Excitement is present in all speculative manias. Sometimes this excitement has only financial origins but widespread financial speculation can spring from enthusiasm for technical innovations or trendy fashions, especially those with the broadest popular appeal and relevance. In the late 19th century, the bicycle industry was benefiting from both changes in technology and fashion and the bicycle became perhaps the first large consumer discretionary product to reach a mass market. It was also the inspiration for an investment bubble.
Bicycles and the 1890s
In the 1890s, bicycles were among the most exciting new inventions. Over the 19th century they had evolved from the dandy horse, a pedal-less bicycle pushed along the ground by the rider’s feet. Other early bicycles were impractical, often too heavy and too uncomfortable to ride. Then, chain-driven transmission and inflatable tires arrived, transforming the bicycle into something fit for leisure and even practical convenience.
These inventions paved the way to larger popular enthusiasm for two-wheeled transport in the 1890s. Publications on cycling sprouted up, as did cycling clubs. Politicians and royalty from Britain and abroad were photographed while riding and the bicycle was introduced in literature by the likes of H. G. Wells and Arthur Conan Doyle.
“It would hardly be too much to say that in April of 1895 one was considered eccentric for riding a bicycle, whilst by the end of June eccentricity rested with those who did not ride.”Cycling commentator Constance Everett Green in Cassell’s Family Magazine, May 1895
In this period of excitement, the number of bicycle makers grew quickly. The early seat of Britain’s bicycle industry was the West Midlands, and Birmingham and Coventry especially. In Birmingham, the number of bicycle manufacturers grew from seventy-two in 1889 to 177 by 1895 and the number in Coventry had also more than doubled. Nationally, some 312 bicycle manufacturers were formed in 1896 alone, many producing only a handful of bicycles but the largest companies produced a thousand a week.
The capital invested in the larger bicycle corporations rose from £405,000 in 1888 to just over £1 million in 1894. However, this was just the beginning. Starting in 1895, the volume of capital invested in the industry surged, reaching almost £19.6 million in 1897. Much of the capital was raised on the stock exchanges of Britain, especially the regional Birmingham Stock Exchange. Seventy bicycle or tire firms were floated on the stock exchanges in 1895 and another 363 the following year. Bicycles and tires were sister industries in this era before the automobile opened a new world for tire companies.
Listing on a stock exchange made a firm’s shares more marketable and made it easier for more investors to participate in this booming industry. Many of these companies listed with shares priced at £1 each, and sometimes even less, making the securities more accessible to ordinary people. Just one promoter, Ernest Terah Hooley, managed to raise £18.6 million for twenty-six cycle companies within three years. To garner more interest, Hooley and others employed a practice of including aristocrats on the boards of their companies. These directors were sometimes paid by Hooley himself in his capacity of promoter of the company.
Dunlop Pneumatic Tyre Company
A company called Pneumatic Tyre, founded earlier that decade, was acquired for £3 million by Hooley using bank loans; it was a 19th century leveraged buyout. The company was bought at a high price relative to revenue and earnings. Recall that the tire business was part of the larger bicycle industry in this still largely pre-automobile era, so tire firms were also subject to much enthusiasm. Hooley renamed the company the ‘Dunlop Pneumatic Tyre Company’, spent some money marketing the firm and flipped it for £5 million.
A nice profit perhaps but Hooley later suggested that the marketing spend was so high that his profits were only in the region of £100,000 to £200,000. Regardless, the deal brought even more speculative attention to the bicycle industry.
The share prices of bicycle manufacturers tripled in just months in 1896. Cities like Birmingham and Coventry saw significant employment tied to the bicycle industry. By now, perhaps 750,000 bicycles were manufactured annually. Still, a bicycle shortage existed in 1896, allowing the manufacturers and firms which sold or rented bicycles to charge unsustainably high prices.
The boom could also be tracked in bicycle-related patent paperwork. In the first three months of 1896, it was said 450 patents were applied for related to tires, over fifty each related to brakes and saddles, thirty-one to chains and many others to lamps, bells, and more. For the entire year, there were some 4,269 bicycle-related patents, accounting for 15% of all patents issued in 1896. This mattered because, at the time, patents seemed to enable a firm to raise more money from investors. In practice, even where they weren’t frivolous, patents tended to become obsolete very quickly.
