Michie on Taylor, _Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870_

[eh.net-review at eh.net]

Published by EH.NET (March 2007)

James Taylor, _Creating Capitalism: Joint-Stock Enterprise in British 
Politics and Culture, 1800-1870_. Woodbridge, Suffolk, UK: Royal 
Historical Society and Boydell Press, 2006. x + 256 pp. $80 (cloth), 
ISBN: 0-86193-284-6.

Reviewed for EH.NET by Ranald C. Michie, Department of History, 
University of Durham.


This book is a marriage between two stands of history. On the one 
hand it is an account of the rise of joint-stock enterprise in 
Britain during its formative period, as the form spread beyond a few 
chartered trading companies and the Bank of England to become a model 
increasingly adopted by business of all kinds. On the other hands it 
explores the political and cultural environment within which this 
change took place, seeking to explain why the joint-stock form became 
accepted within society. Behind this approach lies a questioning of 
the inevitability of the triumph of the joint-stock company, and 
instead a belief that what took place, especially with regards to 
timing and form, was very much a social construct. This greatly 
complicates the question because it moves the research and the 
analysis beyond the realm of economy and business and into the 
interaction of politics and society. Why was it that Victorian 
society countenanced a shift from individual to collective 
enterprise? Why was legislation passed that granted investors in 
joint-stock companies privileges denied to partners in unincorporated 
businesses, namely the limitation of their liability for any losses 
incurred to the investment that they made?

By taking this approach Taylor reflects the bifurcation in economic 
history that has been so marked in recent years. Whereas economists 
have applied ever more sophisticated techniques of measurement and 
modeling to historical phenomena, with results ranging from the 
excellent through the irrelevant to the misleading, historians have 
sought to place developments in the economy within a wider context, 
stressing the role played by the likes of governments, elite groups, 
public opinion, individuals, businesses or national culture. Again, 
some of this has been well done, leading to a real understanding of 
why change took place or national differences existed that otherwise 
defy economic logic, but much has also been of little value because 
of a failure to appreciate the varied economic forces at work or the 
constraints under which a business or market operates. Clearly there 
is much to gain from each of these bifurcated approaches but only 
when the economist fully appreciates the history and the historian is 
fully aware of economic and business realities. It is against that 
test that a book of this kind needs to be judged.

Clearly this book by James Taylor falls into the category of an 
historian investigating a development of economic importance. It 
neither tries to measure the importance of joint stock companies in 
the economy nor model their corporate performance against other 
businesses, for example. Instead it seeks to explain why the British 
Parliament in the 1820s repealed legislation that had greatly 
restricted joint stock company formation in England, passed 
legislation in the 1840s and 1850s that gave joint-stock enterprise a 
privileged position within British business, and finally failed to 
remove these privileges when clear abuses were revealed during the 
1860s. To achieve that requires Taylor to use a wide variety of 
sources ranging from ones familiar to British economic historians, 
such parliamentary reports, debates and commissions relating to 
business matters, to much more unusual items, especially contemporary 
novels, plays, cartoons and poems. Through the systematic and 
extensive use of contemporary literature Taylor believes he can 
capture a sense of the prevailing culture and its changing attitude 
towards joint-stock companies, and it is this element of the book 
that is the most original and interesting.

In the introduction to the book Taylor places the joint stock company 
in context, largely culled from already published work, and then 
justifies the approach that he takes. This is followed by a chapter 
that stresses the long-standing antipathy towards joint-stock 
companies in England, as revealed in contemporary novels, plays and 
cartoons. Joint-stock companies were seen as a threat to businesses 
run by individuals and to consumers because of the monopoly they 
might enjoy, and thus their formation was generally opposed. In the 
public mind joint-stock companies were also associated with 
speculative outbursts, and this is explored in chapter 2. Company 
promoters were seen either as evil people who defrauded and duped 
innocent investors or pandered to human greed by encouraging 
speculation in shares. Though the South Sea Bubble had taken place in 
1720 the literature of the nineteenth century contained many 
references to it as a warning to the public to be wary of joint-stock 
enterprise. However, beyond these references to the South Sea Bubble 
and warnings about joint-stock companies and speculation, the 
literature suggests a high degree of ignorance of financial matters 
among the British public at this time.

