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

Published online by Cambridge University Press:  13 December 2011

Robin Pearson
Robin Pearson
Affiliation:
Robin Pearson is lecturer in the Department of Economic and Social History at theUniversity of Hull.
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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.

Type
Articles
Information
Business History Review , Volume 65 , Issue 2 , Summer 1991 , pp. 379 - 414
Copyright
Copyright © The President and Fellows of Harvard College 1991

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References

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

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20 Ibid. Table 1.3.

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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), 39–40Google Scholar.

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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), 138–47Google Scholar.

31 Leeds & Yorkshire Assurance Company, Prospectus, 1824; Wilson, R. G., Gentleman Merchants (Manchester, England, 1971)Google Scholar. 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: 330Google Scholar. An earlier foundation, Manchester Fire Office of 1777, had been acquired by Phoenix in 1788; Trebilcock, Phoenix Assurance, Table 8.4.

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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), 286Google Scholar.

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), 114Google Scholar; 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), 347–432Google Scholar.

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, 315Google Scholar; Gayer, A.D., Rostow, W. W., and Schwartz, A. J., The Growth and Fluctuations of the British Economy, 1790–1850 (Oxford, England, 1953), 1: 197–98Google Scholar; 2: 746, 767–68.

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

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50 Trebilcock, Phoenix Assurance, Tables 13.3, 13.4.

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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 11Google Scholar.

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): 95–129Google Scholar; 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); 484–503, figure 1CrossRefGoogle Scholar.

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), 46–49CrossRefGoogle Scholar; Redford, Manchester Merchants, chaps. 6–10; Jones, S., “The Cotton Industry and Joint-stock Banking in Manchester, 1825–50,” Business History 20 (1978): 165–85CrossRefGoogle Scholar.

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): 598–615CrossRefGoogle Scholar.

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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)CrossRefGoogle Scholar; 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, 170–76CrossRefGoogle Scholar.

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): 90–111, Tables 2–9CrossRefGoogle Scholar; 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)CrossRefGoogle Scholar; Redford, , Local Government, 1: 284, 287–310Google Scholar.

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)Google Scholar.

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.