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.