hard to swallow for a sector that has always prided itself on being different. But for its customers, a more mature it industry is a very good thing: just as the best technology is invisible, the best it industry is one that has completely melted into the mainstream.
Are Trams Socialist?: Why Britain Has No Transport Policy by Christian Wolmar
active transport: walking or cycling, Beeching cuts, Berlin Wall, Boris Johnson, BRICs, congestion charging, Diane Coyle, financial independence, full employment, joint-stock company, Kickstarter, low cost airline, Network effects, railway mania, trade route, urban sprawl, wikimedia commons, Zipcar
Numerous early passengers testified to the excitement of going faster than had previously been possible – the speed of a galloping horse was the fastest that anyone had travelled to this point. Fears of being unable to breathe at such speeds or of being killed by an exploding boiler (a more realistic concern but still a relatively rare occurrence) soon abated and a remarkable period of railway growth ensued. The railway mania of the 1840s resulted in the creation of a network of more than 5,000 miles just two decades after the opening of the Liverpool and Manchester – around half of today’s remaining mileage. Passengers flocked to use the trains. The Great Exhibition of 1851, for example, was an astonishing success, attracting more than six million visitors (a third of the population of England and Wales at the time) from all around the country to London thanks to the railways.
To the Edge of the World: The Story of the Trans-Siberian Express, the World's Greatest Railroad by Christian Wolmar
Indeed, the boilers of the first two locomotives they produced both exploded, again a common feature of early locomotive development, but the third, completed in 1835, proved relatively efficient, ‘able to move faster than a horse, even if it could pull only a smaller load’.14 It is a measure of the state of Russia in the early nineteenth century that both Cherepanovs were actually serfs, effectively owned by the factory for which they worked. Sadly, their efforts were in vain as the first Russian railways used foreign locomotives. Hence the elements of building a railway were available in Russia relatively early, just as railway mania was sweeping the European continent and, indeed, the United States. The political will, however, was lacking, despite the entreaties of the small, forward-looking minority of the aristocratic ruling elite, who realized that the railways were the only viable transport option for a vast nation like Russia with the extremes of climate that made roads impassable and rivers unnavigable for large parts of the year.
Most crucially, the industrial area in the Urals was still not connected with the nation’s two main cities, which greatly hampered its economic development. In the four decades between the completion of the Nikolayev Railway and work starting on the Trans-Siberian, Russia did embrace the idea of a national rail network, but generally with little sense of urgency and at a far gentler pace than its European counterparts. There was no early period of railway mania as occurred in so many other countries which plunged into the railway age with such enthusiasm. Given the limited resources, it was felt that the country could afford to build only one major railway at a time, especially as the lines were being funded from the state coffers. The completion of the Nikolayev Railway encouraged the tsar to order the construction of the St Petersburg–Warsaw Railway, also as a state enterprise.
Capitalism: Money, Morals and Markets by John Plender
activist fund / activist shareholder / activist investor, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, God and Mammon, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game
He was a visionary who created the first modern rail network, helped by his friend George Stephenson, builder of the early steam locomotive the Rocket. Yet his methods were crooked. In 1848 he was found to have bribed MPs, manipulated share prices and defrauded his creditors, resulting in his imprisonment in York Castle for debt. Among the indignities he felt most acutely was hearing that his wax effigy at Madame Tussauds had been melted down. In the railway mania of the time, Hudson was far from being the only fraudster. The requirement to obtain parliamentary consent for the building of railways meant that there was a constant temptation to bribe MPs, while the increasing ease with which companies could be set up and floated was an encouragement to play fast and loose with other people’s money. Then, as with the Bubble Act in 1720, came re-regulation.
E. 1 morbidity syndrome 1 More, Thomas 1, 2 Morgan, John Pierpont 1 Mozart 1, 2 Mussolini 1 Mutual Assured Production (Richard Katz) 1 Mynors, Humphrey 1 Napoleonic Wars 1 Nash, Ogden 1, 2 Native Americans 1 Nazi Germany 1 Netherlands 1 New Deal 1, 2 New Testament 1 Newton, Isaac 1, 2, 3 Nicholas Nickleby (Dickens) 1, 2, 3 Nigeria 1 Norquist, Grover 1 North, Roger 1 North and South (Mrs Gaskell) 1 North Korea 1 Northern Rock (UK) 1 Novalis 1 Nuffield, Lord 1 Obama, Barack 1, 2 Occupy movement 1, 2 oil states 1 da l’Osta, Andrea 1, 2 outsourcing 1, 2 paper currency 1 Parker, Dorothy 1 Pascal, Blaise 1, 2 Past and Present (Thomas Carlyle) 1 Paulson, John 1 Peasants’ Revolt (England) 1 pension funds 1 Pepys, Samuel 1 Peruzzi family 1 perverse incentives 1, 2 Petronius 1 Picasso 1, 2 Piketty, Thomas 1 Pitt, William the Elder 1 Pitt, William the Younger 1 Plato 1, 2, 3 Political Discourses (Hume) 1 Politics (Aristotle) 1, 2, 3, 4, 5 poll taxes 1 Pope, Alexander 1, 2, 3, 4, 5 Portugal 1 positional goods 1 Poussin, Nicolas 1 Prell, Michael 1 Priestley, Joseph 1 printing 1 Proposition 1 (California) 2 Protestant Ethic and the Spirit of Capitalism (Weber) 1 Prussia 1, 2, 3 public sector debt 1 R. A. Chilton 1 railway mania (Britain 1840s) 1 Rajan, Raghuram 1, 2, 3, 4 Rand, Ayn 1, 2 Raphael 1 Reading, Brian 1, 2, 3, 4 Reagan, Ronald 1, 2, 3, 4, 5 Reformation 1, 2 regulators 1 regulatory arbitrage 1 Renaissance 1, 2, 3 Republic (Plato) 1, 2 retail banking 1 Reynolds, Joshua 1, 2 Ricardo, David 1 Richelieu, Cardinal 1 Ring of the Nibelung (Wagner) 1, 2, 3 Ritblat, John 1 Roaring Twenties 1, 2 robber barons 1, 2, 3 Robinson Crusoe (Daniel Defoe) 1 Rockefeller, John D. 1, 2 rogue traders 1 Rolls-Royce 1 Roman republic 1 Roosevelt, Franklin 1 Rosenberg, Harold 1 Roseveare, Henry 1 Roubini, Nouriel 1 Rousseau, Jean-Jacques 1, 2 de Rouvroy, Claude-Henri 1 Royal Exchange (London) 1 Rubens, Peter Paul 1, 2 rural exodus 1 Ruskin, John 1, 2, 3 Saatchi, Maurice 1, 2 Samuelson, Paul 1 Sandel, Michael 1 sarakin banks (Japan) 1 Sarkozy, Nicolas 1 Sassoon, Donald 1 Satyricon (Petronius) 1 Savage, Richard 1, 2 Schama, Simon 1, 2 Schiller, Friedrich 1 Scholes, Myron 1 Schopenhauer 1 Schuman, Robert 1 Schumpeter, Joseph 1, 2, 3, 4, 5, 6, 7 Schwed, Fred 1, 2 second industrial revolution (1920s) 1 Sen, Amartya 1 separation of powers 1 Shakespeare 1, 2, 3, 4, 5, 6 shareholder activists 1 shareholder value 1 shareholders 1 Shaw, George Bernard 1 Sherman Antitrust Act (US 1890) 1 Shiller, Robert 1, 2, 3, 4 Shleifer, Andrei 1 short selling 1, 2 Siemens 1 von Siemens, Werner 1 Sinclair, Upton 1 Skidelsky, Robert 1, 2 Smith, Adam 1, 2, 3, 4, 5, 6, 7, 8 Smith, Sidney 1 Smithers, Andrew 1, 2 Smollett, Tobias 1 social democratic model 1, 2 Société Générale 1 Socrates 1 Solon 1 Sombart, Werner 1, 2 Soros, George 1, 2 Sotheby’s 1 South Sea Bubble 1, 2, 3, 4, 5, 6, 7 sovereign debt 1 sovereign debt crisis (2009) 1 Spain 1, 2, 3, 4, 5, 6 speculation 1 Spenser, Edmund 1 Stabilising an Unstable Economy (Hyman Minsky) 1 Steed, Wickham 1 Stephenson, George 1 Stevens, Wallace 1 Streeck, Wolfgang 1 subprime mortgages 1, 2, 3, 4 Sutter, John 1 Sutton, Willie 1 swarf 1 Sweden 1 Swift, Jonathan 1, 2, 3 Tale of Two Cities (Charles Dickens) 1 Taleb, Nassim Nicholas 1, 2 Talleyrand, Charles Maurice de 1 Taoism 1 tax farming 1 tax havens 1 tax revolts 1 taxation 1 Taylor, John 1 Tea Party movement 1 Tennyson, Alfred 1 Thaler, Richard 1 Thatcher, Margaret 1, 2, 3, 4, 5, 6 Theory of Moral Sentiments (Adam Smith) 1 ‘thingism’ 1 Thomas Aquinas 1, 2 Thompson, E.
