Accounting for the “railway mania” of 1845— A great railway swindle?

This paper explores the functioning of accounting in the social, economic and political contexts surrounding the financing of the early U.K. railways. The conventional view of economic historians is that the early U.K. railways were financed by an irrational stock market “mania”, followed by the inevitable crash in which many of the initial investors were ruined. Here we explore an alternative explanation implied by a comment by Marx in volume 3, of Capital (1981), that these events were elements of a “great railway swindle” in which accounting was deeply implicated. Marx provides no direct support for his statement. However, the history of the early U.K. railways has been extensively researched. This work is re-examined to assess the a priori validity of the “swindle hypothesis”. Its acceptance would have important implications for accepted views of the nature of capitalism and accounting in the mid-nineteenth century. According to economic historians, the “mania” was a product of laissez faire capitalism. According to accounting historians, the notorious manipulations of railway accounts during and after the “mania” were the consequence of a lack of “generally accepted accounting principles”. However, according to the swindle hypothesis, the “mania” and its afterwath were the product of a rational and rapacious social hierarchy, for whom accounting was simply a tool to be manipulated. The paper concludes that while there is a need for more research, the hypothesis is sufficiently consistent with the evidence available to be firmly on the agenda of accounting history.