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Collective Diversification : Manchester Cotton Merchants and the Insurance Business in the Early Nineteenth Century

  • Robin Pearson (a1)

Extract

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.

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1 Examples include Foreman-Peck, James, “Diversification and the Growth of the Firm: The Rover Company to 1914,” Business History 25 (1983): 179–92; Michie, Ranald C., “Income, Expenditure and Investment of a Victorian Millionaire: Lord Overstone, 1823–83,” Bulletin of the Institute of Historical Research 58 (1985): 5977; Morris, R. J., “The Middle Class and the Property Cycle during the Industrial Revolution,” in The Search for Wealth and Stability, ed. Smout, T. C. (London, 1979), 91113; Howe, Anthony, The Cotton Masters, 1830–1860 (Oxford, England, 1984), 2843.

2 Crouzet, François, The First Industrialists (Cambridge, England, 1985), 67.

3 Miller, S. S., The Management Problems of Diversification (New York, 1963), 136–37. Cf. Williams, D. M., “Liverpool Merchants and the Cotton Trade, 1820–50,” in Liverpool and Merseyside ed. Harris, J. R. (London, 1969), 182211.

4 The impact of the Manchester insurers on provincial insurance markets and their role in the process of tariff reform 1825–50 is examined in Pearson, Robin, “Taking Risks and Containing Competition: Diversification and Oligopoly in Early Nineteenth Century Fire Insurance,” Economic History Review 46 (1993), forthcoming.

5 Buchanan, B. J., “The Evolution of the English Turnpike Trusts: Lessons from a Case Study,” Economic History Review 39 (1986): 223–43.

6 Pressnell, L. S., Country Banking in the Industrial Revolution (Oxford, England, 1956), 14–36, 226–31.

7 Ashton canal, thirty-three cotton spinners out of ninety-one identifiable proprietors, Peak Forest, 353 out of 806 shares, and Rochdale, 1,117 out of 2,919 shares taken by cotton manufacturers. Ward, J. R., The Finance of Canal Building in Eighteenth Century England (Oxford, England, 1974), chap. 2.

8 Ibid., chap 5.

9 Some two hundred provincial gas companies, for instance, were founded between 1816 and 1830. Chantler, P., The British Gas Industry: An Economic Study (Manchester, England, 1938), 4. During the boom of 1824–25, 624 companies were floated with a total capitalization of £372 million. By comparison, the total raised for canal and river improvements between 1755 and 1815 has been estimated at just £17m. Hunt, B. C., The Development of the Business Corporation in England, 1800–1867, (Cambridge, Mass., 1936), 46; Ward, Finance of Canal Building, 73. See also Michie, Ranald C., Money, Mania, and Markets (Edinburgh, Scotland, 1981), 2738.

10 Farnie, Douglas A., “An Index of Commercial Activity: The Membership of the Manchester Royal Exchange, 1809–1948,” Business History 21 (1979), 97106; Taylor, W. Cooke, Notes of a Tour in the Manufacturing Districts of Lancashire, 3d ed. (1842; London, 1968), 10.

11 Lloyd-Jones, Roger and Lewis, M. J., Manchester and the Age of the Factory (London, 1988), 103–6; Howe, Cotton Masters, 6.

12 Redford, A., Manchester Merchants and Foreign Trade, 1794–1858 (Manchester, England, 1934), chaps. 5 and 12.

13 Such as the £20,000 available for the widening of the town's main thoroughfare in 1821; Prentice, A., Historical Sketches and Personal Recollections of Manchester (London, 1851), 209–10; Pollins, H., “The Marketing of Railway Shares in the First Half of the Nineteenth Century,” Economic History Review 7 (19541955): 230–39.

14 Anon., A Week at Manchester,” Edinburgh Review 55 (1839): 481–96; Cooke Taylor, Notes of a Tour, 9.

15 MFLAC's Deed of Settlement stipulated that any trustee residing over ten miles from Manchester could be removed from office as a result. It is not clear whether this also applied to directors although at least one resigned from the board in this period on moving away from Manchester. Guildhall Library, London [hereafter GL], MS 16217, MFLAC, Deed of Settlement, 1 June 1824, cl.50; MS 16222/6, MFLAC, Board of Directors' Minutes [hereafter DM], 17 March 1836.