Paper Promises by Philip Coggan
accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game
He showed they followed a template of a ‘displacement’ – some development like a war or technological change – credit expansion, over-trading (the final speculative phase), followed by distress (as some investors try to exit) and revulsion, as all who took part are berated for their stupidity. The sub-prime boom fits the pattern. BUBBLES, PAPER MONEY AND THE END OF BRETTON WOODS As Kindleberger noted, without credit expansion, it is hard to generate asset bubbles.10 The ability to borrow money to buy houses, or to buy shares on margin, creates the temptation for investors to speculate. Bubbles did occur during the gold standard. In the 1840s, for example, Britain enjoyed railway mania in which investors bought shares in the new transport system. Often different companies built parallel routes between the same destinations. The railways were as exotic then as the Internet seemed in the late 1990s, and investors believed the prospects for profits were limitless. The mania only collapsed when it was clear that many lines lacked sufficient passengers to make them profitable. However, the end of Bretton Woods released the remaining brake on the system.
leverage leveraged buyout Lewis, Michael Liberal Democrat party (UK) Liberal Party (UK) life expectancy life-cycle theory Little Dorrit lire Live 8 concert Lloyd George, David Lombard Odier Lombard Street Research London School of Economics Long Term Capital Management longevity Louis XIV, King of France Louis XV, King of France Louvre accord Lucas, Robert Lucullus, Roman general Luxembourg Macaulay, Thomas McCarthy, Cormac Macdonald, James MacDonald, Ramsay McKinsey McNamara, Robert Madoff, Bernie Malthusian trap Mandelson, Peter Marais, Matthieu Marco Polo Mares, Arnaud Marks & Spencer Marshall, George Marshall Aid Marshalsea Prison Mauro, Paolo May, Sir George means/media of exchange Medicaid Medicare Mellon, Andrew mercantilism Merchant of Venice, The Meriwether, John Merkel, Angela Merton, Robert Mexico Mill, John Stuart Milne-Bailey, Walter Minsky, Hyman Mises, Ludwig von Mississippi Project Mitterrand, Francois Mobutu, Joseph Mongols monetarism monetary policy monetary targets money markets money supply Moody’s Moore’s Law moral hazard Morgan Stanley Morgenthau, Henry Morrison, Herbert mortgages mortgage-backed bonds Multilateral Debt Relief Initiative Napier, Russell Napoleon, emperor of France Napoleonic Wars Nasser, president of Egypt National Association of Home Builders National Association of Realtors National Association of Security Dealers Netherlands New Century New Hampshire New Jersey Newton, Sir Isaac New York Times New Zealand Nixon, Richard Norman, Montagu North Carolina Northern Ireland Northern Rock North Korea North Rhine Westphalia, Germany Norway Obama, Barack odious debt Odysseus OECD d’Orléans, duc Ottoman Empire output gap Overstone, Lord overvalued currency owner-equivalent rent Papandreou, George paper money paradox of thrift Paris club Passfield, Lord (Sidney Webb) Paulson, Hank pawnbroking pension age pension funds pensions Pepin the Short Perot, Ross Perry, Rick Persians Peter Pan Philip II, King of Spain Philip IV, King of France PIGS countries PIMCO Plaza accord Poland Ponzi, Charles Ponzi scheme population growth populism portfolio insurance Portugal pound Prasad, Eswar precious metals Price-earnings ratio primary surplus Prince, Chuck principal-agent problem printing money private equity property market protectionism Protestant work ethic public choice theory public-sector workers purchasing power parity pyramid schemes Quaintance, Lee quantitative easing (QE) Quincy, Josiah railway mania Rajan, Raghuram Rand, Ayn Reagan, Ronald real bills theory real interest rates Record, Neil Reformation, the Reichsbank Reichsmark Reid, Jim Reinhart, Carmen renminbi Rentenmark rentiers reparations Republican Party reserve currency retail price index retirement revaluation Revolutionary War Ridley, Matt Roberts, Russell Rogoff, Kenneth Romanovs Roosevelt, Franklin D.
Commuter City: How the Railways Shaped London by David Wragg
Beeching cuts, Boris Johnson, British Empire, financial independence, joint-stock company, joint-stock limited liability company, Louis Blériot, North Sea oil, railway mania, Right to Buy, South Sea Bubble, urban sprawl, V2 rocket, Winter of Discontent, yield management
Typeset in Ehrhardt by S L Menzies-Earl Printed and bound in England by MPG Books Group Pen & Sword Books Ltd incorporates the imprints of Pen & Sword Aviation, Pen & Sword Maritime, Pen & Sword Military, Wharncliffe Local History, Pen & Sword Select, Pen & Sword Military Classics, Leo Cooper, Remember When, Seaforth Publishing and Frontline Publishing For a complete list of Pen & Sword titles please contact PEN & SWORD BOOKS LIMITED 47 Church Street, Barnsley, South Yorkshire, S70 2AS, England E-mail: email@example.com Website: www.pen-and-sword.co.uk Contents List of Illustrations Introduction Chapter 1 The Great Wen Chapter 2 The Railway Age Arrives in London Chapter 3 Railway Mania and the Great Exhibition Chapter 4 Regulation Catches up with the Railways Chapter 5 The Mainline System is Completed Chapter 6 Making Roads Down to Hell – The Underground Chapter 7 Victorian Dynamism Chapter 8 The Threat of the Tram Chapter 9 La Belle Epoche Chapter 10 The Great War Chapter 11 Grouping and Recession Chapter 12 London’s Transport Chapter 13 Electrification and the Long Distance Commuter Chapter 14 The Second World War Chapter 15 Austerity and Nationalisation Chapter 16 Rationalising the Railway Chapter 17 Expansion and Contraction Chapter 18 Sectorisation and Privatisation Chapter 19 The Future Appendix I Appendix II Chronology Bibliography List of Illustrations 1.
The Great Eastern extension to Liverpool Street built during 1861-64 was passed by Parliament on condition that it ran workmen’s trains from Edmonton and Walthamstow, at a return fare of 2d per day for the journey of 6-8 miles; and was one of the few allowed to pierce what almost amounted to a surface railway exclusion zone because the final leg of the extension was in tunnel. Chapter 3 Railway Mania and the Great Exhibition The shares are a penny, and ever so many are taken by Rothschild and Baring, And just a few are allotted to you, you wake with a shudder despairing. W S Gilbert As the 1840s passed, interest in railways grew frantically. Every town wanted to be on the railway system for fear of being left isolated, and every investor wanted to be involved in the railways for fear of missing what was seen as a guaranteed means to fortune.
Other People's Money: Masters of the Universe or Servants of the People? by John Kay
Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative ﬁnance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War
From crisis to crisis I can predict the motion of heavenly bodies but not the madness of crowds. Isaac Newton18 Speculative booms and busts have recurred throughout financial history. In the 1630s Dutch merchants pushed the price of tulips to levels at which a prize bulb was as valuable as a house. A century later, the cream of English society participated in the South Sea Bubble. In the 1840s railway mania seized the public imagination. The 1920s saw boom and bust in stock and land values and ended in the Wall Street Crash and the Great Depression. The immediate consequences of the Crash and Depression were political as well as economic: the rise of political extremism led to the Second World War. But the post-war settlement established regulated capitalism in most of the developed world, while the Soviet empire maintained financial stability, of a sort, in eastern Europe.
