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Published online by Cambridge University Press: 24 January 2025
British business in the second half of the nineteenth century was characterised by the continued predominance of small private firms at a time when competing nations such as Germany and the United States were more commonly embracing large corporations. Alfred Chandler has contrasted personal capitalism in Britain with competitive managerial capitalism in America and attributes the alleged poor performance of British business and, through it, national rates of economic growth to the uncompetitive small family firm. Applying internalisation and transaction cost analysis he argues that such firms failed to achieve economies of scale and scope or to develop sophisticated administrative hierarchies managed by tiers of professional executives, features increasingly common in America by the end of the nineteenth century. An alternative tradition has used the economics of information and the networks paradigm to argue for the benefits of small-scale cooperative capitalism in both Britain and Japan.
I am grateful to Rob McQueen, Grant Fleming, Christos Mantziaris, and participants at the Salomon conference at ANU for helpful comments on an earlier draft of this paper.
1 AD Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (1990) at 11-13.
2 Similar ideas are discussed in the work of W Lazonick, for example, Business Organization and the Myth of the Market Economy (1991).
3 Church, R, “The Family Firm in Industrial Capitalism: International Perspectives on Hypotheses and History” (1993) 35 Business History 70CrossRefGoogle Scholar; Fruin, W M, Japanese Enterprise System'. Competitive Strategies and Cooperative Structures (1992)Google Scholar.
4 Salomon v Salomon & Co [1897] AC 22.
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7 12 East 405 (1810).
8 Bubble Repeal Act 1825 (UK).
9 P L Cottrell, above n 5 at 43-44.
10 Ibid at 43.
11 Ibid at 42-43.
12 Although R McQueen, “Life Without Salomon” this volume at 185-187 questions R Lowe's stated intentions in light of the liberal terms of the Companies Act 1856 (UK).
13 P Ireland, above n 5 at 245. Business organisations, in this case, excluded sole traders and public utilities.
14 G Todd, “Some Aspects of Joint Stock Companies, 1844-1900” {1932-4) 46 Economic History Review 46 at 59.
15 R McQueen, above n 12 at 196-197, draws attention to the higher survival rates among the minority of private companies registered at this time.
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17 Shannon, H A, “The First Five Thousand Limited Companies and their Duration” (1930-3)2 Economic History 416Google Scholar.
18 The Joint Stock Companies Registration and Regulation Act 1844 (UK) specified that the balance sheet provide a full and fair representation of a company's financial state of affairs although accountants were under no obligation to reveal the probable deception of investors and, in some cases, were party to such activity.
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21 H A Shannon, above n 17 at 412. Shipping had one of the highest failure rates amongst corporations surpassed only by banking and shipbuilding.
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23 PL Cottrell, above n 5 at 163-164.
24 Ibid at 81 and 162-163; P Ireland, above n 5 at 245-247.
25 P Ireland, above n 5 at 247.
26 F B Palmer (10th ed 1896).
27 Incorporation was preferable to the limitation of liability for partnerships under the Companies Act 1867 (UK) since it did not apply to directors of the enterprise. The societe en commandite remained uncommon in Britain.
28 P L Cottrell, above n 5 at 65-66 and 75.
29 The loss of community and personal relationships which writers like Trollope and Dickens associated with the coming of large public companies suggests that cultural factors may also have played a role.
30 P L Cottrell, above n 20 at 158. Shipping was somewhat different from many other industries in the smallness of production units and the frequency with which they had been jointly owned and managed. Damage claims were also more common.
31 PL Cottrell, above n 5 at 68-73.
32 Broderip v Salomon [1895] 2 Ch 323 at 336.
33 Ibid at 334.
34 Salomon v Salomon & Co [1897] AC 22 at 49. Its subsequent demise was due to strike action which led to the loss of some important contract work for public bodies to other firms.
35 Salomon v Salomon & Co [1897] AC 22 at 27, 30, 38-39, 43 and 46-48.
36 The exact number of 'conversions' is not clear although contemporaries and recent writers have generally assumed that most newly registered private companies were conversions, for example P Ireland, above n 5 at 247. In Salomon v Salomon & Co [1897] AC 22 at 48 L J.McNaghten observes that in converting, Salomon was simply doing “what hundreds of others have done under similar circumstances.”
37 Salomon v Salomon & Co [1897] AC 22 at 45 and 47.
38 P L Cottrell, above n 5 at 163.
39 These might include legal and insurance subterfuges. F H Easterbrook and D R Fischel, The Economic Structure of Corporate Law (1991) at 47-48 argue that in the absence of limited liability, firms will seek out insurance against business failure.
40 CJ Schmitz, above n 5 at 54-55.
41 M J Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916: the Market, the Law,and Politics (1988) at 163
42 142 Fed 247 (1905).
43 R Tomasic, J Jackson and R Woellner, above n 22 at 130. Also see a series of judgments made in the 1880s and the 1890s particularly the landmark decision of Santa Clara Co v Southern Pacific Railroad 118 US 394 (1886) giving corporations separate legal personality. See M J Sklar, above n 41 at 49.
44 HE Krooss and C Gilbert, American Business History (1972) at 161.
45 Ibid.
46 VP Carosso, The Morgans: Private International Bankers, 1854-1913 (1987).
47 Recent work has also drawn attention to the role of the state and some of the smaller private banks in supplying additional industrial investment in some German states: J Edwards and S Ogilvie, “Universal Banks and German Industrialization: a Reappraisal” (1996) 49 Economic History Review 427 at 434.
48 The large inveshnent banks often had Board level representation. Interlocking directorates held by the banks promoted cooperative activity between industrial firms and the growth of cartels.
49 Chandler, A D, Strategy and Structure: Chapters in the History of the American Industrial Enterprise (1969)Google Scholar shows how these strategies led to the development of U-form and then M-form companies in the USA.
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52 Powell, W W, “Neither Market nor Hierarchy: Network forms of Organisation” (1990) 12 Research in Organisational BehaviourGoogle Scholar.
53 A Godley and D Ross, “Introduction: Banks, Networks and Small Firm Finance” in A Godley and D Ross (eds), Banks, Networks and Small Firm Finance (1996).
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55 Chapman, S, Merchant Enterprise in Britain: From the Industrial Revolution to World War One (1992) ch 8CrossRefGoogle Scholar.
56 W M Fruin, above n 3 at chs 5-8.
57 C J Schmitz, above n 5 at 34; L Hannah, above n 5 at 179-184.
58 L Hannah, above n 5 at chs 7 and 8.
59 This was particularly the case where predatory company promoters like E T Hooley and HJ Lawson overcapitalised the promotion.PL Cottrell, above n 5 at 171-176. The issue of interwar flotation of British private companies is dealt with in detail by L Hannah, above n 5ch5.