Industrializing English Law: Entrepreneurship And
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This page intentionally left blank Industrializing English Law Legal stasis in the face of rapid economic change poses serious challenges to deterministic and functional interpretations in the theory of law, institutions, and economic performance. This book explores a particu- larly important example: the slow and contradictory development in the law of business organization in England during the critical phase of the Industrial Revolution. Based on extensive primary source research, Ron Harris shows how the institutional development of major forms of busi- ness organization – the business corporation, the partnership, the trust, the unincorporated company – evolved during this period. He also dem- onstrates how this slow and peculiar path of legal change interacted with and affected the practice of individual entrepreneurs and the transfor- mation of the English economy. Ron Harris is Senior Lecturer of Legal History at the School of Law, Tel Aviv University, Israel. Harris has been awarded fellowships from the Rothschild Foundation and the British Council, and has published arti- cles in various journals, including the Journal of Economic History and Economic History Review. POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS Series Editors Randall Calvert, Washington University, St. Louis Thrainn Eggertsson, Max Planck Institute, Germany, and University of Iceland Founding Editors James E. Alt, Harvard University Douglass C. North, Washington University, St. Louis Other Books in the Series Alesina Alberto and Howard Rosenthal, Partisan Politics, Divided Government and the Economy Lee J. Alston and Joseph P. Ferrie, Southern Paternalism and the Rise of the American Welfare State: Economics, Politics, and Institutions, 1865–1965 Lee J. Alston, Thrainn Eggertsson, and Douglass C. North, eds., Empirical Studies in Institutional Change James E. Alt and Kenneth Shepsle, eds., Perspectives on Positive Political Economy Jeffrey S. Banks and Eric A. Hanushek, eds., Modern Political Economy: Old Topics, New Directions Yoram Barzel, Economic Analysis of Property Rights, 2nd edition Robert Bates, Beyond the Miracle of the Market: The Political Economy of Agrarian Development in Kenya Peter Cowhey and Mathew McCubbins, eds., Structure and Policy in Japan and the United States Gary W. Cox, The Efficient Secret: The Cabinet and the Development of Political Parties in Victorian England Gary W. Cox, Making Votes Count: Strategic Coordination in the World’s Electoral System Jean Ensminger, Making a Market: The Institutional Transformation of an African Society Kathryn Firmin-Sellers, The Transformation of Property Rights in the Gold Coast: An Empirical Analysis Applying Rational Choice Theory Clark C. Gibson, Politicians and Poachers: The Political Economy of Wildlife Policy in Africa Anna L. Harvey, Votes without Leverage: Women in American Electoral Politics, 1920–1970 Murray Horn, The Political Economy of Public Administration: Institutional Choice in the Public Sector John D. Huber, Rationalizing Parliament: Legislative Institutions and Party Politics in France Jack Knight, Institutions and Social Conflict Michael Laver and Kenneth Shepsle, eds., Cabinet Ministers and Parliamentary Government Michael Laver and Kenneth Shepsle, eds., Making and Breaking Governments Margaret Levi, Consent, Dissent, and Patriotism Brian Levy and Pablo T. Spiller, eds., Regulations, Institutions, and Commitment Series list continues on page following Index INDUSTRIALIZING ENGLISH LAW ENTREPRENEURSHIP AND BUSINESS ORGANIZATION, 1720–1844 RON HARRIS Tel Aviv University The Pitt Building, Trumpington Street, Cambridge, United Kingdom The Edinburgh Building, Cambridge CB2 2RU, UK 40 West 20th Street, New York, NY 10011-4211, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia Ruiz de Alarcón 13, 28014 Madrid, Spain Dock House, The Waterfront, Cape Town 8001, South Africa http://www.cambridge.org © Cambridge University Press 2004 First published in printed format 2000 ISBN 0-511-03380-X eBook (Adobe Reader) ISBN 0-521-66275-3 hardback Contents ListofTablespagexiii Acknowledgmentsxv Introduction1 1TheLegalFramework14 LegalConceptionsofGroupAssociation15 TheCorporation16 ThePartnership19 TheTrust21 FeaturesofBusinessOrganizations22 Legal Personality, Managerial Hierarchy, and LimitationofLiability23 TransferableJoint-StockCapital24 CourtJurisdiction25 FormsofBusinessOrganization27 TheSoleProprietorship27 TheClosedFamilyFirm27 TheGeneralPartnership28 TheLimitedPartnership29 TheQuasi-Joint-StockPartnership31 TheUnincorporatedJoint-StockCompany31 TheRegulatedCorporation32 TheJoint-StockCorporation33 TheMutualAssociation33 TheNonbusinessandNonprofitOrganization36 vii viii Contents PART I BEFORE 