.: Hyperion 220 Loomis, Carol 108 lotteries 65, 66, 68, 72 Lucas, Robert 40 Lynch, Dennios 108 Lynch, Peter 108, 109 M M-Pesa 186 Maastricht Treaty (1993) 243, 250 McCardie, Sir Henry 83, 84, 282, 284 McGowan, Harry 45 Machiavelli, Niccolò 224 McKinley, William 44 McKinsey 115, 126 Macy’s department store 46 Madoff, Bernard 29, 118, 131, 132, 177, 232, 293 Madoff Securities 177 Magnus, King of Sweden 196 Manhattan Island, New York: and Native American sellers 59, 63 Manne, Henry 46 manufacturing companies, rise of 45 Marconi 48 marine insurance 62, 63 mark-to-market accounting 126, 128–9, 320n22 mark-to-model approach 128–9, 320n21 Market Abuse Directive (MAD) 226 market economy 4, 281, 302, 308 ‘market for corporate control, the’ 46 market risk 97, 98, 177, 192 market-makers 25, 28, 30, 31 market-making 49, 109, 118, 136 Markets in Financial Instruments Directive (MIFID) 226 Markkula, Mike 162, 166, 167 Markopolos, Harry 232 Markowitz, Harry 69 Markowitz model of portfolio allocation 68–9 Martin, Felix 323n5 martingale 130, 131, 136, 139, 190 Marx, Groucho 252 Marx, Karl 144, 145 Capital 143 Mary Poppins (film) 11, 12 MasterCard 186 Masters, Brooke 120 maturity transformation 88, 92 Maxwell, Robert 197, 201 Mayan civilisation 277 Meade, James 263 Means, Gardiner 51 Meeker, Mary 40, 167 Melamed, Leo 19 Mercedes 170 merchant banks 25, 30, 33 Meriwether, John 110, 134 Merkel, Angela 231 Merrill Lynch 135, 199, 293, 300 Merton, Robert 110 Metronet 159 Meyer, André 205 MGM 33 Microsoft 29, 167 middleman, role of the 80–87 agency and trading 82–3 analysts 86 bad intermediaries 81–2 from agency to trading 84–5 identifying goods and services required 80, 81 logistics 80, 81 services from financial intermediaries 80–81 supply chain 80, 81 transparency 84 ‘wisdom of crowds’ 86–7 Midland Bank 24 Milken, Michael 46, 292 ‘millennium bug’ 40 Miller, Bill 108, 109 Minuit, Peter 59, 63 Mises, Ludwig von 225 Mittelstand (medium-size business sector) 52, 168, 169, 170, 171, 172 mobile banking apps 181 mobile phone payment transfers 186–7 Modigliani-Miller theorem 318n9 monetarism 241 monetary economics 5 monetary policy 241, 243, 245, 246 money creation 88 money market fund 120–21 Moneyball phenomenon 165 monopolies 45 Monte Carlo casino 123 Monte dei Paschi Bank of Siena 24 Montgomery Securities 167 Moody’s rating agency 21, 248, 249, 313n6 moral hazard 74, 75, 76, 92, 95, 256, 258 Morgan, J.P. 44, 166, 291 Morgan Stanley 25, 40, 130, 135, 167, 268 Morgenthau, District Attorney Robert 232–3 mortality tables 256 mortgage banks 27 mortgage market fluctuation in mortgage costs 148 mechanised assessment 84–5 mortgage-backed securities 20, 21, 40, 85, 90, 100, 128, 130, 150, 151, 152, 168, 176–7, 284 synthetic 152 Mozilo, Angelo 150, 152, 154, 293 MSCI World Bank Index 135 muckraking 44, 54–5, 79 ‘mugus’ 118, 260 multinational companies, and diversification 96–7 Munger, Charlie 127 Munich, Germany 62 Munich Re 62 Musk, Elon 168 mutual funds 27, 108, 202, 206 mutual societies 30 mutualisation 79 mutuality 124, 213 ‘My Way’ (song) 72 N Napoleon Bonaparte 26 Napster 185 NASA 276 NASDAQ 29, 108, 161 National Economic Council (US) 5, 58 National Employment Savings Trust (NEST) 255 National Institutes of Health 167 National Insurance Fund (UK) 254 National Provincial Bank 24 National Science Foundation 167 National Westminster Bank 24, 34 Nationwide 151 Native Americans 59, 63 Nazis 219, 221 neo-liberal economic policies 39, 301 Netjets 107 Netscape 40 Neue Markt 170 New Deal 225 ‘new economy’ bubble (1999) 23, 34, 40, 42, 98, 132, 167, 199, 232, 280 new issue market 112–13 New Orleans, Louisiana: Hurricane Katrina disaster (2005) 79 New Testament 76 New York Stock Exchange 26–7, 28, 29, 31, 49, 292 New York Times 283 News of the World 292, 295 Newton, Isaac 35, 132, 313n18 Niederhoffer, Victor 109 NINJAs (no income, no job, no assets) 222 Nixon, Richard 36 ‘no arbitrage’ condition 69 non-price competition 112, 219 Norman, Montagu 253 Northern Rock 89, 90–91, 92, 150, 152 Norwegian sovereign wealth fund 161, 253 Nostradamus 274 O Obama, Barack 5, 58, 77, 194, 271, 301 ‘Obamacare’ 77 Occidental Petroleum 63 Occupy movement 52, 54, 312n2 ‘Occupy Wall Street’ slogan 305 off-balance-sheet financing 153, 158, 160, 210, 250 Office of Thrift Supervision 152–3 oil shock (1973–4) 14, 36–7, 89 Old Testament 75–6 oligarchy 269, 302–3, 305 oligopoly 118, 188 Olney, Richard 233, 237, 270 open market operations 244 options 19, 22 Organisation for Economic Co-operation and Development (OECD) 263 Osborne, George 328n19 ‘out of the money option’ 102, 103 Overend, Gurney & Co. 31 overseas assets and liabilities 179–80, 179 owner-managed businesses 30 ox parable xi-xii Oxford University 12 P Pacific Gas and Electric 246 Pan Am 238 Paris financial centre 26 Parliamentary Commission on Banking Standards 295 partnerships 30, 49, 50, 234 limited liability 313n14 Partnoy, Frank 268 passive funds 99, 212 passive management 207, 209, 212 Patek Philippe 195, 196 Paulson, Hank 300 Paulson, John 64, 109, 115, 152, 191, 284 ‘payment in kind’ securities 131 payment protection policies 198 payments system 6, 7, 25, 180, 181–8, 247, 259–60, 281, 297, 306 PayPal 167, 168, 187 Pecora, Ferdinand 25 Pecora hearings (1932–34) 218 peer-to-peer lending 81 pension funds 29, 98, 175, 177, 197, 199, 200, 201, 208, 213, 254, 282, 284 pension provision 78, 253–6 pension rights 53, 178 Perkins, Charles 233 perpetual inventory method 321n4 Perrow, Charles 278, 279 personal financial management 6, 7 personal liability 296 ‘petrodollars’ 14, 37 Pfizer 96 Pierpoint Morgan, J. 165 Piper Alpha oil rig disaster (1987) 63 Ponzi, Charles 131, 132 Ponzi schemes 131, 132, 136, 201 pooled investment funds 197 portfolio insurance 38 Potts, Robin, QC 61, 63, 72, 119, 193 PPI, mis-selling of 296 Prebble, Lucy: ENRON 126 price competition 112, 219 price discovery 226 price mechanism 92 Prince, Chuck 34 private equity 27, 98, 166, 210 managers 210, 289 private insurance 76, 77 private sector 78 privatisation 39, 78, 157, 158, 258, 307 probabilistic thinking 67, 71, 79 Procter & Gamble 69, 108 product innovation 13 property and infrastructure 154–60 protectionism 13 Prudential 200 public companies, conversion to 18, 31–2, 49 public debt 252 public sector 78 Q Quandt, Herbert 170 Quandt Foundation 170 quantitative easing 245, 251 quantitative style 110–11 quants 22, 107, 110 Quattrone, Frank 167, 292–3 queuing 92 Quinn, Sean 156 R railroad regulation 237 railway mania (1840s) 35 Raines, Franklin 152 Rajan, Raghuram 56, 58, 79, 102 Rakoff, Judge Jed 233, 294, 295 Ramsey, Frank 67, 68 Rand, Ayn 79, 240 ‘random walk’ 69 Ranieri, Lew 20, 22, 106–7, 134, 152 rating agencies 21, 41, 84–5, 97, 151, 152, 153, 159, 249–50 rationality 66–7, 68 RBS see Royal Bank of Scotland re-insurance 62–3 Reagan, Ronald 18, 23, 54, 59, 240 real economy 7, 18, 57, 143, 172, 190, 213, 226, 239, 271, 280, 288, 292, 298 redundancy 73, 279 Reed, John 33–4, 48, 49, 50, 51, 242, 293, 314n40 reform 270–96 other people’s money 282–5 personal responsibility 292–6 principles of 270–75 the reform of structure 285–92 robust systems and complex structures 276–81 regulation 215, 217–39 the Basel agreements 220–25 and competition 113 the origins of financial regulation 217–19 ‘principle-based’ 224 the regulation industry 229–33 ‘rule-based’ 224 securities regulation 225–9 what went wrong 233–9 ‘Regulation Q’ (US) 13, 14, 20, 28, 120, 121 regulatory agencies 229, 230, 231, 235, 238, 274, 295, 305 regulatory arbitrage 119–24, 164, 223, 250 regulatory capture 237, 248, 262 Reich, Robert 265, 266 Reinhart, C.M. 251 relationship breakdown 74, 79 Rembrandts, genuine/fake 103, 127 Renaissance Technologies 110, 111, 191 ‘repo 105’ arbitrage 122 repo agreement 121–2 repo market 121 Reserve Bank of India 58 Reserve Primary Fund 121 Resolution Trust Corporation 150 retirement pension 78 return on equity (RoE) 136–7, 191 Revelstoke, first Lord 31 risk 6, 7, 55, 56–79 adverse selection and moral hazard 72–9 analysis by ‘ketchup economists’ 64 chasing the dream 65–72 Geithner on 57–8 investment 256 Jackson Hole symposium 56–7 Kohn on 56 laying bets on the interpretation of incomplete information 61 and Lloyd’s 62–3 the LMX spiral 62–3, 64 longevity 256 market 97, 98 mitigation 297 randomness 76 socialisation of individual risks 61 specific 97–8 risk management 67–8, 72, 79, 137, 191, 229, 233, 234, 256 risk premium 208 risk thermostat 74–5 risk weighting 222, 224 risk-pooling 258 RJR Nabisco 46, 204 ‘robber barons’ 44, 45, 51–2 Robertson, Julian 98, 109, 132 Robertson Stephens 167 Rockefeller, John D. 44, 52, 196 Rocket Internet 170 Rogers, Richard 62 Rogoff, K.S. 251 rogue traders 130, 300 Rohatyn, Felix 205 Rolls-Royce 90 Roman empire 277, 278 