Victorian: Puffery, chicanery, and fraud

The financial crisis of 2008 taught most of us more than we ever wanted to know about investment instruments and their fiendish creators. It seemed to many of us that we’d entered a new age of greed, fueled by the internet, unique to our times.

Sorry; it was neither new nor unique. Like so many things in the twenty-first century, banking and stock frauds have their roots in the Victorian era. (Probably much earlier, but that’s as far back as I’m going today.) George Robb wrote an excellent book on the subject called White-Collar Crime in Modern England. He carries the story forward into the early twentieth-century, but I’m going to stick to the nineteenth.

Robb’s book is highly recommended, especially for writers of fiction. Novelists of the time found fodder for fiction in financial fraud, as we shall see.

In the beginning


Bank of England, est. 1694

The industrial revolution “called into being a complex economy,” including a vast banking network, a commercial nexus of insurance, stocks and credit, and a complex legal system. This revolution began around 1760 and grew rapidly into the 1800s.

People began to shift their savings from costly objects (like silver plate) to investments, hoping for bigger returns than mere inflation could provide, but risking total loss from increasingly clever forms of theft.

The new industries required financing. Company shares came to replace government securities as a favorite form of investment. From the early 1800s, we see a proliferation of joint-stock companies. Industrial shares were first quoted on the (British) Stock Exchange in 1811.


Elizabeth Gaskell, 1832

Investment in a cotton factory is an important part of the plot in Elizabeth Cleghorn Gaskell’s popular novel North and South (1854-55.) Read it for free on a Kindle or watch the gorgeous British TV production starring Richard Armitage, streaming on Netflix. (Why don’t we have more American literature recreated in this fashion?)

Mrs. Gaskell’s story doesn’t involve fraud; it’s about the cruelties of a profit-seeking factory with a strong romantic subplot. But it does show how many people were affected by the success or failure of a single company.

The Railway Mania of 1845

The steam locomotive was developed in Britain in the early 1800s. The first inter-city passenger railway, the Liverpool and Manchester Railway, opened in 1830. Can you imagine the excitement of riding on that train?

Trains in that period traveled at 17 mph. A horse running without burdens can gallop at 15 mpg. People must have been hanging on to things, dizzied by the landscape rushing past, reveling in the breeze ruffling through their long moustaches…


Steam locomotive ca. 1830

People also started building railways hither, thither, and yon. Britain, Europe, North America, and on around the world. Lots of railways actually got built. Many more were proposed and funded, only to end in bankruptcy — or never actually to begin.

The Railway Mania of the 1840s was one of history’s great investment bubbles, like the Dutch tulip fever of the early seventeenth century (watch the Botany of Desire by Michael Pollan) or the dot-com bubble of the late twentieth. 

People go literally mad for certain things sometimes. Fever is exactly the right word. Everyone desperately wants a piece of the action. As more people buy stocks, the prices rise, until they hit the inevitable ceiling — the limits of actual capacity or production.

Everyone wanted to get into the game, but few people understood either trains or stocks. A full third of the proposed railways were never built. Companies failed from bad planning, poor execution, or outright chicanery — no construction was ever actually intended.

Laws were passed not to protect the innocent investor, but to protect the corporations. The Limited Liability Act of 1855 made it easier for shysters to walk away from obligations to their shareholders. Anything you’d invested in that company was simply lost.

Schemes to build railways in faraway places captured the imaginations and the savings of the British in the Age of Empire. Trains would make it possible to bring civilization to every corner of the globe! Here’s a movie that isn’t about fraud, but it is about building a railway in Africa in 1898: The Ghost and the Darkness, starring Michael Douglas and Val Kilmer. Scary! Lions eat everybody.

What’s a life worth in today’s market?


From an article at

Life insurance was invented in the late eighteenth century, also in England, at least in the form that we know it. By the middle of the next century, it was providing another fertile field for fraud. There were no regulations governing advertising in this era, so companies could say whatever they liked.

What the West Middlesex Life and Fire Assurance Company liked to say was that their holdings were backed by the Bank of England to the extent of one million pounds. They listed famous people as investors (probably peers.) They attracted hordes of small investors hoping to provide for their wives and children in the event of an untimely death. The company directors collected the cash and then fled the country in 1840 with L250,000.

Investment fraud was so rampant novelists had a field day with it, like William Thackeray in The History of Samuel Titmarsh and the Great Hoggarty Diamond; Charles Dickens in Martin Chuzzlewit.



