I had a note in my files that you expressed an interest in the project comparing the Internet bubble to the British Railway Mania of the 1840s. So here is the announcement of my third work on this topic. Any comments you might have would be greatly appreciated. If I had you on the list by mistake, please accept my apologies. If you will let me know, I will remove your email address right away from the list. Best regards, Andrew http://www.dtc.umn.edu/~odlyzko/doc/mania02.pdf The collapse of the Railway Mania, the development of capital markets, and Robert Lucas Nash, a forgotten pioneer of accounting and financial analysis Andrew Odlyzko School of Mathematics and Digital Technology Center University of Minnesota odlyzko@umn.edu http://www.dtc.umn.edu/~odlyzko Preliminary version, June 15, 2010 ABSTRACT The revolution in accounting, associated with the collapse of the great Railway Mania in Britain at the end of the 1840s, is well known in broad outline. This paper contributes a description of the events that led to this revolution, and of the key role played by Robert Lucas Nash in those events. He was a pioneer in accounting and financial analysis, providing studies on the financial performance of railways that were more penetrating and systematic than those available to the public from any one else. His contemporaries credited him with precipitating a market crash that led to one of two dramatic changes in accounting practices that occurred in the late 1840s. Yet his contributions have been totally forgotten. The collapse of the Railway Mania provides interesting perspectives on the development of capital markets. The accounting revolution was just one of the byproducts of the collision of investors' rosy profit expectations with cold reality. Shareholders' struggles to understand, or, more precisely, to avoid understanding, the inevitability of ruin, have many similarities to the events of recent financial crashes. The Railway Mania events thus provide cautionary notes on what even penetrating accounting and financial analysis reports can accomplish. Railway share price behavior suggests that Nash's contributions had a much smaller effect than his contemporaries gave him credit for. ----------------------------------------------------------------------------- The previous two papers in this series are available at: 1. Collective hallucinations and inefficient markets: The British Railway Mania of the 1840s http://www.dtc.umn.edu/~odlyzko/doc/hallucinations.pdf 2. This time is different: An example of a giant, wildly speculative, and successful investment mania http://www.dtc.umn.edu/~odlyzko/doc/mania01.pdf ----------------------------------------------------------------------------- Press coverage of this project includes: 1. Lee Gomes, All aboard The Bubble Express, Forbes, March 15, 2010. http://www.forbes.com/forbes/2010/0315/technology-bubbles-fiber-optics-so cial-networking.html 2. Matthew Lasar, Historian finds tech bubble that didn't pop (180 years ago), Ars Technica, March 22, 2010. http://arstechnica.com/tech-policy/news/2010/03/historian-finds-tech-bubbl e-that-didnt-pop-180-years-ago.ars 3. Manas Chakravarty, The 1830s railway mania: sole instance of a successful 'boom', Live Mint, March 26, 2010. http://www.livemint.com/2010/03/26204636/The-1830s-railway-mania-sole.html 4. Edward Chancellor, Bubbles: a Victorian lesson in mania, Financial Times, April 12, 2010. http://www.ft.com/cms/s/0/b3573436-440b-11df-9235-00144feab49a.html 5. Paul Kedrosky, Edward Chancellor on Bubbles, Railroads, and Andrew Odlyzko, "Infectious Greed" blog, April 11, 2010. http://paul.kedrosky.com/archives/2010/04/edward_chancell_1.html