Rome, Treaty of (1964) 170 Rooney, Wayne 268 Roosevelt, Franklin D. v, 25, 235 Roosevelt, Theodore 43–4, 235, 323n1 Rothschild family 217 Royal Bank of Scotland 11, 12, 14, 24, 26, 34, 78, 91, 103, 124, 129, 135, 138, 139, 211, 231, 293 Rubin, Robert 57 In an Uncertain World 67 Ruskin, John 60, 63 Unto this Last 56 Russia defaults on debts 39 oligarchies 303 Russian Revolution (1917) 3 S Saes 168 St Paul’s Churchyard, City of London 305 Salomon Bros. 20, 22, 27, 34, 110, 133–4 ‘Salomon North’ 110 Salz Review: An Independent Review of Barclays’ Business Practices 217 Samuelson, Paul 208 Samwer, Oliver 170 Sarkozy, Nicolas 248, 249 Savage, L.J. 67 Scholes, Myron 19, 69, 110 Schrödinger’s cat 129 Scottish Parliament 158 Scottish Widows 26, 27, 30 Scottish Widows Fund 26, 197, 201, 212, 256 search 195, 209, 213 defined 144 and the investment bank 197 Second World War 36, 221 secondary markets 85, 170, 210 Securities and Exchange Commission (SEC) 20, 64, 126, 152, 197, 225, 226, 228, 230, 232, 247, 292, 293, 294, 313n6 securities regulation 225–9 securitisation 20–21, 54, 100, 151, 153, 164, 169, 171, 222–3 securitisation boom (1980s) 200 securitised loans 98 See’s Candies 107 Segarra, Carmen 232 self-financing companies 45, 179, 195–6 sell-side analysts 199 Sequoia Capital 166 Shad, John S.R. 225, 228–9 shareholder value 4, 45, 46, 50, 211 Sharpe, William 69, 70 Shell 96 Sherman Act (1891) 44 Shiller, Robert 85 Siemens 196 Siemens, Werner von 196 Silicon Valley, California 166, 167, 168, 171, 172 Simon, Hermann 168 Simons, Jim 23, 27, 110, 111–12, 124 Sinatra, Frank 72 Sinclair, Upton 54, 79, 104, 132–3 The Jungle 44 Sing Sing maximum-security gaol, New York 292 Skilling, Jeff 126, 127, 128, 149, 197, 259 Slim, Carlos 52 Sloan, Alfred 45, 49 Sloan Foundation 49 small and medium-size enterprises (SMEs), financing 165–72, 291 Smith, Adam 31, 51, 60 The Wealth of Nations v, 56, 106 Smith, Greg 283 Smith Barney 34 social security 52, 79, 255 Social Security Trust Fund (US) 254, 255 socialism 4, 225, 301 Société Générale 130 ‘soft commission’ 29 ‘soft’ commodities 17 Soros, George 23, 27, 98, 109, 111–12, 124, 132 South Sea Bubble (18th century) 35, 132, 292 sovereign wealth funds 161, 253 Soviet empire 36 Soviet Union 225 collapse of 23 lack of confidence in supplies 89–90 Spain: property bubble 42 Sparks, D.L. 114, 283, 284 specific risk 97–8 speculation 93 Spitzer, Eliot 232, 292 spread 28, 94 Spread Networks 2 Square 187 Stamp Duty 274 Standard & Poor’s rating agency 21, 99, 248, 249, 313n6 Standard Life 26, 27, 30 standard of living 77 Standard Oil 44, 196, 323n1 Standard Oil of New Jersey (later Exxon) 323n1 Stanford University 167 Stanhope 158 State Street 200, 207 sterling devaluation (1967) 18 stewardship 144, 163, 195–203, 203, 208, 209, 210, 211, 213 Stewart, Jimmy 12 Stigler, George 237 stock exchanges 17 see also individual stock exchanges stock markets change in organisation of 28 as a means of taking money out of companies 162 rise of 38 stock-picking 108 stockbrokers 16, 25, 30, 197, 198 Stoll, Clifford 227–8 stone fei (in Micronesia) 323n5 Stone, Richard 263 Stora Enso 196 strict liability 295–6 Strine, Chancellor Leo 117 structured investment vehicles (SIVs) 158, 223 sub-prime lending 34–5, 75 sub-prime mortgages 63, 75, 109, 149, 150, 169, 244 Summers, Larry 22, 55, 73, 119, 154, 299 criticism of Rajan’s views 57 ‘ketchup economics’ 5, 57, 69 support for financialisation 57 on transformation of investment banking 15 Sunday Times 143 ‘Rich List’ 156 supermarkets: financial services 27 supply chain 80, 81, 83, 89, 92 Surowiecki, James: The Wisdom of Crowds xi swap markets 21 SWIFT clearing system 184 Swiss Re 62 syndication 62 Syriza 306 T Taibbi, Matt 55 tailgating 102, 103, 104, 128, 129, 130, 136, 138, 140, 152, 155, 190–91, 200 Tainter, Joseph 277 Taleb, Nassim Nicholas 125, 183 Fooled by Randomness 133 Tarbell, Ida 44, 54 TARGET2 system 184, 244 TARP programme 138 tax havens 123 Taylor, Martin 185 Taylor Bean and Whitaker 293 Tea Party 306 technological innovation 13, 185, 187 Tel Aviv, Israel 171 telecommunications network 181, 182 Tesla Motors 168 Tetra 168 TfL 159 Thai exchange rate, collapse of (1997) 39 Thain, John 300 Thatcher, Margaret 18, 23, 54, 59, 148, 151, 157 Thiel, Peter 167 Third World debt problem 37, 131 thrifts 25, 149, 150, 151, 154, 174, 290, 292 ticket touts 94–5 Tobin, James 273 Tobin tax 273–4 Tolstoy, Count Leo 97 Tonnies, Ferdinand 17 ‘too big to fail’ 75, 140, 276, 277 Tourre, Fabrice ‘Fabulous Fab’ 63–4, 115, 118, 232, 293, 294 trader model 82, 83 trader, rise of the 16–24 elements of the new trading culture 21–2 factors contributing to the change 17–18 foreign exchange 18–19 from personal relationships to anonymous markets 17 hedge fund managers 23 independent traders 22–3 information technology 19–20 regulation 20 securitisation 20–21 shift from agency to trading 16 trading as a principal source of revenue and remuneration 17 trader model 82, 83 ‘trading book’ 320n20 transparency 29, 84, 205, 210, 212, 226, 260 Travelers Group 33, 34, 48 ‘treasure islands’ 122–3 Treasuries 75 Treasury (UK) 135, 158 troubled assets relief program 135 Truman, Harry S. 230, 325n13 trust 83–4, 85, 182, 213, 218, 260–61 Tuckett, David 43, 71, 79 tulip mania (1630s) 35 Turner, Adair 303 TWA 238 Twain, Mark: Pudd’nhead Wilson’s Calendar 95–6 Twitter 185 U UBS 33, 134 UK Independence Party 306 unemployment 73, 74, 79 unit trusts 202 United States global dominance of the finance industry 218 house prices 41, 43, 149, 174 stock bubble (1929) 201 universal banks 26–7, 33 University of Chicago 19, 69 ‘unknown unknowns’ 67 UPS delivery system 279–80 US Defense Department 167 US Steel 44 US Supreme Court 228, 229, 304 US Treasury 36, 38, 135 utility networks 181–2 V value discovery 226–7 value horizon 109 Van Agtmael, Antoine 39 Vanderbilt, Cornelius 44 Vanguard 200, 207, 213 venture capital 166 firms 27, 168 venture capitalists 171, 172 Vickers Commission 194 Viniar, David 204–5, 233, 282, 283, 284 VISA 186 volatility 85, 93, 98, 103, 131, 255 Volcker, Paul 150, 181 Volcker Rule 194 voluntary agencies 258 W wagers and credit default swaps 119 defined 61 at Lloyd’s coffee house 71–2 lottery tickets 65 Wall Street, New York 1, 16, 312n2 careers in 15 rivalry with London 13 staffing of 217 Wall Street Crash (1929) 20, 25, 27, 36, 127, 201 Wall Street Journal 294 Wallenberg family 108 Walmart 81, 83 Warburg 134 Warren, Elizabeth 237 Washington consensus 39 Washington Mutual 135, 149 Wasserstein, Bruce 204, 205 Watergate affair 240 ‘We are the 99 per cent’ slogan 52, 305 ‘We are Wall Street’ 16, 55, 267–8, 271, 300, 301 Weber, Max 17 Weill, Sandy 33–4, 35, 48–51, 55, 91, 149, 293, 314n40 Weinstock, Arnold 48 Welch, Jack 45–6, 48, 50, 52, 126, 314n40 WestLB 169 Westminster Bank 24 Whitney, Richard 292 Wilson, Harold 18 windfall payments 14, 32, 127, 153, 290 winner’s curse 103, 104, 156, 318n11 Winslow Jones, Alfred 23 Winton Capital 111 Wolfe, Humbert 7 The Uncelestial City 1 Wolfe, Tom 268 The Bonfire of the Vanities 16, 22 women traders 22 Woodford, Neil 108 Woodward, Bob: Maestro 240 World Bank 14, 220 World.Com bonds 197 Wozniak, Steve 162 Wriston, Walter 37 Y Yellen, Janet 230–31 Yom Kippur War (1973) 36 YouTube 185 Z Zurich, Switzerland 62
The Subterranean Railway: How the London Underground Was Built and How It Changed the City Forever by Christian Wolmar
Pearson had wanted the mains and pipes to be owned by co-operatives of consumers, a remarkably far-sighted concept for the 1840s; but, after a pitched battle over the installation of a gas main between workmen employed by the Commercial Gas Company and a rival group enlisted by Pearson for the Commissioner of Sewers, he was forced to withdraw, leaving the monopoly unchallenged. It was as City Solicitor, a position he held from 1839 until his death in 1862, that he was able to smooth the way for the creation of the world’s first underground railway. Pearson had first set out the idea of ‘trains in drains’ when standing unsuccessfully in a by-election in Lambeth, but the idea survived his failure, although it was shelved while the excesses of the railway mania of the mid 1840s ran their course. In many respects, poor Pearson can be seen as a serial but heroic British failure. He stood in several other by-elections for Parliament apart from Lambeth, always being roundly defeated, and many of his schemes and ideas never caught on, but his tenacity, perhaps prompted by these setbacks, brought the scheme for an underground railway to fruition. Given this patchy record it is not surprising that Pearson’s contemporaries were sceptical about his early dreams of a rail line under the streets and that it took two decades for the railway to be built.