16 Calculated from Lloyd-Jones and Lewis, Manchester and the Age of the Factory, Tables 7.4, 7.5.

17 Howe, Cotton Masters, 25–27; Chapman, Stanley D., “Financial Constraints on the Growth of Firms in the Cotton Industry, 1790–1850,” Economic History Review 32 (1979): 62; Morley, J., Life of Richard Cobden, 13th ed. (London, 1906), 22n.

18 Lloyd-Jones, Roger and Le Roux, A. A., “The Size of Firms in the Cotton Industry: Manchester, 1815–41,” Economic History Review 33 (1980): 81.

19 Howe, Cotton Masters, 78–79, 92–93, 317n, appendix 2.

20 Ibid. Table 1.3.

21 Gatrell, V. A. C., “Incorporation and the Pursuit of Liberal Hegemony in Manchester, 1790–1839,” in Municipal Reform and the Industrial City, ed. Fraser, D. (Leicester, England, 1982), 1660.

22 On the Manchester commercial societies, see Redford, Manchester Merchants.

23 Grindon, L. H., Manchester Banks and Bankers (Manchester, England, 1878), 155; Stancliffe, F. S., John Shaw's, 1738–1938 (Timperley, 1938).

24 All figures calculated from Pigot's Directories of Manchester, 1821–38, passim; Wheeler's Manchester Chronicle, 21 Feb. 1824; Axon, W. E. A., The Annals of Manchester (London, 1886), 209; Lloyd-Jones and Lewis, Manchester and the Age of the Factory, Table 8.1. On the “old gang,” see Redford, A., A History of Local Government in Manchester (London, 1939), 1: 312–13.

25 Gatrell, “Incorporation and the Pursuit of Liberal Hegemony,” 17; Lloyd-Jones and Lewis, Manchester and the Age of the Factory, chap. 8.

26 Grindon, Manchester Banks, 242.

27 Braidley, B., Memoir of Benjamin Braidley (Manchester, England, 1845), 3940.

28 Trebilcock, Clive, Phoenix Assurance and the Development of British Insurance (Cambridge, England, 1985), 1: 2729.

29 Trebilcock describes Phoenix as a “fire office of the locality”; ibid., 59.

30 Ryan, R. J., “A History of the Norwich Union Fire and Life Insurance Societies from 1797 to 1914” (Ph.D. diss., University of East Anglia, 1983), 138–47.

31 Leeds & Yorkshire Assurance Company, Prospectus, 1824; Wilson, R. G., Gentleman Merchants (Manchester, England, 1971). I am very grateful to David T. Jenkins for providing information on Leeds & Yorkshire Assurance.

32 Baines, Edward, History of the Country Palatine and Duchy of Lancaster (London, 1836), 2: 330. An earlier foundation, Manchester Fire Office of 1777, had been acquired by Phoenix in 1788; Trebilcock, Phoenix Assurance, Table 8.4.

33 Trebilcock, Phoenix Assurance, 363, 387; Dickson, P. G. M., The Sun Insurance Office, 1710–1960 (London, 1960), 144–45; Ryan, R., “The Norwich Union and the British Fire Insurance Market in the Early Nineteenth Century,” in The Historian and the Business of Insurance, ed. Westall, Oliver M. (Manchester, England, 1984), 71.

34 Howe, Cotton Masters, 37; Dickson, Sun Insurance, 133; Trebilcock, Phoenix Assurance, 390, 400–401.

35 Ryan, “Norwich Union,” Table 2.

36 On the contrary, from its earliest years the MFLAC campaigned vigorously for a cotton tariff to prevent random competitive discounting of premiums; see Pearson, “Taking Risks and Containing Competition.”

37 On moral hazard, see Trebilcock, Phoenix Assurance, 367–68, 377–78; Jenkins, David T., The West Riding Wool Textile Industry, 1770–1835 (Edington, England, 1975), 286.