1720 2ThePre-1720BusinessCorporation39 FromOriginstoHeyday:The1550stothe1620s40 TheDecline:The1620stothe1680s46 The Rise of the Moneyed Companies: The 1680s to 172053 3TheBubbleAct,ItsPassage,andItsEffects60 The Proper Context: Bubble Companies or National Debt61 ThreeExplanationsforthePassageoftheAct64 FromBilltoAct65 TheSouthSeaCompanyLobby68 TheAnti-BubblesLobby70 ThePublicandtheGovernment71 Conclusion:WhyWastheBubbleActPassed?73 TheBubbleAct:ATurningPoint?78 PART II 1721–1810 4 Two Distinct Paths of Organizational Development: TransportandInsurance85 Transport86 TheEmergenceoftheTurnpikeTrust86 TheOrganizationofRiverNavigationImprovement90 TheComingoftheJoint-StockCanalCorporations95 Insurance100 TheEarlyCompanies:Before1720100 The1720stothe1750s102 The1760sandthe1770s103 The1790sandthe1800s106 Insurance:TheEndPoint107 Conclusion:TwoPathsofOrganization108 5TheJoint-StockBusinessCorporation110 LegalPersonality110 TheRaisingandTransferabilityofJointStock114 CapitalFormation114 TheLegalNatureofCorporateShares117 TheStockMarket118 Contents ix LimitedLiability127 EntryBarriers132 6 Trusts, Partnerships, and the Unincorporated Company137 TheAppropriateLegalFramework139 TheLackofLegalEntity141 Continuity142 Liability143 Governance144 LitigationUsingCommonName144 StatutoryandOtherImplications145 TheRoleoftheTrust147 TheEvolutionoftheTrust147 TheOriginsoftheTrust148 TheStrictSettlementTrust149 TheInvestmentTrust150 TheUnincorporatedCompanyTrust152 TheAssetstobeVestedintheTrust152 TheTrustees’Perspective153 TheBeneficiaries’Perspective156 TheRoleoftheTrust:AReappraisal158 TheUnincorporatedCompanyinCourtLitigation159 PartnershipasaCommon-LawConception159 The Obsoleteness of Common-Law Account Action160 TheRiseandLimitationsofEquityAccount162 TheCrisisattheCourtofChancery163 Conclusion165 7TheProgressoftheJoint-StockOrganization168 TheStartingPoint:Circa1740170 SectoralSurvey173 TextileIndustries173 MetalIndustries177 FoodIndustries178 Utilities182 Banking183 OverseasTrade183 Fisheries184 SectorsOutsidetheRealmofCommonLaw186 ShipOwnership186 x Contents Mining190 TheEndPoint:Circa1810193 AggregateEstimation193 The Importance of the Joint-Stock Organization in theEconomyatLarge194 ConcludingRemarks198 PART III 1800–1844 8TheAttitudesoftheBusinessCommunity201 ThePromotersoftheNewCompaniesandTheirFoes202 TheConflictovertheOldMonopolies203 TradeMonopoliesandtheEastIndiaCompany204 TheMarineInsuranceCorporateMonopoly207 TheBankofEnglandMonopoly211 Conclusion215 BoomsandCrises216 TheEarly19thCentury216 TheBoomof1825217 The Progress of the Joint-Stock Companies: 1826–1844218 HostilitytoSpeculationinShares223 9TheJoint-StockCompanyinCourt230 TheJudiciary231 TheRevivaloftheBubbleAct235 Litigation:1808–1812236 LitigationDuringtheBoomof1825241 TheReinventionoftheCommonLaw245 10TheJoint-StockCompanyinParliament250 The Boom of 1824–1825 and the Repeal of the BubbleAct250 LiberalToryismandtheParliamentaryBackground250 TheRushonParliament254 TheDebatesinParliament256 PeterMoore’sBubbleActRepealBill262 TheRepealoftheBubbleAct265 Tory and Whig Governments after the Repeal: 1827–1841268 ReturntoIncorporationbytheCrown270 LimitedLiabilityPartnership273 Contents xi TheRiseoftheConceptofRegistration274 TheSelectCommitteeof1841277 Peel’sConservativeAdministration,1841–1844278 TheParliamentaryCommittee279 TheCompaniesActof1844andItsSignificance282 Laissez-FaireorIntervention?285 Conclusion287 Appendix 1 The Rise and Decline of the Major Trading Corporations295 Appendix2CapitalofJoint-StockCompaniesCirca1810297 Bibliography301 IndexofCases323 IndexofStatutes325 GeneralIndex326 Tables 1.1 Collective forms of business organization and their characteristics page 34 5.1 Shares listed in the Course of the Exchange, 1698–1807 121 7.1 Joint-stock companies, c. 1740 171 7.2 Joint-stock undertakings in England, c. 1810 194 7.3 The percentage of joint-stock capital in England’s aggregate capital stock: 1760, 1810, 1840 195 8.1 Companies listed in the Course of the Exchange, 1811–1834 219 8.2 Joint-stock companies promoted, 1834–1837 220 8.3 Railway and joint-stock banks 221 8.4 Capital of companies known on the London market, c. 1843 222 xiii Acknowledgments This book is the outgrowth of a 1994 Columbia University dissertation. My first debt is to my dissertation supervisor, David Cannadine, and to the second reader, Eben Moglen. Their encouragement and criticism throughout the research, the writing and the rewriting of the disserta- tion, and thereafter, was indispensable. The criticism was at least as important as the encouragement, was just as welcome, and had a consid- erable impact on the final outcome. The two, in addition to Michael Edelstein, who devoted a great deal of time to this project in its disser- tation stage, exposed me to three distinct disciplinary outlooks: main- stream British history,