The first such bubble had occurred in Britain in the 1840s as railway companies blossomed to capitalise on the new mode of transport. Many of these failed and investors lost badly.
Significantly at this time also, investors could lose much more than their shares.
These were not limited liability companies and so shareholders could be personally liable for the company’s debts.
Alongside this initial problem, company investments in Australian goldmining had been largely unsuccessful up to that time.
The main failure had been the Colonial Gold Mining Company which was floated in London in July 1852 on issuing 100,000 £2 shares to invest in mining ventures in both NSW and Victoria.
A subsidiary of this company – The Great Nugget Vein Company – operated unsuccessfully on the Meroo field and at Tambaroora for several years and the Colonial Gold Mining Company folded in 1857.
Since these initial failures however, a major change had occurred in company structures which held out better prospects for attracting new investors.
This was the limited liability legislation which meant that if a company was established on this basis (rather than being a joint stock venture), then the worst that could happen to shareholders was that they lost their shares.
Here though there could still be a very large sting in the tail, as in a bid to get companies floated, investors only had to pay for part of their shares.
Then if the company was profitable, they need forward no more money and simply wait for the dividends to roll in.
If however it fell into financial trouble it would make a call on shareholders to forward the balance owing on their shares.
This was a massive temptation for people to invest beyond their means, and one that in the absence of tight financial controls left the field open for swindlers to flourish alongside legitimate business ventures.