From 1846 onwards, there was a series of inquiries, roughly one every decade, by Royal Commissions and select committees of Parliament into the various plans of the railway entrepreneurs. Their decisions largely shaped the rail map of the capital as it exists today and, indeed, the findings of the first one, the Royal Commission on Metropolis Railway Termini of 1846, led directly to the development of the Metropolitan line. The establishment was a response to the fact that at the height of the railway mania of the mid 1840s, no fewer than nineteen urban lines and termini were projected and it was clear that this potential wholesale demolition, and the chaotic traffic conditions it would engender, could not be countenanced, even by the Victorians obsessed with keeping government out of business. The Commission took evidence from a diverse range of people and interests – valuers, parish bodies, the Corporation of London, even Her Majesty’s Woods and Forests, and, of course, railway developers with their retinue of traffic managers, solicitors, engineers and land agents.
Liberalism at Large: The World According to the Economist by Alex Zevin
activist fund / activist shareholder / activist investor, affirmative action, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disruptive innovation, Donald Trump, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, global supply chain, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, John von Neumann, Joseph Schumpeter, Julian Assange, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, market bubble, Martin Wolf, means of production, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, Plutocrats, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Snapchat, Socratic dialogue, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional
Keynes had gleefully laid traps for the Economist here and in the Nation and Athenaeum, in which he tried to show that industry and finance could be at odds, and that the management of the gold standard had needlessly deepened their divergence.64 It must be stressed again, however, that Keynes criticized the ‘mandarins’ in the Economist as much for the harm they had done to the City as to Britain’s industrial north: his support for ‘tied lending’ was meant to renew the virtuous mid-nineteenth century circle of foreign investment and exports – and to allow the City to compete with New York and Paris, which already engaged in similar breaches of free trade.65 And while Keynes may have outwitted the Economist, it was the latter that prevailed on the level of policy. A glance at the memoranda of Treasury officials makes clear how closely they relied on the Economist to combat not just capital controls but – going back to James Wilson’s writings on the 1840s railway mania, which still figured in the civil service exams – to loan-financed public works schemes in general, as ‘crowding out’ private investment.66 1929: Keynes, the Crash and Its Aftermath It was the anvil of events, not superior cleverness, which eventually decided many of these issues in favour of Keynes, as the Wall Street bubble finally burst in 1929, precipitating the Great Depression. While this soon sent unemployment skyward, for a short time it relieved pressure on sterling, allowing the Bank rate to fall and easing credit; by May 1930, Britain was again losing gold, this time to France, resented for its undervalued currency and generally rosier outlook.67 Labour, whose tenure in office since May 1929 had so far hardly been the disaster the Treasury officials had imagined, met this crisis with calls for retrenchment.
Did she or the other dissenters resign over these disagreements? ‘We did not. Shameful that, I agree.’49 In 2012, Johnny Grimond gave a speech at his retirement party announcing that in all his time there, the Economist ‘never saw a war it didn’t like’ – a memorable barb, eliciting nervous laughter from his colleagues and a riposte from Bill Emmott.50 So, finally, to finance. A ‘friend to the investor’ since the railway mania of the 1840s, the paper has made some of its most storied contributions of all to this field. Wilson championed unlimited and unregulated competition in banking, including when it came to the printing of notes. Bagehot, a banker before he was a journalist, tamped down this celebration of unbridled competition – pointing out that what was wanted in the currency was fixity of value, not competition, especially in the event of commercial crises, when many of these rival notes would turn out to be worthless.
Bagehot countered, ‘the chief utility of unlimited competition is its quality of reducing the cost of production to the minimum which nature admits of … but improvements in the process of coining brought about by the competition of individual coiners would have a different and less beneficial effect. What is wanted in money is fixity of value.’ To Wilson he addressed another argument: ‘If new banks of issue had been allowed to spring up during the railway mania, who can doubt that a large number of insolvent concerns would have come into existence, and have gone down at the first appearance of depression, leaving the holders of their notes with papers not only inconvertible, but valueless?’ CW, Vol. IX, pp. 244, 247. 37.Ibid., p. 235. At least in this early article laissez-faire is almost completely redefined. Bagehot says it must meet certain moral and political criteria before it can be applied.
More: The 10,000-Year Rise of the World Economy by Philip Coggan
"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Berlin Wall, Bob Noyce, Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, zero-sum game
By eliminating the risk of wider losses, the limited liability structure encouraged more people to invest in shares, thereby reducing the cost of capital, allowing more companies to be formed and boosting long-term economic growth. Capitalism, traditionally seen as a very individualist creed, only flourished when investors were able to band together. The limited liability format was extremely useful for the building of the railways, which required a vast amount of capital and labour. In 1891, the Pennsylvania railway employed three times as many people as the combined US armed forces. Britain had a railway mania in the mid-1840s, when the creation of British companies still required an Act of Parliament; in 1846, 246 railway acts were passed in a single year.72 Those who invested in railway shares at the peak did not get their money back until the end of the century.73 That didn’t stop investors in other markets from trying their luck. Railways comprised 60% of all issued shares on the New York Stock Exchange in 1898.
The technology spread remarkably quickly: the first section of the Baltimore & Ohio railway also opened in 1830, while Belgium and Germany began operations in 1835, the Austrian empire in 1838, and Italy and the Netherlands in 1839.11 It became much cheaper to transport goods as a result. In Germany, the price for carrying a ton of goods on the railways in 1850 was a quarter of the cost of road transport in 1800. This was an enormous boost to economic efficiency, and trade across the country became much more attractive.12 Such was the enthusiasm for the new technology that many countries saw periods of “railway mania” as investors poured capital into new lines. At one point in the 1830s, planned railway investment in Britain equalled 8% of GDP. There were too many lines, on too many competing routes, for them all to succeed. After 1845, railway shares lost two-thirds of their value, dropping to pre-1835 levels; among those who lost money were Charles Darwin and the Brontë sisters.13 The building of the American railways involved an extraordinary combination of outright chicanery and government support.
Bitcoin: The Future of Money? by Dominic Frisby
3D printing, altcoin, bank run, banking crisis, banks create money, barriers to entry, bitcoin, blockchain, capital controls, Chelsea Manning, cloud computing, computer age, cryptocurrency, disintermediation, Ethereum, ethereum blockchain, fiat currency, fixed income, friendly fire, game design, Isaac Newton, Julian Assange, land value tax, litecoin, M-Pesa, mobile money, money: store of value / unit of account / medium of exchange, Occupy movement, Peter Thiel, Ponzi scheme, prediction markets, price stability, QR code, quantitative easing, railway mania, Ronald Reagan, Ross Ulbricht, Satoshi Nakamoto, Silicon Valley, Skype, slashdot, smart contracts, Snapchat, Stephen Hawking, Steve Jobs, Ted Nelson, too big to fail, transaction costs, Turing complete, War on Poverty, web application, WikiLeaks
By the late 1830s all the conditions were in place for a frenzy. The Liverpool and Manchester railway had proved a success, the Bank of England had cut interest rates, the Industrial Revolution had created a new, wealthy middle-class and the new medium of newspapers meant that companies could advertise themselves and news could travel quickly. There was an overriding belief in this revolutionary technology and there was money to invest. Railway mania was born. Hundreds of railway companies sprung up and investment poured in. Land was bought, tracks were laid and trains were built. But it soon became clear that railways were not as easy to build as was once thought, nor was it so easy to turn a profit. Many of the companies were unviable. Some of them were get-rich-quick schemes and scams. Then, in 1845, the Bank of England put up interest rates.