38 Trebilcock, Phoenix Assurance, 141–51.

39 Chapman, Stanley and Butt, J., “The Cotton Industry, 1775–1856,” in Studies in Capital Formation in the United Kingdom, 1750–1920, ed. Feinstein, Charles H. and Pollard, Sidney (Oxford, England, 1988), 114; Jenkins, West Riding Wool Textile Industry, 56–61, 182–35.

40 This example is of a Meltham cotton mill insured for £1,200; Jenkins, West Riding Wool Textile Industry, 61; GL, MS 16222/2, MFLAC, DM, 29 Sept. 1825, insurance of John Pooley's mill.

41 Chapman and Butt demonstrate that the “typical” fireproof mill of nine stories was much larger than the average of 105 Manchester mills in 1821, this being five stories; Chapman and Butt, “Cotton Industry,” 114–15; Cambridge University Library, Phoenix Assurance Archives, Agents' Extra Letter Book B, Jones to Mackenzie, 27. Oct, 1836.

42 Lloyd-Jones and Lewis, Manchester and the Age of the Factory, chap. 7. There are no statistics available for mill or warehouse fires in this period. The only work listing town fires appears to have missed major conflagrations in commercial property, such as the Liverpool warehouse fires of 1802 (total losses, £1 million), and 1833 (fourteen warehouses destroyed at £200,000); E. L. Jones, et al., A Gazetteer of English Urban Fire Disasters, 1500–1900, Historical Geography Research Paper no. 13, Aug. 1984. I am grateful to M. E. Turner for this reference. A data series for London fires begins in 1833; Walford, C., “Fires and Fire Insurance Considered,” Journal of the Royal Statistical Society (1877), 347432.

43 Ryan, “Norwich Union,” 39; Ryan, “History of the Norwich Union,” 104–11, 120.

44 Trebilcock, Phoenix Assurance, 17–23.

45 The following description of the cotton boom is based on Baines, Edward, History of the Cotton Manufacture in Great Britain (London, 1835), 310, 315; Gayer, A.D., Rostow, W. W., and Schwartz, A. J., The Growth and Fluctuations of the British Economy, 1790–1850 (Oxford, England, 1953), 1: 197–98; 2: 746, 767–68.

46 Chapman, “Financial Constraints,” 59; Baines, Cotton Manufacture, 356.

47 Manchester Gazette, 2 Oct. 1824.

48 Kindleberger, Charles P., Manias, Panics and Crashes: A History of Financial Crises, 2d ed. (London, 1989), 2856.

49 Hunt, Development of the Business Corporation, 33; English, H., A Complete View of the Joint-Stock Companies during the Years 1824 and 1825 (London 1827), 32.

50 Trebilcock, Phoenix Assurance, Tables 13.3, 13.4.

51 Fitton, R. S. and Wadsworth, A. P., The Strutts and the Arkwrights, 1758–1830 (Manchester, England, 1958), 287–93; Boyson, R., The Ashworth Cotton Enterprise (Oxford, England, 1970), 48; Lee, C. H., A Cotton Enterprise, 1795–1840: A History of M'Connel and Kennedy, Fine Cotton Spinners (Manchester, England, 1972), 106–12; Trebilcock, Phoenix Assurance, 713–14.

52 MFLAC's deed limited dividends to 5 percent until funds exceeded £1.2 million, an onerous restriction given that these had barely reached 40 percent of this by 1845. Quinquennnial fire bonuses were however more generous, 4 or 6 percent on shares and 10 percent on premiums in 1834, 1839, and 1844. GL, MS 16217, MFLAC, Deed of Settlement, cls. 77–78; MS 16223/1, MFLAC, General Court Minutes [hereafter CM], 1825–16, passim.

53 Shapiro, S., Capital and the Cotton Industry in the Industrial Revolution (Ithaca, N.Y., 1967), appendix 11.

54 Ward, Finance of Canal Building, appendix 1.

55 Howe, Cotton Masters, Table 1.4; Boyson, Ashworth Cotton Enterprise, 29–31. Cotton profits, of course, had been two or three times this level in previous decades.

