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It has been claimed that the diversified mercantile capitalist
of eighteenth-century Britain was replaced by the specialist
industrialist of the nineteenth. This study of
Manchester cotton merchants who moved into fire insurance
in the 1820s examines the neglected strategy of collective
diversification. It argues that the merchants'
decision to diversify cannot be explained by short-term
financial or economic considerations arising out of the
insurance or cotton markets and only partly by long-run
issues such as profit maximization and constraints on
growth. Collective diversification is best understood as
part of a broader attempt to create a system of interlocking
services by an urban oligarchy seeking both to improve the
economic infrastructure of their region and to consolidate
the economic and political power of their group.
Several familiar forms of diversification have been studied by historians of the British economy, including product diversification by firms and the diversification of personal assets by landowners and entrepreneurs.(1) Historians have also long been aware of the plurality of interests characterizing many eighteenth-century merchants, that "polyvalence" and absence of specialization that Francois Crouzet has called an "archaic trait."(2) Indeed, some writers have described a linear or spiral development of business structures from the highly "diversified mercantile capitalist" of the eighteenth century, through the "specialised and monopolistic industrial capitalist of the nineteenth," to the modern diversified corporation.(3) A further important form of diversification, however--the collective movement of businessmen from one industry or sector of the economy to another--has received less attention. This phenomenon involved the active collaboration of a group of entrepreneurs as managers, trustees, and directors, as well as shareholders, in a new venture. Decisions to diversify were made first individually and then jointly. The fusion of single entrepreneurs and small partnerships of two or three into a larger diversifying managerial group of a dozen or two dozen members required a relatively high degree of concentration of ownership within a specific region and trade. Distinguishable from corporate diversification and from the asset restructuring of individuals, this combination of personal and group decision making, coupled with the active, managerial character of investment, were the distinctive features of collective diversification that form the focus of this article.
Specifically, this article examines the process by which an important body of Manchester cotton lords successfully diversified their business activities into a major financial service by establishing the Manchester Fire and Life Assurance Company (MFLAC) in the spring of 1824. It is less concerned with their subsequent underwriting performance and competitive position in the insurance market than with their reasons for establishing the new venture.(4) The economic, political, and social interconnections of this group within Manchester's cotton elite are examined in order to gauge the group's "collective" character. Reasons for their diversification are sought in the insurance markets and in trends in moral hazard and in the temporary fluctuations and more permanent constraints on growth that may have encouraged capital to leave the cotton industry. The article next demonstrates the regionality of the MFLAC's early shareholding and agency networks, based on existing business contacts within cotton, and argues that this facilitated the entry of the merchants into insurance. Finally, the essay examines the merchants' investment strategy and makes comparisons with other diversifying groups in an attempt to draw some general conclusions about the nature of collective diversification in the industrializing economy. The primary aim is to understand such diversification in its wider economic, social, and political contexts, though the article also raises important questions about the regionality of services in Britain during the early nineteenth century.
It is a commonplace to assert that most new business ventures in the eighteenth century that involved capital transfers across economic sectors--for instance, from industry to transport or finance--were heavily oriented toward their region and locality. The existing literature on such ventures, however, reveals relatively few incidences of collective diversification before the end of the Napoleonic Wars. The few fire insurance companies founded by industrial groups before 1815 are discussed below. Turnpike trusts were characterized by passive, "disinterested" small investors, not by diversifying groups of entrepreneurs.(5) Country banking emerged on the initiative of individuals or of small partnerships and provides good examples of mercantile "polyvalence." Before 1826 country banks were limited by law to six partners, and their capital outlays were modest, an average of 10,000 [pounds].(6) Eighteenth-century canal companies were of the type to provide examples of collective diversification; however, they reveal widely differing degrees of concentration of investor by location and by occupation. Generally, geographical concentration was considerably greater than occupational, with the exception of some canals in industrial areas financed by ironmasters or cotton spinners.(7) It is difficult to assess how far these clusters of investors represented a collective diversification without knowing more about the extent of their managerial involvement and about the scale of local oligarchic formation achieved via interlocking political, business, and social interests. These aspects of canal companies remain to be examined.
It has been suggested that most eighteenth-century canal investors had primarily financial rather than economic motives. This was particularly true in towns most affected by canal mania, such as Bristol, in relative economic decline by the end of the eighteenth century and with large idle surpluses accumulated from previous decades of trade.(8) It seems, however, that rapidly expanding industrial centers did not reach the point where capital was so aggressively seeking alternative outlets until the huge jointstock company boom of the 1820s. In the mid-1820s the existence of surplus profits and the hope of easy gains encouraged by speculation, together with the availability of new technologies in industries such as gas and railways, appear to offer both financial and economic explanations for the massive, regionally concentrated transfers of industrial and mercantile capital into services, transport and public utilities over a short period.(9)
By the mid-1820s Manchester was rapidly developing a business system that could facilitate such transfers, a system centered on the cotton trade and industry and their institutions. As the trade expanded, so did the Manchester Exchange, "the parliament of the lords of cotton," with 1,600 subscribers by 1825, whose commercial connections reached far beyond Lancashire.(10) As the industry grew, the average size of firms increased, and there was a trend toward local specialization within the region. By the early 1830s there were over a thousand partners in the region's mills.(11) The number of the most powerful and wealthy cotton lords at the heart of this system, however, was much smaller. About two hundred leading manufacturers and merchants subscribed to the Chamber of Commerce established in 1820 to protect the "commercial interests of Manchester," which, in their view, meant free trade, the gold standard, and support for local banks.(12) Huge sums could be generated for the local infrastructure, although, as the history of some railways demonstrated, the ability to raise capital depended crucially on the fortunes of the cotton trade.(13) However, the business system of the town and region was not constructed only on commercial institutions. It also had political and social dimensions, manifested in the unreformed organs of local government that the cotton lords dominated, as well as in less formal social contacts, such as the dinner parties "particularly in vogue among the higher classes." Most visitors agreed that Manchester was "essentially a place of business where pleasure is unknown as a pursuit.(14) Local cotton men with ready money who wished to diversify their activities, however, found dinner parties and similar gatherings the points at which they could comfortably pursue business with pleasure.