Fred Dibnah's Age of Steam by David Hall, Fred Dibnah
Crampton’s locomotives could reach speeds of 90 miles per hour (145 kmph), but were not popular in Britain because of the uncomfortable ride and the destructive effect they had on the track, a direct result of the low driving axle. A British engine built to this design by J. E. Connell of the London and North Western Railway had the nickname ‘Mac’s Mangle’ because of the destruction it caused. Throughout the 1830s and 1840s people all over Britain were clamouring for new lines and money was being thrown at these developments to such an extent that the phenomenon was given the name of ‘railway mania’. Within twenty years of the Rainhill Trials around 5,000 miles (8,047 km) of track criss-crossed the country. The nineteenth-century railway pioneers brought the British nation to the forefront of the world stage in the realm of civil engineering. The construction of the lines involved such feats of engineering that it seems incredible that these were accomplished in the days when precision tools and mechanical aids to labour were unknown.
The Nature of Technology by W. Brian Arthur
Andrew Wiles, business process, cognitive dissonance, computer age, creative destruction, double helix, endogenous growth, Geoffrey West, Santa Fe Institute, haute cuisine, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, knowledge economy, locking in a profit, Mars Rover, means of production, Myron Scholes, railway mania, Silicon Valley, Simon Singh, sorting algorithm, speech recognition, technological singularity, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions
The economist Carlota Perez, who has investigated the stages technology revolutions go through, points out that such conditions can bring on an investment mania—and a crash. No crash happened with early gene technology. But crashes have been by no means rare in the past. In Britain in the mid-1840s the wild enthusiasm for railways—“the country is an asylum of railway lunatics,” declared Lord Cockburn, a Scottish judge—brought an inevitable collapse. By 1845 a railway mania was in full swing, with scrip (shares that have been sliced into small pieces) sold by alley men, and new schemes for direct lines from little-known towns to other little-known towns launched almost by the day. Then the bubble burst. An economic Week of Terror began on October 16, 1847, in which railway shares lost 85 percent of their peak value, many banks were forced to close, and Britain was brought to the brink of economic collapse.
Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer
Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, margin call, Mark Zuckerberg, McMansion, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative ﬁnance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, Thales of Miletus, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application
For more on the role of technology in propelling financial innovation, see Stelios Michalopoulos, Luc Laeven, and Ross Levine, “Financial Innovation and Endogenous Growth” (NBER Working Paper 51356, September 2009). 16. Richard Sylla, “A Historical Primer on the Business of Credit Ratings” (paper prepared for a conference of the World Bank, Washington, DC, March 2001). 17. Andrew Odlyzko, “Collective Hallucinations and Inefficient Markets: The British Railway Mania of the 1840s,” SSRN Electronic Journal (2010). 18. Peter Tufano, “Business Failure, Judicial Intervention and Financial Innovation: Restructuring US Railroads in the Nineteenth Century,” Business History Review (1997). 19. Robert Shiller, “The Invention of Inflation-Indexed Bonds in America” (NBER Working Paper 10183, December 2003). For a more comprehensive history, see Franklin Allen and Douglas Gale, Financial Innovation and Risk Sharing (Cambridge, MA: MIT Press, 1994). 20.
The Economic Singularity: Artificial Intelligence and the Death of Capitalism by Calum Chace
3D printing, additive manufacturing, agricultural Revolution, AI winter, Airbnb, artificial general intelligence, augmented reality, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Berlin Wall, Bernie Sanders, bitcoin, blockchain, call centre, Chris Urmson, congestion charging, credit crunch, David Ricardo: comparative advantage, Douglas Engelbart, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Flynn Effect, full employment, future of work, gender pay gap, gig economy, Google Glasses, Google X / Alphabet X, ImageNet competition, income inequality, industrial robot, Internet of things, invention of the telephone, invisible hand, James Watt: steam engine, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, knowledge worker, lifelogging, lump of labour, Lyft, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Milgram experiment, Narrative Science, natural language processing, new economy, Occupy movement, Oculus Rift, PageRank, pattern recognition, post scarcity, post-industrial society, post-work, precariat, prediction markets, QWERTY keyboard, railway mania, RAND corporation, Ray Kurzweil, RFID, Rodney Brooks, Sam Altman, Satoshi Nakamoto, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Skype, software is eating the world, speech recognition, Stephen Hawking, Steve Jobs, TaskRabbit, technological singularity, The Future of Employment, Thomas Malthus, transaction costs, Tyler Cowen: Great Stagnation, Uber for X, uber lyft, universal basic income, Vernor Vinge, working-age population, Y Combinator, young professional
In the second half of the 18th century, the Scottish inventor James Watt teamed up with the English entrepreneur Matthew Boulton to improve Newcomen’s steam engine so that it could power factories, and make manufacturing possible on an industrial scale. At the same time, iron production was being transformed by the replacement of charcoal by coal, and “canal mania” took hold, as heavy loads could be transported more cheaply by canal than by road or sea. Later, in the mid-19th century, steam engines were improved sufficiently to make them mobile, which ushered in the UK's “railway mania” of the 1840s. Projects authorised in the middle years of that decade led to the construction of 6,000 miles of railway – more than half the length of the country's current rail network. Other European countries and the USA emulated the UK's example, usually lagging it by a decade or two. Toward the end of the 19th century, Sir Henry Bessemer's method for converting iron into steel enabled steel to replace iron in a wide range of applications.
Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch
agricultural Revolution, Airbnb, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, large denomination, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, technoutopianism, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons
In A Piece of the Action: How the Middle Class Joined the Money Class, pp. 89–105. New York: Simon & Schuster. Norman, B., R. Shaw and G. Speight. 2011. The history of interbank settlement arrangements: exploring central banks’ role in the payments system. Bank of England, June. Nuvolari, A. 2004. Collective invention during the British Industrial Revolution. Cambridge Journal of Economics 28(3), 347–368. Odlyzko, A. 2011. The collapse of the railway mania, the development of capital markets, and Robert Lucas Nash, a forgotten pioneer of accounting and financial analysis. Accounting History Review 21(3), 309–345. Omwansa, T., and N. Sullivan. 2012. Money, Real Quick: The Story of M-Pesa. London: Guardian Books. Pantaleone, W. 2014. Italy seizes 556,000 euros in fake coins minted in China. Daily Mail, 12 December. Peck, M. 2013. Ripple credit system could help or harm Bitcoin.
The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction by Richard Bookstaber
"Robert Solow", asset allocation, bank run, bitcoin, business cycle, butterfly effect, buy and hold, capital asset pricing model, cellular automata, collateralized debt obligation, conceptual framework, constrained optimization, Craig Reynolds: boids flock, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, dark matter, disintermediation, Edward Lorenz: Chaos theory, epigenetics, feminist movement, financial innovation, fixed income, Flash crash, Henri Poincaré, information asymmetry, invisible hand, Isaac Newton, John Conway, John Meriwether, John von Neumann, Joseph Schumpeter, Long Term Capital Management, margin call, market clearing, market microstructure, money market fund, Paul Samuelson, Pierre-Simon Laplace, Piper Alpha, Ponzi scheme, quantitative trading / quantitative ﬁnance, railway mania, Ralph Waldo Emerson, Richard Feynman, risk/return, Saturday Night Live, self-driving car, sovereign wealth fund, the map is not the territory, The Predators' Ball, the scientific method, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, tulip mania, Turing machine, Turing test, yield curve
Because Jevons patterned his economic methods after the scientific methods used for studying the natural world, he looked for a natural phenomenon as the anchor for his study of otherwise unexplainable crises. This led him to theorize that sunspots were the culprit.18 He was determined to link sunspot periodicity to the periodicity of commercial crises. And Britain had certainly been subject to them, most recently the 1845–1850 railway mania bubble, which, like all bubbles, did not end well. Jevons’s interest in sunspots was not mystical. He hypothesized that the success of harvests might be one of many causes that could precipitate a panic: “It is the abnormal changes which are alone threatening or worthy of very much attention. These changes arise from deficient or excessive harvests, from sudden changes of supply or demand in any of our great staple commodities, from manias of excessive investment or speculation, from wars and political disturbances, or other fortuitous occurrences which we cannot calculate upon and allow for.”19 Jevons used a sunspot cycle that had been determined by earlier researchers to be 11.11 years.
When the Money Runs Out: The End of Western Affluence by Stephen D. King
Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population
The implicit mortgage subsidies on offer from Fannie Mae, Freddie Mac and other government-sponsored enterprises in the years running up to our modern-day subprime crisis were surely the equivalent of the government subsidies and land grants provided to railroad speculators in the 1860s. The inevitable over-investment in housing at the beginning of the twenty-first century was foreshadowed by railroad mania in the mid-nineteenth century, while the bank failures that followed the onset of the subprime crisis are no more than a twenty-first century version of the banking collapse triggered by the bankruptcy of Jay Cooke and Co. Subsidizing interest rates is, it seems, a recipe for financial upheaval. The twenty-first century equivalents of a near-universal gold standard are the global dollar standard – with massive increases in foreign exchange reserves, most abundantly within the emerging world, greenbacks are no longer the preserve of the US – and, within Europe, the euro.
