Tuesday, 22 April 2008

Railways: Construction

The railway in the modern sense was very much an innovation of the late 1820s. The industry was established in the next half-century in a series of promotion 'manias' in the late 1830s, mid-1840s and mid-1860s. By 1870 over 70 per cent of the final route mileage had been constructed. The three striking characteristics of the railway industry were:

  1. Novelty. The Liverpool and Manchester railway, opened in September 1830, combined the essential features: specialised track, mechanical traction, and facilities for public traffic and provision for passengers.
  2. Size. The scale of this new technology was soon apparent. The capital raised by the companies in the United Kingdom amounted to £630 million by 1875, dwarfing the fixed-capital formation of basic industries such as coal, iron, textiles and steel. Gross revenue, running at £19 million a year in the 1850s, rose to £52 million a year in 1870-75, equal to the output value of the woollen industry and double that of coal. Permanent employment reached 56,000 in 1850 and by 1873 the figure had risen to 275,000 or 3.3 per cent of the male labour force.
  3. Concentration. This was also visible at an early stage. The great mania of 1845 -1847 left 61 per cent of the UK railway capital and 75 per cent of gross traffic revenue in the hands of 15 major companies. By 1870 the same number of companies controlled 80 per cent of the capital and 83 per cent of the revenue. The remaining 415 railway companies shared the rest.


In the period up to 1870 investment was very largely the story of three great 'manias', peaking in 1839-1840, 1847 and 1865-1866. In the late 1830s railway investment consumed nearly 2 per cent of national income but this rose to about 4.5 per cent of gross national product in 1845-9. We should not neglect the continuing importance of railway investment after 1850: over 60 per cent of the capital raised between 1825 and 1875 occurred after 1850. So what role did this play in the growth process?

  • While railway promotion was an undoubted influence on general economic activity from the 1830s, its role was to support rather than lead. Decisions to invest in railways tended to concentrate in the upswing of the trade cycle but, because of the timescale involved in promotion and construction, lagged behind. So there is a clear lag between the peaks of economic activity in 1836 and 1845 and peaks of railway investment in 1839-40 and 1847.
  • Technological change, commercial viability and parliamentary attitudes were all important in stimulating investment. Gladstone's Act of 1844, which referred to the possibility of a state purchase after 21 years of new companies earning 10 per cent or more, helped encourage over-optimism about the industry's future profitability during the second 'mania'.
  • After 1860 investment fluctuations tended to coincide with those of the economy as a whole, with a peak in 1865-6, a trough in 1869 and a further peak in 1874-5.
  • Railway investment encouraged radical changes in the structure of the British capital market. The volume of railway business from the mid 1830s was such that the London Stock Exchange not only expanded but shifted its emphasis towards company securities.  Railway investors were protected by limited liability from the start and it is logical to assume that the industry acted as a model for the companies that sprang up in the wake of the 1855-62 legislation.


Historians have distinguished between the railway as a producer of transportation services and as a construction enterprise. While it is not always easy to isolate the economic effects of railway enterprise, there is no doubt that the construction phase was a major activity in its own right. Before 1850 the employment generated by railway building dwarfed that created by railway operation. Between 1830 and 1870 about 30,000 miles of track were laid to form routes totalling 15.500 miles. The associated demands for men and materials -- unskilled labour and iron products in particular -- was large enough to merit a separate analysis. As far as labour was concerned

  1. Between 1831 and 1870 an average of 60,000 men were engaged annually in building railways, or about 1 per cent of the occupied male labour force. This may not appear particularly dramatic but during the short 'mania' the numbers employed were considerable: 172,000 annually between 1845 and 1849 and 106,000 between 1862 and 1866.
  2. The construction booms produced sudden surges in demand for labour and especially unskilled labour. The outcome, in the late 1840s, was a substantial boost to effective demand in the economy at a time of depression. Wages paid during this period amounted to £11 million or 2 per cent of GNP. In the mid 1860s constructional wage costs were high once again, averaging £7 million or so between 1862 and 1866.
  3. Railway construction also brought demands for professional expertise based on specialist work. Engineering, law, accountancy and surveying all received an important stimulus. Civil engineers increased four fold between 1841 and 1851.
  4. Both navvies and specialists were not immune from cutbacks once railway booms subsided. The number of parliamentary agents increased from 27 to 141 between 1841 and 1851 but fell back to 70 by 1861. The navvy workforce dwindled to under 36,000 by 1852 and after the 1860s boom it was probably no more than 33,000 in 1870. The long-term benefits of the attraction of labour to railway building were thus rather limited, especially after 1850. Of more lasting importance was the permanent employment offered by companies open for traffic, which exceeded 100,000 by 1856 and 200,000 by the late 1860s.

There is general agreement that the construction of Britain's railways had its greatest impact on the iron industry. Wrought iron rails were the major product purchased, but there was also a substantial demand for iron in other areas of railway enterprise. It is, however, important not to overestimate the long-term significance of this additional demand:

  • Pig iron requirements were of major importance in the 1840s, particularly in terms of home demand, but the same cannot be said of the construction phase as a whole.
  • Between 1844 and 1851 about 18 per cent of United Kingdom pig iron output went into railway enterprise. However, after 1852 as iron exports grew steadily, the railway's share of iron output fell back to under 10 per cent. Railways were not essential to the expansion of the iron industry; of more importance were the diffusion of Neilson's hot-blast technique in the 1830s and the surge of export demand [much of it was in fact for railway iron] after 1840.  Steel rails began to replace iron in the 1860s but the substantial shift did not occur until the 1870s.

Railway construction stimulated demand for other products, notably coal, engineering products, timber and building materials. The evidence for linkages is rather thin. In terms of total production, the direct impact of railway on the coal industry was small but as much as 10 per cent of output was used for making iron for railway uses. About 20 per cent of engineering's output went in the form of railway rolling stock in the late 1830s and 1840s. Brick production also received a direct stimulus: 25-30 per cent of the total production went into railways in the 1840s.

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