56 Calculated from GL, MS 16223/1, MFLAC, CM, 1825–46, passim, Annual Auditor's Accounts; GL, MS 18102/1, Guardian Assurance, Annual Account Book 1822–45; GL, MS 18106, Guardian Assurance, Fire Ledger, 1821–67.

57 Calculated from GL, MS 16222/5, MFLAC, DM, 29 Feb. 1832, Report of Committee on Special Risks; Trebilcock, Phoenix Assurance, Tables 5.1 and 7.1; Dickson, Sun Insurance, 140. MFLAC's “large industrial risks” were cotton, wool-textile and corn mills, dye and bleach works, and calico print shops.

58 Premiums doubled in the first decade to 1834/35. Management expenses averaged 17.8 percent of premiums, 1826–30, compared to expense ratios between 24.5 and 33.2 percent for five other major fire offices. Full references and a comprehensive discussion of MFLAC's underwriting performance are given in Pearson, “Taking Risks and Containing Competition.”

59 Gatrell, V. A. C., “Labor, Power, and the Size of Firms in Lancashire Cotton in the Second Quarter of the Nineteenth Century,” Economic History Review 30 (1977): 95129; Lloyd-Jones and Lewis, Manchester and the Age of the Factory, chap. 7.

60 Lloyd-Jones and Lewis, Manchester and the Age of the Factory, 206–7.

61 Calculated from Shapiro, Capital and the Cotton Industry, appendix 23. Cf. Gatrell, “Labor, Power and the Size of Firms, ” 103; Chapman, “Financial Constraints,” appendix iii. There is much debate about the proportion of fixed to working capital, but all existing estimates for this period agree about its upward trend; see Richardson, Philip, “The Structure of Capital in the Industrial Revolution Revisited,” Economic History Review 42 (1989); 484503, figure 1.

62 Gatrell, “Labor, Power and the Size of Firms,” 103–4; Shapiro, Capital and the Cotton Industry, 59–63, 79–80; Chapman, “Financial Constraints,” 66.

63 GL, MS 16223/1, MFLAC, CM, 4 May 1825; Trebilcock, Phoenix Assurance, 400–401.

64 Chapman, Stanley D., The Cotton Industry in the Industrial Revolution (London, 1972), 4649; Redford, Manchester Merchants, chaps. 6–10; Jones, S., “The Cotton Industry and Joint-stock Banking in Manchester, 1825–50,” Business History 20 (1978): 165–85.

65 Wheeler's Manchester Chronicle, 3, 10 Jan. 1824; GL, MS 14281/1–2, Guardian Assurance, General Court Minutes, vol. A, 12 April 1822, 3. Jan. 1823, vol. B, 5 March 1824.

66 GL, MS 16222/2, MFLAC, DM, 13 Jan., 1 Sept. 1825.

67 Single women only. A woman's shares became her husband's property on marriage and were recorded under her husband's name in the share register; GL, MS 16217, MFLAC, Deed of Settlement, cls.94, 159–63. Despite the restriction on individual shareholdings, the number of proprietors appears to have been halved by 1846. For estimates, see GL, MS 16223/1, MFLAC, CM, 4 May 1825; The Courier, 25 Sept. 1846.

68 The first shareholder's meeting of 8 Apr. 1824 resolved to abolish this requirement after five years, but in 1829 the board decided not to alter the Deed because of legal complications; GL, MS 16223/1, MFLAC, CM, 7 May 1829. Several attempts to raise the ceiling on individual shareholdings, and to change the pro-rata insurance requirements accordingly, failed: GL, MS 16222/3, MFLAC, DM, 1 June 1826; MS 16223/1, MFLAC, CM, 17 Oct. 1827.

69 GL, MS 16222/2,4, MFLAC, DM, 14 March 1825, 29 Jan. 1829; MS 14281/1, Guardian Assurance, General Court Minutes, vol. A, 27 Nov. 1821.

70 Anderson, B. L. and Cottrell, P. L., “Another Victorian Capital Market: A Study of Banking and Bank Investors on Merseyside,” Economic History Review 28 (1975): 598615.