Last Trains: Dr Beeching and the Death of Rural England by Charles Loft
The bitter competition between the South Eastern and London, Chatham and Dover companies ruined both shareholders and services alike. When the Manchester, Sheffield and Lincolnshire company, whose initials were jokingly said to stand for ‘Money Sunk and Lost’, built an extension to London and renamed itself the Great Central, the wags justifiably re-dubbed it ‘Gone Completely’. The ‘railway king’, George Hudson, central figure in the ‘railway mania’ investment boom of the 1840s, built a railway empire that exceeded a thousand miles and shaped the network permanently on imaginary profits and false promises that ruined many an investor as well as himself. Railways had never been guaranteed financial successes, but in the inter-war years no one was making much money from them. The assumption that earnings would return to pre-war levels, on which the Southern, LNER, LMS and GWR had been created from a host of smaller companies in 1921, proved to be wrong and, although the industry was by no means bankrupt, earnings on ordinary stocks ranged from little to nothing.
Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato
balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, business cycle, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, G4S, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, mass incarceration, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Steve Jobs, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, trickle-down economics, universal basic income, very high income
Thus, we see a flourishing of casino-like financial instruments, such as those that fuelled the sub-prime mortgage and toxic instruments boom in the US in the 2000s, in order to mobilise the increasing amounts of investment funds looking for easy gains. Indeed, in the past, as now, every installation period has culminated in a major bubble followed by a major crash. In the 1790s and 1840s the canal and railway manias ended in panics; the bubbles of the first globalisation collapsed in the 1890s in Argentina, Australia, the US and several other countries; and the ‘Roaring Twenties’ ended in the crash of 1929. In each case, the basic infrastructure and technologies of the new paradigm had been installed so that the full growth potential of the revolution could be realised across the entire economy. Yet, reverting to ‘business as usual’ after such crashes does not work.
Railways & the Raj: How the Age of Steam Transformed India by Christian Wolmar
Beeching cuts, British Empire, collective bargaining, colonial rule, James Dyson, John Snow's cholera map, joint-stock company, Khyber Pass, Kickstarter, low cost airline, Mahatma Gandhi, Ponzi scheme, railway mania, strikebreaker, trade route, women in the workforce
During his eight-year tenure, several princely states were taken under Britain’s wing thanks to his clever policy of assuming control over any state where a ruler had died without having a son who could inherit the title. Dalhousie had already been involved in the railway industry back in the UK as President of the Board of Trade – the ministry responsible at the time for the railways – in Robert Peel’s government during the collapse of the railway mania in 1845. Dalhousie’s voracious appetite for work was not wasted, and he was one of those politicians who could master both the big picture and the smallest detail. When he accepted the role of Governor-General of India, he made it clear that he alone would determine policy in the subcontinent, independent of party politics back home, and consequently much of the shape, policies and practices of Indian railways today are a result of the ideas he set out in two renowned ‘minutes’ written in 1850 and 1853 respectively to the East India Company’s Court of Directors.
Bean Counters: The Triumph of the Accountants and How They Broke Capitalism by Richard Brooks
accounting loophole / creative accounting, asset-backed security, banking crisis, Big bang: deregulation of the City of London, blockchain, BRICs, British Empire, business process, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Strachan, Deng Xiaoping, Donald Trump, double entry bookkeeping, Double Irish / Dutch Sandwich, energy security, Etonian, eurozone crisis, financial deregulation, forensic accounting, Frederick Winslow Taylor, G4S, intangible asset, Internet of things, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, light touch regulation, Long Term Capital Management, low cost airline, new economy, Northern Rock, offshore financial centre, oil shale / tar sands, On the Economy of Machinery and Manufactures, Ponzi scheme, post-oil, principal–agent problem, profit motive, race to the bottom, railway mania, regulatory arbitrage, risk/return, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, statistical model, supply-chain management, The Chicago School, too big to fail, transaction costs, transfer pricing, Upton Sinclair, WikiLeaks
In doing so, it became simultaneously a tool for advancement and exploitation. It helped generate greater returns and thus investment, but it also laid bare, for example, the financial appeal of child labour. It was the next phase of the Industrial Revolution, however, drawing in public investment, that really brought home the power of accounting and the need for it to be done professionally. DE-RAILED ‘Railway mania’ hit Britain in the 1840s, thanks not just to George Stephenson’s 1829 ‘Rocket’ but also in large part to the repeal of the 1720 Bubble Act a few years before. Companies could now be incorporated through a private Act of Parliament rather than a royal charter. By 1847, a couple of hundred of railway companies were vying to add a planned 20,000 miles of track to the existing 6,000, making lavish promises to would-be investors.
The Power Makers by Maury Klein
Albert Einstein, Albert Michelson, animal electricity, Augustin-Louis Cauchy, British Empire, business climate, invention of radio, invention of the telegraph, Isaac Newton, James Watt: steam engine, Louis Pasteur, luminiferous ether, margin call, Menlo Park, price stability, railway mania, Right to Buy, the scientific method, trade route, transcontinental railway, working poor
It lasted only until June 1831, when a fireman, annoyed by the steam hissing from the pop valve, tied the valve down. The explosion killed him, sent the engineer flying, and demolished the engine.16 Boston merchants took an even more ambitious tack, underwriting rail lines to Lowell, Providence, and Worcester. Before the latter road was even completed, a new company organized to extend it another 150 miles through Springfield to Albany. As the 1830s wore on, railroad mania began to upstage the canal craze. The two sons of John Stevens organized the Camden & Amboy Railroad and completed it in 1833. The following year a group of three roads connected Philadelphia and Pittsburgh; later they would be combined into the Pennsylvania Railroad. By 1840 only four of the nation’s twenty-six states still lacked any railroad track. As rails spread across the land, opposition came from canal owners, some states that had invested heavily in canals, turnpike and bridge companies, stagecoach lines, tavernkeepers, and anyone who saw his business threatened by the railroad.
The most traditional source of investment for people with money had always been land or its upscale urban relative, real estate. Government securities constituted another outlet for surplus funds, along with public improvement projects like canals, docks, or roadways. The advent of the railroad, the nation’s first and most capital-intensive big business, transformed the capital market no less than the business and physical landscape. The railroad mania literally created the modern American capital market and with it the stock exchanges that came to be dominated by rail securities along with a smattering of government issues. The term “industrial securities” did not even come into existence until 1889. In that year no fewer than ten railroads had a net worth exceeding $100 million, led by the mighty Pennsylvania Railroad at more than $200 million.
The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle
"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game
In his book The Romantic Economist he advocates a new emphasis in economics on imagination: “The Romantics stressed the central role of the imagination in creating and envisioning the future, and in forging our own identities and aims out of the incommensurable and conflicting values and discourses we face.”8 This perspective ties in with the argument that measures such as GDP are an inadequate way to assess economic progress; that we can’t capture it in monetary terms. These are only two examples plucked out a vast literature highlighting the adverse cultural and social consequences of economic growth. Each economic crash, following a period of boom and excess, has brought a new surge of criticism. Karl Marx was inspired, if that’s the right word, by the financial crises of Victorian Britain such as the railway manias and stock price crashes of the 1840s and the mid-nineteenth-century banking collapses. But the reaction was perhaps most dramatic in the 1930s, when the inevitable result of the Great Crash and the Depression was to encourage many different attempts to reimagine the fundamental purposes and aims of the economy. Some of the reactions, as we know with hindsight, had profound and terrible political and historical consequences.
eBoys by Randall E. Stross
barriers to entry, business cycle, call centre, carried interest, cognitive dissonance, disintermediation, edge city, high net worth, hiring and firing, Jeff Bezos, job-hopping, knowledge worker, late capitalism, market bubble, Menlo Park, new economy, old-boy network, passive investing, performance metric, pez dispenser, railway mania, rolodex, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Y2K
The NASDAQ composite index officially met the definition of “market correction,” as it was off more than 10 percent from its high. Bob Kagle remained certain that Internet stocks had much farther to fall; reality could only be kept at bay for so long. He gave each of his partners a copy of Edward Chancellor’s history of financial manias, Devil Take the Hindmost, urging them to read it. Chancellor’s account of England’s railway mania of 1845 had made an especially deep impression on Kagle, who saw all of the similarities between the railroad, then hailed as a revolutionary advance without historical parallel, and the Internet. In both cases the technological change was as fundamental as its champions claimed, but investors’ enthusiasm about imminent opportunities to reap fortunes moved beyond the reasonable. All businesses must earn a profit in order to be viable; Kagle refused to relinquish this simple truth.