Despite the prevailing antipathy towards joint-stock enterprise, the 
joint stock company did acquire an official status from the mid 1820s 
onwards. The first step on this official rehabilitation was the 
repeal in 1825 of the 'Bubble Act' passed in 1720 and then in 1826 
the ending of the prohibition of joint-stock banking though only 
outside London. However, there was no general law permitting the 
formation of joint-stock companies. Instead, company promoters had 
either to obtain a private act of parliament, which was a long and 
costly process, or form companies lacking any legal standing. As the 
mid 1820s also witnessed a speculative boom and collapse, during 
which many ephemeral joint-stock companies were promoted, the 
public's perception of such enterprise continued to be rather 
hostile. This suggests that the repeal of the restrictions on the 
formation of joint-stock companies was more an acceptance of the 
impossibility of preventing such a development rather than a 
willingness to embrace a new form of business organization.

Consequently, many joint-stock companies operated in limbo during the 
1820s and 1830s. Unless an act of Parliament had been obtained, the 
company had no legal status forcing action to be taken against its 
directors and shareholders by those with a claim to make. By the 
1840s this had become a particularly acute situation as there were a 
growing number of companies seeking to provide essential urban and 
transport services and each had to obtain a separate act of 
Parliament. Faced with a situation where something had to be done to 
reduce the pressure on parliamentary time and bring companies within 
the rule of law, a general act of incorporation was passed in 1844. 
Clearly such legislation was not a response to a changed attitude 
towards joint-stock companies among the public or a recognition that 
they had a major contribution to make to the economy. Thus, at the 
time of the railway mania in 1845 numerous joint stock companies were 
being formed either through individual acts of Parliament, as with 
the railways and their need for rights of way, or under the new 
legislation. This was then followed by further legislation in 1856 
that made the formation of joint-stock companies even easier and 
bestowed the general privilege of limited liability. All this is the 
subject of chapter 4, which is very much at the center of the book. 
That is then followed by a chapter focusing on the 1866 financial 
crisis and a discussion of why legislation was not passed curbing the 
use of the joint-stock/limited liability acts to evade personal 
responsibility for business losses. Even though there was a 
continuing public suspicion of joint-stock enterprise, especially the 
way successful company promoters were able to enrich themselves at 
the expense of innocent investors, no action was taken. Taylor 
believes that, by then, joint-stock enterprise had so entrenched 
itself in Victorian society that no alternative could be envisaged.

It is that message that is then taken up in the epilogue, which is by 
way of a conclusion. Here the suggestion is thrown out that after 
1870 both the stock exchange and joint-stock enterprise became 
respectable and the public antipathy towards promoters and 
speculation disappeared. Here, I fear, Taylor is generalizing from 
his focus on railways. After the railway mania railways gradually 
became a safe investment paying interest on their bonds and returning 
regular dividends to their shareholders. Instead, other types of 
joint-stock companies took their place as the object of public 
hostility, especially overseas mining companies but also including 
domestic industrial shares. Especially after the collapse of each 
speculative outburst both company promoters and stockbrokers were 
subject to attack by the novelists, playwrights and artists of the 
day in exactly the same way as was to be found in the 1820s or 1830s. 
However, this criticism of Taylor's closing remarks in no way 
diminishes the achievements of this book. Measured against the test 
of whether this author understands the economics and business as well 
as the politics and culture, the answer must be a resounding yes. 
This book makes an important contribution to our understanding of why 
joint-stock enterprise became such an established element within 
Britain in the mid-nineteenth century. The answer lies not in the 
changed attitude of the British public or the foresight of successive 
British governments. Instead, the explanation lies in the need to 
cope with the growing number of joint stock companies being created 
for sound economic and business reasons by giving them an easy means 
of coming into existence and then a distinct legal entity. All this 
is excellently documented in this well researched and well written 
book.


Ranald Michie has written extensively on both securities markets and 
the City of London. He is the author of _The London Stock Exchange: A 
History_ [Oxford 1999] and _The Global Securities Market: A History_ 
[Oxford 2006]. He has also co-edited a book with Philip Williamson, 
on _The British Government and the City of London in the Twentieth 
Century_ [Cambridge 2004]. Currently he is working on a book entitled 
_Guilty Money: The City of London in Victorian and Edwardian Culture_ 
which attempts to explore the world of money and finance in Britain 
before the First World War.

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