The Collapse of the Railway Mania, the Development of Capital Markets, and Robert Lucas Nash, a Forgotten Pioneer of Accounting and Financial Analysis

67 Pages Posted: 16 Jun 2010 Last revised: 27 Feb 2012

Andrew Odlyzko

University of Minnesota - Twin Cities - School of Mathematics and Digital Technology Center

Date Written: January 23, 2011

Abstract

It is well known that the great Railway Mania in Britain in the1840s had a great impact on accounting. This paper contributes a description and analysis 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.

A shortened version of this manuscript (shortened primarily through the deletion of the abstracts) has appeared under the title "The collapse of the Railway Mania, the development of capital markets, and the forgotten role of Robert Lucas Nash" in Accounting History Review (formerly Accounting, Business & Financial History), vol. 21, no. 3, Nov. 2011, pp. 309-345.

Keywords: Development of Accounting, Railway Mania, Bubbles, Financial Analysis

JEL Classification: E44, G14, G24, L92, M41, N73, O16

Suggested Citation

Odlyzko, Andrew, The Collapse of the Railway Mania, the Development of Capital Markets, and Robert Lucas Nash, a Forgotten Pioneer of Accounting and Financial Analysis (January 23, 2011). Available at SSRN: https://ssrn.com/abstract=1625738 or http://dx.doi.org/10.2139/ssrn.1625738

Andrew Odlyzko (Contact Author)

University of Minnesota - Twin Cities - School of Mathematics and Digital Technology Center ( email )

127 Vincent Hall
206 Church St. SE
Minneapolis, MN 55455
United States
612-625-6413 (Phone)
612-626-2017 (Fax)

HOME PAGE: http://www.dtc.umn.edu/~odlyzko

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