During the bubble, the best bicycles might cost £30 but cheaper models could be had new for £10. Bike rentals and installment financing made riding more affordable; cycling was by now more than a middle-class hobby. So, while the enthusiasm may seem bizarre, bicycles were the first large durable discretionary consumer goods to reach a mass market, thirty years or more before the automobile and household appliances would find the same success.
Hooley’s activities were causing surges in the valuation of companies other than Dunlop Pneumatic Tyre Company. Beeston, another tire company, saw its shares reach £7.75 apiece in early May 1896 from just £1.05 a month earlier. This was in reaction to a 100% dividend announced by the company, allegedly funded by Hooley to manipulate the share price. Compared to the broader stock market, investors buying bicycle shares in this period were more likely to have some connection to the industry. Some would have been the employees of manufacturers. Low denomination shares helped broaden participation in the bubble.
Besides those of Hooley, there were other ventures during the boom that looked suspicious. However, promoters paid newspapers to publish favorable stories or suppress unfavorable ones. The press was very involved in this speculation. Interest in the market for bicycle company shares grew so large that the Financial Times dedicated a daily section to the bicycle industry. Cycling magazines also introduced financial sections to covering the market for bicycle shares.
Low interest rates helped inflate the bubble. The Bank of England kept its discount rate at 2%, the lowest up to that time, from February 1894 until August 1896. An index of bicycle industry shares rose by over 250% between the end of 1895 and May 1896. Not only would 363 bicycle or tire firms go public in 1896 but shares in another 238 were floated in the first six months of 1897.
“[T]he prospects of the trade are so vast and the possibilities so unlimited, that it is an impossibility to form any idea of what this enormous growth may bring forth …”Cycling magazine, ‘Financial’, 9 January 1897
The market for bicycle shares continued to rise in early 1897 but then fell, by 20% or so, between its March peak and that July. Among the reasons: lower-cost American imports had arrived. Prices were cut by British incumbents, reducing their profitability. In 1897, the market for shares in bicycle companies deflated; £15 million in market value was lost and some shares became almost unsaleable. By year-end, a broad index of bicycle shares had fallen by roughly 40% in just nine months.
By the end of 1898, the market was down 70% or so from its peak. In 1900, the market reached its trough. Many firms disappeared; sixty-nine of the 141 bicycle firms listed at the peak of the boom had failed and many more would go bankrupt, restructure, or leave the business in the subsequent years. In all, some 70% of the firms would leave the industry or wind down and the promoter Ernest Terah Hooley himself went bankrupt.
The bicycle bust strained the economy of the West Midlands as factories closed or retooled for operation in different industries, but the effects on the larger British economy were muted. Eventually, even its bicycle industry recovered. Not only were American and German imports countered, but British firms dominated the market globally in the years before the First World War. The price cuts that popped the bubble also made the firms’ products more affordable and competitive.
The same cities that hosted the bicycle industry became the leading automobile producing regions of Great Britain. In Coventry alone, eleven firms combined bicycle and car production. Other bicycle firms moved into making motorcycles or even airplanes. The Dunlop Pneumatic Tyre Company, battered by the deflation of the bicycle boom, would find greater success manufacturing car tires.
While the bicycle boom and bust may have impaired some fortunes, it did not impair the appeal of bicycles to prospective customers. Indeed, by cutting prices, manufacturers made their products more accessible. Also, by shifting to new products, growth in other industries was accelerated. With the exception of the deceptive and manipulative practices of some characters, the bicycle boom and bust was perhaps the best kind of speculative episode. It was large enough to accelerate the growth of some industries without ruining the economy more broadly or impoverishing too many.
More from the Tontine Coffee-House
1. Amini, Shima, and Steven Toms. “Accessing Capital Markets: Aristocrats and New Share Issues in the British Bicycle Boom of the 1890s.” Business History, vol. 60, no. 2, Apr. 2017, pp. 231–256.
2. Litle, Justice Clark. “Revisiting the Great British Bicycle Bubble of 1896.” TradeSmith Daily, 4 Dec. 2020.
3. Quinn, William, and John D Turner. “Chapter 6 – Wheeler-Dealers: The British Bicycle Mania.” Boom and Bust: A Global History of Financial Bubbles, Cambridge University Press, Cambridge, United Kingdom, 2020, pp. 98–114.
4. Quinn, William, et al. “The Great British Bicycle Bubble.” The Indicator from Planet Money – NPR, 31 Dec. 2019.
5. Rubinstein, David. “Cycling in the 1890s.” Victorian Studies, vol. 21, no. 1, 1977, pp. 47–71.