Industrializing English Law: Entrepreneurship and Business Organization, 1720-1844 (review)

Industrializing English Law: Entrepreneurship and Business Organization, 1720-1844. By Ron Harris. New York: Cambridge University Press, 2000. Pp. xvi+331. $59.95.

At first glance only a useful "background" book for historians of technology, this is, in fact, a model study of the evolution of a technology, broadly defined. The legal framework of business organization in England from the sixteenth century to the mid-nineteenth is examined by reference to the specific contexts that shaped it and to the implications of its particular configuration for business activity and performance. Ron Harris takes nothing for granted. Neither the emergence of the joint-stock corporation as the predominant type of business organization in the modern industrialized world nor its peculiar characteristics were foregone conclusions. Both were the product of historical contingency during more than four centuries, and Harris is careful to specify who and what played major roles, and why.

Harris demonstrates that the joint-stock corporation had its roots in the long-distance trading companies and state financial innovations of the seventeenth century, and for two hundred years it was hobbled by its mercantilist origins. His plausible reinterpretation of the Bubble Act (1720) minimizes its supposed influence on the shaping of business organization and necessitates a more complex explanation. The transport and insurance sectors pioneered divergent forms of joint-stock enterprise through the eighteenth century, the former via parliamentary incorporation (and the reassurance of limited liability), the latter via the heterodoxy of unincorporated companies. "The two sectors underwent an intriguing experimental and evolutionary process of learning by doing and by copying" (p. 107). Including variant forms, such as the part-ownership of ships and cost-book partnerships in mining, Harris calculates that by 1810 joint-stocks provided a substantial proportion of English capital investment, and "joint-stock undertakings were almost everywhere in the English economy, except agriculture" (p. 196). This, however—despite his careful delineations—is still to risk exaggerating their importance in the manufacturing sector.

Again one is forced to recognize that industrialization occurred first in England despite, not because of, some of its institutions. It was only in the wake of the industrial revolution (circa 1760-1830) that much important legal reform was enacted: before the mid-nineteenth century the law of patents, insolvency, and bankruptcy did little to encourage risk-taking behavior. The law regulating business organizations was no exception. English industrialists, inventors, and entrepreneurs in general had to muddle through. Harris shows how a deep-rooted distrust of monopoly, closely associated in folk memory (even Adam Smith's!) with shareholding in joint-stock companies, prejudiced the judiciary against the latter and tied the hands of liberal parliamentarians. As with the Thames, the clean-up came only when the smell became unbearable.

Enterprising businessmen needed considerable courage and drive (or foolhardy optimism) to negotiate the borderlands of the law; many shareholders got their fingers badly burned. The unincorporated company was the refuge of the majority with ambitious schemes—denied incorporated status by Crown or Parliament, usually at the behest of vested interests threatened by their competition—and a marvel of legal and administrative ingenuity. It was not, however, an entirely satisfactory alternative. Harris rejects the apologies for this very English house of cards that have been made by historians since Scott and Dubois. Its ultimate collapse was precipitated by the obduracy of the judiciary, led by Lord Chancellor Eldon, who tried to maintain a common-law proscription of unincorporated companies beyond the repeal of the Bubble Act in 1825. As the climate of extreme legal uncertainty became intolerable, liberal Whig governments between 1830 and 1841 considered alternative reforming measures, including the introduction of limited liability partnership, which was widespread and successfully used on the Continent. It was left to Peel's first government to resolve the crisis in 1844, with the Act for Registration, Incorporation and Regulation of Joint-Stock Companies, skillfully drafted and steered through Parliament by Gladstone.

The act made incorporation and...