Nineteen cotton merchants and manufacturers, three calico printers, a grocer, and a banker composed the original MFLAC directors in 1824. All lived and worked in or near Manchester. This domination of cotton and local residence persisted throughout the first two decades of the company's existence. Occupations traced for fifty-three of sixty-six directors between 1824 and 1843 reveal that forty-six were engaged in some branch of cotton manufacture or distribution. Almost all of the fifty-six directors for whom residence could be traced resided in Manchester or its suburbs.(15) This was overwhelmingly a club of cotton lords, with partners in some of the most prosperous local firms sitting on the board. Rateable values for the commercial property of fifteen of the first thirty-eight directors appointed place them in the wealthiest 8 percent of the town's mercantile community.(16) Other indicators of family and business wealth include large sums tied up in property and land, as well as substantial amounts of disposable income. The Birley brothers and their business partner, Thomas Cardwell, for instance, sat together on the board in the 1820s. Their cotton spinning firm was already capitalized at 100,000 [pounds] by 1800, and it had produced an average annual profit of over 6,000 [pounds] in the preceding two decades. Large sums were also clearly at the disposal of the merchant-manufacturer Aaron Lees, who paid 120,000 [pounds] for a mill and 120 cottages, or the calico printer George Hole, who paid 6,000 guineas for a house in Mosley Street next to Richard Cobden.(17)
Underpinning the social and economic status of the boardroom were trustees such as Thomas Houldsworth, Tory MP for Pontefract, whose firm was ranked third largest in Manchester in 1815, and George Richard Philips, Whig MP for Steyning, whose interests included a share in the Salford spinning firm Philips & Lee, said in 1813 to be the largest cotton firm in the land.(18) Philips's father withdrew an annual average of 210,500 between 1808 and 1831 from the family firm, and George Richard himself was guaranteed an annual income of 4,000 [pounds] alone from his marriage to the daughter of Lord Waterpark. Writing to his father in 1827, he surmised that even if the Salford firm failed, "we have income ... more than enough ... to procure every enjoyment which a rational man and a gentleman can desire."(19)
Despite this fabulous array of wealth, some of the largest mill owners remained notably absent from the boardroom. The insurance directorate was dominated by mercantile rather than by manufacturing interests. Only eight of the forty-six MFLAC cotton directors were involved in spinning. Twice as many were in business solely as merchants, agents, and yarn dealers. The largest group on the board (twenty) were merchants involved in some manufacturing and/or finishing trades, especially calico printing, as secondary occupations.
According to Anthony Howe, new entrants to the cotton elite in the 1820s were outnumbered by those inheriting businesses from fathers or other relatives.(20) Several MFLAC directors belonged to this youthful second generation. Of ten for whom there is information on age, seven were under 50 on joining the board. Of fifteen whose origins can be ascertained, twelve came from established cotton dynasties. Several were woven into a "Byzantine network" of intermarriage and business partnerships: for example, Cardwell and Birley, Wood and Philips, Greenway and Potter, Newbery and Hoyle.(21) Seven had family connections to the old Manchester Commercial Society of the 1790s, and another two presided over the revived Chamber of Commerce in the 1820s.(22)
Boardroom politics were predominantly, though not exclusively, Tory and high church. Of nineteen directors and trustees whose affiliation is known, sixteen were Tories. Yet there were also three Whig Mps on the board. At least six directors belonged to the exclusive high church "Broughton Archers," described as the "highest social organisation in the town," and two others were members of the other Tory club in Manchester frequented by insurance men, John Shaw's.(23)
The insurance directors were also prominent in local government during the fifteen years preceding Manchester's incorporation. Those with seats on the MFLAC board between 1824 and 1829 included nine boroughreeves of Manchester, nine Manchester constables, and fifteen police commissioners. Ten out of the first thirty Manchester improvement commissioners appointed 1828-29 were directors, and other board members were scattered across various municipal committees. Fourteen, for instance, had previously met together on the committee for the extension of Market Street in 1821, and eleven of sixteen jury members of Manchester's court leet in 1824 were MFLAC directors. Directors were also involved in a wide range of cultural and philanthropic activities, with twenty-seven "hereditary governors" of the Manchester Institution, thirteen officers of Manchester Infirmary, and up to five active in each of a large number of other committees and societies. These cotton-insurance men formed a substantial part of the "old gang," the largely Tory business oligarchy that governed Manchester before incorporation.(24)
This analysis reveals three points important to the following examination of diversification. First, the insurance men were not newcomers, but belonged to the elite of Manchester's established cotton dynasties, a group with sufficient accumulated wealth to finance a diversification of business activities after 1815. Second, a majority of the board represented the convergence of factory and warehouse interests that was rapidly creating a unified business community in Manchester in the early 1820s. Despite their "self-referential" mentality and the important political and religious divisions within the Manchester middle class, the cotton elite was increasingly acting as a tight-knit oligarchy in business, with a common political economy.(25) Nowhere was this more evident than in the MFLAC'S boardroom, where radicals such as Richard Potter, Whigs such as George W. Wood and George R. Philips, and high church Tories such as Hugh H. …