Puffed up and dangerous

Sharp company promoters would puff up their companies, making inflated claims. There were no  regulations, no control whatsoever. Directors published fraudulent accounts and paid unearned dividends out of capital so it looked like profits. Then they’d run a campaign for more shareholders to get more capital. Here we have the origins of the pyramid scheme.

Companies would create fictitious votes or proxies to outvote bona fide shareholders. Directors operated at a distance, through agents or under assumed names; thus managing several fraudulent companies at a time.

Directors might secretly use investor money to buy their own shares to drive up the price, to attract more investors. Subscription lists were swelled with phony signatures. Railway secretaries paid poor people to sign for large blocks of shares.

The Joint Stock Companies Act of 1856 stated that to incorporate a company needed only to submit a Memorandum of Association to the Registrar containing the name and object of the company, the type of liability (limited or not,) the amount of nominal capital, and the total number of shares. The minimum was a mere seven people holding one share each. There was no mandatory audit at any time.


South Sea Bubble cartoon

Companies didn’t get much auditing, internal or external. Prof. Robb reminds us of the Victorian ideal of individualism, in which each man is personally responsible for his own life, fate, and actions. “Many Victorians made no distinction between misadventure and malfeasance. Nineteenth-century England was a society which worshiped success and vilified failure.”

Today we still covertly admire men (mostly) who make fortunes through barely-legal financial manipulations. Donald Trump springs to mind, along with Charles Keating and the other villains of the 1980’s savings and loan crisis. Remember Enron? There’s been a scam-fueled crisis every decade since the South Sea Bubble of 1720. How do we not learn our lessons?

(The South Sea Bubble was a mystifying scheme to consolidate the national debt at a time when England was – yet again – at war with Spain. Many fortunes were lost and humble folks ruined, stimulating many cartoons and lampoons and disgusted commentary by the likes of Daniel Defoe and Sir Isaac Newton, who said, “I can calculate the movement of the stars, but not the madness of men.” Indeed not.)

Anthony Trollope’s The Way We Live Now revolves around the financial frauds of the 1870s. There’s a fabulous Masterpiece Theatre version starring David Suchet whose cast includes of all our favorite Masterpiece actors, including my favorite actress, Shirley Henderson.

Pity the fools

Because the fools are us. I remember my mother’s lament in the 1980’s: “If you can’t put your money in mutual funds, what can you do?” The days of investing in silver plate are long gone.


Stock certificate from an actual silver mine

As today, in the nineteenth century the bulk of shareholdings were owned by the middle class. However, more people back then were unable to earn their living through work, thanks to a more restrictive culture. Widows, spinsters, clergymen, retired military men, and middle-class seniors, relied on annuities for their income. They were often struggling to maintain their social status and were the easiest prey for the fraudsters.

As today, financial instruments were too complex for laypersons to understand. They might not have had credit-swap derivatives, but they had discounts, transfers, debentures, and arbitrage. They were obliged to rely on experts for advice, as are we. They imagined that the name of a respected bank or famous person implied that somebody with knowledge and integrity had evaluated the offering — as do we.

Robb quotes Herbert Spencer, writing in The Edinburgh Review: “Is it any wonder that the wide-spread, ill-informed, unorganized body of shareholders standing severally alone, and each preoccupied with his daily affairs, should be continually out-generaled by the comparatively small but active, skillful, combined body opposed to them, whose very occupation is at stake in gaining the victory?”

Robb’s book is so rich, I’ve barely scratched the surface at 1700 words. Find it, read it. Like most academic books, it’s priced too high for purchase ($44.99 for a paperback) but you can probably find it through Interlibrary Loan. I didn’t even get to the mining scams at the end of the century. I’ll save telegraph fraud – a whole topic in itself – for another post.

The book contains enough legal crime to fuel my whole Moriarty series, whose premise is that my heroes must go outside the law to seek justice where the law can’t reach. Moriarty Meets His Match could be considered an exploration of what happens when company promoters are free to make whatever claims they please to defraud their investors. Or not.


Robb, George. 1992. White-Collar Crime in Modern England. Cambridge University Press.

Robb, George and Nancy Erber. 1999. Disorder in the Court: Trials and Sexual Conflict at the Turn of the Century. New York: New York University Press.

Robb, George. 2009. “Ladies of the ticker: Women, investment, and fraud in England and America, 1850-1930.” In Henry, Nancy and Cannon Schmitt, eds. Victorian Investments: New Perspectives on Finance and Culture. Bloomington: Indiana University Press. pp. 120-140.

Robb, George. 2012. “Before Madoff and Ponzi: 19th Century business frauds,” Phi Kappa Phi Forum, pp. 7-9.

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