Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825

For 105 years, beginning with the enactment of the Bubble Act in 1720, the free and spontaneous formation of joint-stock companies in England was prohibited. The only legal course of action opened to entrepreneurs seeking company formation was to first obtain specific state authorization, in the form of a charter or an act. During this period the English economy experienced unprecedented growth and substantial structural changes, which many still refer to as the industrial revolution. This legal framework of business organization seems to have formed a constraint upon the economy, inducing entrepreneurs to organize, willingly or reluctantly, in family firms, closed partnerships, or unincorporated companies of doubtful legality. The functional limitations experienced by these alternative forms of organization, which could not offer all the legal attributes of full incorporation, became more acute as the organizations grew larger, both in labour and in capital, as risks increased, and as managerial responsibilities became more complex. And then in the early summer of 1825, long after the canal era and the initial diffusion of new technologies into the iron and cotton industries, yet before the railway boom, the act was unexpectedly repealed. The repeal was a turning point in the attitude of Parliament to jointstock companies, and an important first step in a process that led, albeit not without twists, to the enactment of the General Incorporation Act of 1844 and the Limited Liability Acts of 1855 and 1856, and eventually to the rise of big business, managerial capitalism, and corporate economy after the turn of the century. Yet the 1825 repeal has not received much attention from historians. The history of joint-stock companies during the industrial revolution has not been dealt with in book length studies since the 1930s. Hunt’s seminal work treated the repeal briefly, 2 through the aged Diceyan paradigm, as part of a wider movement in the 1820s towards free trade or laissez-faire. 3 The repeal of the Bubble Act is a