INDUSTRIALIZING ENGLISH LAW: ENTREPRENEURSHIP AND BUSINESS ORGANIZATION 1720-1844. By Ron Harris. Cambridge: Cambridge University Press. 2000. Pp. xvi, 331. Cloth, $60.
This is a study of the evolution of the forms of business organization during the industrial revolution. Historians never fully agree about anything at all, and often with good reason, but there is really no doubt that the period covered by this book is one that saw major changes in agricultural and industrial production, and in commercial practice and organization. It is convenient to refer broadly to the changes which took place in terms of a revolution, industrial, agricultural, or less commonly, commercial in nature.
Long before the starting date for this study, which is the date of the Bubble Act of 1720, there had existed firms of one kind or another, which had engaged in production, commerce, and consumption. The oldest form taken by the firm is the family. There existed in medieval and early modern England numerous other important legally recognized associations or collectivities, such as households, guilds, colleges, universities, Inns of Court and Inns of Chancery, convents, cities, boroughs and charitable foundations, such as hospitals. The typical form of association employed for business purposes was the partnership. But in the course of the sixteenth and seventeenth centuries, the institution of the corporation, which was conceived to possess a personality distinct from that of its members, and which had evolved outside the commercial world, came to be employed for business purposes.
In the same period the Court of Chancery invented the conception of the trust, an institution to some degree modeled on the earlier medieval institution of the use. In origin quite unconnected with the commercial world, the trust could, potentially, be adapted for use in the commercial field, though this development was not to take place until the eighteenth century.
The main emphasis of Ron Harris's Industrializing English Law: Entrepreneurship and Business Organization 1720-1844 (1) is on the forms of commercial group organization, some incorporated, some not, which were available to the business community after 1720, in particular during the industrial revolution. Harris provides a full chapter devoted to the pre-1720 business corporation, which was mainly associated with overseas trade and monopoly. Two distinct forms of business corporation evolved--the regulated corporation and the joint stock corporation. In the case of the regulated corporation, unlike the joint stock corporation, members of the company traded with their individual stock, and the company provided the infrastructure necessary to make the venture successful. It was possible for incorporation to depend upon prescription, but business corporations mainly came into existence by way of grant or concession from the state, operating either through a Crown charter or the issue of letters patent under the prerogative, or through an Act of Parliament to which the Crown assented. There existed no right to incorporation; incorporation came about as a consequence of negotiations between entrepreneurs and the Crown, and was a privilege. Most business activity was conducted by individual entrepreneurs or by entrepreneurs operating in partnership, not through business corporations.
At the end of the day, the winner was, of course, the joint stock corporation with limited liability. It supplanted the partnership as the typical form of business organization, differing from the partnership, in earlier times the dominant form, by possessing independent legal personality, transferable assets, limited liability, and an internal hierarchical management structure. Associated with the rise of the joint stock corporation was the evolution of organized markets in which stock could be traded, along with government bonds. A school of thought attributes the triumph of such corporations over the partnership to their superior efficiency. As Harris points out (p. 22 n.19), this conception of efficiency is somewhat differently analyzed by lawyers, by economists, and by law and economics scholars, but all those who rely on the concept of efficiency as the basic tool of explanation present the modern corporate form as being "of phenomenal importance for the rise of modern industrial capitalism" (p. 23). It is thought to possess as dramatic an importance in Western history as "the discovery of America or the invention of the steam engine" (p. 23). So if you want to know how the West grew rich, and think it has something to do with the institutions of the law, study the invention of the modern corporate form of business organization.
Those devoted to universalizing the explanatory power of efficiency tend to present the historical process as driven by a sort of inevitability; other forms of business organization, which lose out in the process, resemble giraffes with medium-length necks, doomed, if they ever existed at all, not to make even cameo appearances on the Discovery Channel or amongst the wildebeest on the Serengeti Plains. Harris is an economic historian, and historians are by disposition uneasy with historical inevitability. He also sets out to give an account of triumph of the joint stock corporation by combining insights derived from general historical writings, from the writings of economists and economic historians, and from legal historians. He has no inclination to write winners' history, but rather to explain a complicated process of evolution over time. He suspects that a belief in the driving force of efficiency, which for some odd reason triumphs only in the nineteenth century, though presumably it was around since the beginnings of time, does little by itself to illuminate a complicated story. At the same time he has no wish to neglect the importance of the concept, and is by no means uninterested, as many historians have been, in general theoretical explanations of historical change.
So his book opens with a valuable analysis of the literature that addresses the relationship, if there is one, between legal and economic development. Harris argues that, in the main, this literature adopts, to a greater or less degree, one of two contrasting paradigms or, in Max Weber's terms, relates explanation to two contrasting ideal types. According to one paradigm, the law and the legal system are viewed as relatively autonomous. Legal change, when it occurs, is managed by an elite group of professional lawyers, and in particular by the tiny...