Engines of War: How Wars Were Won & Lost on the Railways by Christian Wolmar
After his suggestion to build the line was accepted by the Duke of Newcastle, the material for the railway was gathered together at remarkable speed. So was the workforce of around 250 experienced navvies – eventually nearly four times as many worked on the line at the peak of construction – who were not only motivated by the nationalistic fervour which they strongly espoused but also by the shortage of work since the collapse of the railway mania in Britain in the late 1840s. The flotilla of steamers carrying the men and material managed to leave in December 1854 for the two-month journey within a few weeks of the acceptance of the idea by the government. The project certainly caught the imagination of the public, who liked the idea of these rowdy navvies being sent to the other end of Europe to save the British army. Peto was appointed chief engineer and was rewarded for his efforts with a baronetcy, although he did not actually travel to the Crimea.
The Regency Revolution: Jane Austen, Napoleon, Lord Byron and the Making of the Modern World by Robert Morrison
British Empire, colonial rule, Corn Laws, corporate social responsibility, financial independence, full employment, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, land tenure, Mahatma Gandhi, New Urbanism, railway mania, stem cell, trade route, transatlantic slave trade, upwardly mobile, urban planning, wage slave
Though soon obsolete, each of their schemes introduced valuable innovations, and of the three, Blenkinsop’s was the most successful. His locomotive, named the Prince Regent and built by the outstanding mechanical engineer Matthew Murray, made its inaugural run in June 1812, and within eighteen months three of his engines were in service hauling coal trucks over rack-rail transmission from the Middleton collieries to nearby Leeds. Thomas Gray of Nottingham saw Blenkinsop’s train in action and soon succumbed to railway mania. Locomotives, he prophesized in 1820, “would revolutionize the whole face of the material world,” superseding canal boats and road vehicles and alleviating the terrible suffering inflicted on the half-million horses pushed hard over Britain’s turnpike roads by coach drivers determined to stay on schedule and ahead of the competition. Richard Lovell Edgeworth shared Gray’s confidence that locomotives would transform travel everywhere.
The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor
"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bernie Madoff, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Donald Trump, double helix, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Hernando de Soto, income inequality, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, transaction costs, Wolfgang Streeck
Clients may come and go and so too may the assets for which they seek coding as capital; but the lawyers remain and can quickly turn their legal skills to new assets and new clients. 162 c h a P te r 7 This is not to say that lawyers have never been caught committing illegal acts or indicted for them.5 But such cases are few and far between, not just because lawyers know “how to use law in two crucial ways: to seize an opportunity for quick gain and, having done so, to cover their tracks,” as critics of the legal profession put it in the context of the railway manias of the nineteenth century.6 Rather, coding capital is a work that requires expert legal knowledge in order to identify opportunities for legal innovation while also guarding against legal risk. The masters of the code don’t just use and apply existing law; they actively fashion new law—subject only to ex post scrutiny by a court, or, if they so choose, by private arbitrators, many of whom, of course, are their peers.
To the Ends of the Earth: Scotland's Global Diaspora, 1750-2010 by T M Devine
agricultural Revolution, British Empire, deindustrialization, deskilling, full employment, ghettoisation, housing crisis, invention of the telegraph, invisible hand, joint-stock company, Khartoum Gordon, land tenure, manufacturing employment, mass immigration, new economy, New Urbanism, oil shale / tar sands, railway mania, Red Clydeside, rising living standards, Robert Gordon, Scramble for Africa, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transatlantic slave trade, transcontinental railway, women in the workforce
Every class and occupation was represented; for this reason the fortunes of these companies, for good or evil, affected the economy and the people of Scotland in an exaggerated way.61 The obvious question then begs itself: why was investment at home so neglected in favour of sending the nation’s wealth abroad on such a scale in this period? Domestic investment in the second, metal-based phase of Scottish industrialization and during the mid-century railway mania had indeed taken place on an unparalleled scale. If significant demand for funds for home-based industry had existed they would have been delivered. Yet Scottish capital generally lacked domestic outlets in the last three decades of the nineteenth century except for a short property boom and a brief period of manufacturing expansion in the early 1870s.62 This is confirmed by the sustained decline in the rate of interest and the shift on the part of the big Scottish investment companies away from domestic investment because of falling yields.63 By the later 1880s, even Glasgow and the west of Scotland, the heartlands of heavy industry, were beginning to move into the overseas capital markets.
Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton
Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, Plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise
But overall, there can be little confidence in the workings of such a system, despite the relief that total disaster may have been avoided. There is keen awareness of the fragility of the recovery and the profundity of the flaws that have been exposed. Moreover, there is not even the usual consolation that can be gleaned once a bubble has burst – that something useful will remain, perhaps the seeds of the next wave of innovative growth.6 Once railway mania had collapsed, the United States was left with a decent railway network; the dot.com bubble popped but left behind a wealth of young and vibrant ICT companies. This boom has left little but a vast overhang of public debt and overstretched banks, along with a range of sectors and companies that now need to reconstitute themselves because the assumptions on which they built their business models have been exposed as bunk.
Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay
"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative ﬁnance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game
Since the spread of the narrative is necessarily gradual, those who adopt it first may reap rich profits as latecomers climb on the bandwagon, and commentators exaggerate the speed and scale with which the consequences of economic developments will take effect. As has been widely recognised, people tend to overstate the short-run impact of a new technology and to understate the long-run impact. The seminal work on financial bubbles is Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds . This book, written during the 1840s railway mania, traced an early history of contagious financial folly through the Dutch tulip craze of the 1630s and the South Sea bubble a century later. Recent scholarship is more sceptical about the nature and scale of the Dutch tulip craze, which seems to have been particularly silly. But the reference to delusion fails to recognise the kernel of truth commonly found in these narratives. No one can doubt that the growth of international trade from the eighteenth century, the construction of railways in the nineteenth century or the development of radio and commercial aviation in the 1920s were transformational economic events.
Chief Engineer by Erica Wagner
Tweed was not the only one to fall into difficulty in those years: 1873 was the beginning of what became known as “the Long Depression,” five years of financial slough that followed the prosperity of the Civil War and the burst bubble of the Gilded Age—a term coined by Mark Twain and his coauthor, Charles Dudley Warner, in their novel of the same name, which was presciently published that year. “Railroad mania”—over-investment by both banks and individuals in tens of thousands of miles of new railroad, many of those miles proving far less profitable than their investors hoped they would be—affected the steel and iron industry badly. Great banks failed—even Jay Cooke and Company, the country’s premier financial institution, which had largely financed the Union Army during the war. Not long after Washington and Emily returned from Europe, he wrote gloomily to Ferdinand that “work on the bridge has progressed very slowly during my absence, neither are the prospects for the future very bright at present.
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds - the Original Classic Edition by Charles MacKay
fir'd thy brain, Nor lordly luxury, nor city gain: No, 'twas thy righteous end, asham'd to see Senates degen'rate, patriots disagree, And nobly wishing party-rage to cease, To buy both sides, and give thy country peace." Pope's Epistle to Allen Lord Bathurst. 17. The South-Sea project remained until 1845 the greatest example in British history of the infatuation of the people for commercial gambling. The first edition of these volumes was published some time before the outbreak of the Great Railway Mania of that and the following year. . Chapter 4. End of Notes Return to top 13/10/2008 17:33 Printable format for Mackay, Charles, Memoirs of Extraordinary Popular ... 21 of 21 http://www.econlib.org/cgi-bin/printarticle.pl Copyright ©1999 Liberty Fund, Inc. All Rights Reserved 13/10/2008 17:33 Printable format for Mackay, Charles, Memoirs of Extraordinary Popular ... 1 of 5 http://www.econlib.org/cgi-bin/printarticle.pl Printable format for http://www.econlib.org/library/Mackay/macEx3.html FAQ: Print Hints Memoirs of Extraordinary Popular Delusions and the Madness of Crowds Mackay, Charles (1814-1889) BIO Chapter 3 The Tulipomania 3.0 3.1 3.2 Quis furor ô cives!
The Empire Project: The Rise and Fall of the British World-System, 1830–1970 by John Darwin
anti-communist, banking crisis, Bretton Woods, British Empire, capital controls, cognitive bias, colonial rule, Corn Laws, European colonialism, floating exchange rates, full employment, imperial preference, Joseph Schumpeter, Khartoum Gordon, Kickstarter, labour mobility, land tenure, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Mahatma Gandhi, Monroe Doctrine, new economy, New Urbanism, open economy, railway mania, reserve currency, Right to Buy, rising living standards, Scientific racism, South China Sea, the market place, The Wealth of Nations by Adam Smith, trade route, transaction costs, transcontinental railway, undersea cable
It removed any limit on the City's development as the eyes and ears of the new world economy, its banker, insurer, shipping-agent and dealer. It allowed British merchants to open commercial relations with any part of the world and offer its produce to the widest selection of buyers through the London exchanges. Thirdly, Britain had become an investing economy, with an investment income that grew fourteen-fold between 1830 and 1875 from under £4 million to £58 million.124 The mobilisation of savings that ‘railway mania’ had encouraged, as well as domestic prosperity, created a fund for investment abroad, at first in government bonds and then, increasingly, in the building of railways and other infrastructure in India, the Americas and Australasia. Here was the basis for not just an empire of trade, but also an empire of overseas property. Lastly, it was not just a matter of investment, trade and migration.