Rise of Industrial Corporations

It was not, however, until the early part of the nineteenth century that certain developments increasing both the supply of public investments and the demand for them became dominant factors. Wealth accumulated very rapidly in the period following the Napoleonic Wars. Machinery displaced hand labor in many industries, and with this development the size of industrial undertakings expanded on an ever-increasing scale. The wealth of a single individual or of a small group of individuals was often insufficient to supply all the capital needed for an enterprise. Partnership also became inadequate, since individuals were not always disposed to enter into undertakings with others in which they risked all their wealth.

As a substitute for partnership the corporation form of buriness organization, stockholders in which were permitted to limit their liability to the amount of their investment, came into favor. Business corporations both in Great Britain and in this country multiplied rapidly and the various classes of securities representing ownership in or indebtedness of corporations were readily negotiated and transferred from person to person.

With the increase in the scale of business enterprise came great progress in transportation and growth of large industrial centers. To provide markets for the output of large factories, expensive turnpikes, canals, and railways were built with money obtained from investors. Thus the first half of the nineteenth century, so favorable to permanent improvements, greatly enlarged the field of investment. Nations and their political subdivisions in their desire to promote industrial development built these canals, railways, and turnpikes with borrowed money. Several of the states of the Union increased their public debts to such an extent that they were later unable to fulfil their obligations to their creditors. There thus arose a phase of state debt repudiation which will be discussed more fully in a subsequent chapter.