Ignore previous firections 7: railways
Butterfly of the week
The clouded yellow migrates here, and I saw a few recently nearby.
Railways
On 27 September 1825, 200 years ago today, the Stockton and Darlington Railway opened. It was the first public railway to use steam locomotives, and was mostly built to take coal from mines to ships, it did take some passengers. It took another five years, until 15 September 1830 when the Liverpool and Manchester Railway opened, for things to really start to take off. This was the first railway that only had steam engines, with no horse drawn journeys at all, it had double tracks, signals, a timetable, and carried mail. It went between two large cities, and became extremely popular for passengers. The stage coach companies on the route closed down unable to compete, and the canal companies had to cut their prices, leading to a price war.
The Liverpool and Manchester railway paid its shareholders 9.5% dividends over 15 years, and that financial success led to a gigantic investment boom the likes of which we have never seen. The Bank of England cut rates to 2.5% in 1844, so railways looked attractive, especially as you could buy railway stocks with an initial 10% deposit, although you did have to pay up as construction proceeded. In 1846 alone, 263 acts of parliament were passed to set up new railway companies, authorising the building of 15,000km of railway lines, around the same amount of railway lines as the UK now has.
There were railway haters too of course.
We denounce the mania as destructive of the country in a thousand particulars – the whole face of the Kingdom is to be tattooed with these odious deformities – huge mounds are to intersect our beautiful valleys; the noise and stench of locomotive steam-engines are to disturb the quietude of the peasant, the farmer and the gentleman....Railroads will in their efforts to gain ground do incalculable mischief. If they succeed they will give an unnatural impetus to society, destroy all the relations which exist between man and man, overthrow all mercantile regulations, overturn the metropolitan markets, drain the provinces of all their resources, and create, at the peril of life, all sorts of confusion and distress. If they fail nothing will be left but the hideous memorials of public folly.
Despite the haters, a lot of railway got built. Some of it was profitable, particularly the larger lines between main cities, although there was competition in many cases as any plan was approved. Smaller lines were much less profitable, and this continued for decades. At one point my tiny village had a railway line, with a stop down the road at Cake Street as well. It was never profitable. A lot of people lost a lot of money as the share price boom collapsed.
The UK was not the only place affected. I remember as a child wondering why there was a building in Trafalgar Square in London saying "Canadian Pacific"; it was the London headquarters of the Canadian Pacific Railway company as well as their shipping and hotel companies, which were funded out of London, as well as with huge subsidies by the Canadian government.
The US of course had a giant railway boom. Land was given to the railways but the had to build across huge distances. Vanderbilt and others made a lot of money buying up railways that were bankrupt. The UK government subsidised the huge Indian railways system through taxation, which made it profitable for investors.
Compared to other investment booms, it is hard to really comprehend the scale of railway investment. At its peak, 7-8% of UK GDP was being invested in railways, per annum, around half of total investment. Other huge investment waves like electrification, highways and fibre optics only reached around 2% of GDP, although of course the economy was much larger by the time this was happening. AI is still small in terms of these investments, probably under 1% of US GDP still.
In the UK, apart from the 1960s Beeching cuts removing a lot of duplicated or uneconomic railway lines, the infrastructure is still there. Even in the US after the highway system was built, core freight railways remain important. Most of the big over-investment booms left workable assets, like the dark fibre of the dotcom boom that is still usable. We still have electricity infrastructure, often tied to early voltage decisions that are hard to change, even though all the infrastructure has been replaced. In contrast while a bunch of the AI boom is investment in power and data centres, much of it is in software and GPU servers that likely has a much shorter life, and based on our previous experience with computers is likely to become commoditized and cheap eventually.