71 Dickson, Sun Insurance, 289.

72 GL, MS 16223/1, MFLAC CM, 4 May 1825.

73 GL, MS 16217, MFLAC, Deed of Settlement, cl. 48; MS 16222/3., MFLAC, DM, 15 March 1827; Manchester Gazette, 19 June 1824.

74 In 1826 the Guardian's Brighton committee even took charge of negotiating the takeover of a local fire office: GL, MS 14281/2, Guardian Assurance, General Court Minutes, vol. B, 7 April 1826.

75 Cf. Norwich Union's advertisements, Manchester Gazette, 20 March, 19 June 1824.

76 GL, MS 16222/3, MFLAC, DM, 13 July 1826.

77 Manchester Gazette, 1824, passim.

78 Trebilcock, Phoenix Assurance, 57–61.

79 Ryan, “Norwich Union,” 40.

80 David T. Jenkins, “The Fire Offices and Yorkshire Industry, 1770–1840,” unpublished ms. I am very grateful to Dr. Jenkins for permitting me to read his manuscript.

81 Calculated from GL, MS 16222/5, MFLAC, DM, 29 Feb. 1832, Report of Committee on Special Risks; Trebilcock, Phoenix Assurance, Tables 5.1 and 7.1; Dickson, Sun Insurance, 140.

82 Among the expanding literature on the regional dimension to economic growth, see Regions and Industries: A Perspective on the Industrial Revolution in Britain, ed. Hudson, Pat (Cambridge, England, 1989); and the debate between Gregory, D. and Langton, J. on “The Production of Regions in the Industrial Revolution,” in Journal of Historical Geography 14 (1988): 50–58, 170–76.

83 GL, MS 16223/1, MFLAC, CM, 1825–46, passim.

84 Calculated from Manchester Gazette, 3 Jan., 3 July 1824; Manchester Guardian, 8 Jan. 1825; Pigot's Directory of Manchester, 1832; Jones, S., “The Manchester Cotton Magnates Move into Banking, 1826–50,” Textile History 9 (1978): 90111, Tables 2–9; Grindon, Manchester Banks, passim.

85 It should be noted here that the MFLAC's early experiences of gilts was unfavorable, unlike that of London firms established in wartime. As consol prices fell after 1825, MFLAC lost hundreds on several transactions.

86 Trebilcock, Phoenix Assurance, Table 11.2; MFLAC yields calculated from annual auditor's reports; see the sources for Table 3.

87 Calculated from GL, MS 16222/2–6, MFLAC, DM, 1825–25, passim.

88 Wheeler's Manchester Chronicle, 31 Jan 1824.

89 Fraser, D., Urban Politics in Victorian England (Leicester, England, 1976); Redford, , Local Government, 1: 284, 287310.

90 GL, MS 16222/5–6, MFLAC, DM, 4, 11 Aug. 1831, 20 Aug. 1835.

91 GL, MS 16222/2–3, MFLAC, DM 16 Aug., 21 June 1827.

92 Sun Alliance plc, London, “Deed of Covenant between the Directors and Secretaries of Manchester Fire and Life Assurance Company and Pelican Life Insurance Office, 24 Sept. 1846,” schedule 2.

93 These figures undoubtedly understate the proportion of local lending because of the difficulty of identifying borrowers from minute book entries.

94 The first volume of the directors' minutes, covering April to December 1824, has been lost, and very few business or personal records of individual directors have survived.

95 Trebilcock, Phoenix Assurance, 651.

96 Wheeler's Manchester Chronicle, 3 April 1824.

97 Dalzell, Robert F., Enterprising Elite: The Boston Associates and the World They Made (Cambridge, Mass., 1987).

98 Chapman, “Financial Constraints,” 50.

99 There are examples from 1835 of Liverpool bankers lending to the Dock Estate, of which, as members of the Corporation, they were trustees. In 1801 the proprietors of Newcastle Fire Office were also bankers and owners of the town's waterworks. Pressnell, Country Banking, 241, 55.

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Collective Diversification : Manchester Cotton Merchants and the Insurance Business in the Early Nineteenth Century

  • Robin Pearson (a1)

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