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Financing the micro-scale enterprise: rural craft producers in Scotland, 1840-1914.

Independent craft producers have received scant attention from business historians.(1) Little is known about the economic characteristics of the very small or micro-scale end of the business spectrum. Yet, socially and politically, small scale producers exercised an impact disproportionate to the size of their enterprises. Owing to their persistence throughout Europe and the United States, and their supportive role in the development of large-scale industry, employment and capital accumulation, they demand investigation.(2) This article analyzes the sources of finance available to one group of micro-scale craft enterprises in rural lowland Perthshire in Scotland between 1840 and 1914. It focuses on rural trades such as builders, tailors, bakers, innkeepers and blacksmiths. The term "micro-scale" designates a level of establishments that had extremely small amounts of capital invested and labor employed. These firms served a local market, had simple management structures, and were usually one-plant operations.(3)

The Micro-Scale Enterprise in Lowland Perthshire

Studies of micro-scale enterprises thus far undertaken have examined urban areas. The choice of Lowland Perthshire [ILLUSTRATION FOR FIGURE 1 OMITTED], an agricultural region with small market towns and villages, is a step toward correcting that bias. The area comprises the agricultural districts of Strathmore, Strathearn and the Carse of Gowrie. Lowland Perthshire had a well-developed cash economy from an early period, and was free of large landowners whose actions might produce an unusual economic context. Given the complex nature of lowland Scotland, however, the area is not necessarily representative of nearby regions, where the mix of agriculture and manufacturing varied considerably.(4) Understanding the economic, business and social history of a country with marked regional variation requires focused regional studies.

Craft firms were central to the economy of lowland Perthshire. The area was dominated by mixed agriculture and textile manufacture, and enjoyed little diversification of industry. While Perth, its major metropolis, was home to significant manufacturers, nearby market towns and villages supported a modest textile industry, brewing and other production for local consumption. Micro-scale producers were located overwhelmingly in these small population centers. In making and servicing machinery and equipping horses, they supported the agricultural sector. They also provided goods and services for farm servants, village dwellers and textile workers.

The craft sector in lowland Perthshire comprised mainly micro-scale enterprises with low business survival rates. At one extreme, small firms overlapped with established businesses. At the other end, they were barely distinguishable from wage labor. Discrimination between producers and retailers was also often impossible, with blacksmiths and bakers, for example, combining both functions in one trade.(5) Those businesses performing a purely retailing function are excluded from the sample examined here. Innkeepers, however, are included because they were an important service trade engaged in some elements of production (food and drink), their experience encompassed some notion of belonging to a "trade," and they are often analyzed alongside artisans by historians examining small-scale business.

Low levels of capitalization, high levels of mobility between wage labor and independent production, and low income levels were common features of small producers. The median liabilities of micro-scale businesses amounted to [pounds]645, while assets amounted to about [pounds]246. The majority of businesses consisted of an entrepreneur working on his own account. Employment of family labor on an irregular and unpaid basis was widespread, and paid employees typically numbered fewer than five.(6)

Data used in this analysis are drawn from Scottish sequestrations, one form of bankruptcy proceeding. The sequestration record is unique in Britain in its detail, volume, national coverage, and systematic nature, and in its potential for the study of the micro-scale firm.(7) Sequestration could be entered into voluntarily or at the demand of creditors, and involved the discharge of the bankrupt from his/her liabilities. A combination of the level of liabilities and assets was used to determine which type of bankruptcy proceeding was appropriate for winding up a firm. Micro-scale firms with fewer liabilities and assets can also be found in the less detailed Cessio Bonorum records. The numbers of sequestration cases vary annually in a fashion potentially linked to the trade cycle.(8) Though economic trends and geographical variation could distort the annual national picture, the distribution of occupational groups among total sequestration cases remained relatively stable over the nineteenth century.(9) Certain sectors, the food and drink industry and shopkeeping for instance, experienced a very high occurrence of sequestration.(10)

To draw a picture of business from records of failure necessarily raises concerns over sample biases. The problem regarding sequestrations has two dimensions. First, an ideal sample would correspond to the larger economic environment by encompassing the same types of businesses, at comparable life stages, and in similar proportions. Unfortunately, overall statistics for the distribution of firms in the economy are unavailable.(11) Second, to what degree are failed firms anomalous? Do their financial strategies, the focus of this study, differ vastly from those of successful micro-scale businesses?

Though possible inherent biases of the records suggest that any conclusions drawn must be used cautiously, the baby need not be tossed out with the bathwater. Scholars have rightly pointed to the significance of Scottish and English bankruptcy data "in isolating . . . the internal workings of industry."(12) Since not all the firms in sequestration ended up bankrupt because of mismanagement, the record does not simply supply information about the milieux of failure. Considered from another angle, in a sector with high turnover rates, short-lived firms may prove the rule rather than the exception.(13) Not all bankrupt firms suffered from mismanagement, and many surviving ventures also underwent long periods of insolvency. Financial failure was a common feature of the business community, and liquidations and restructuring played a crucial role in economic and industrial development.(14) The key point, then, is not to conceptualize the sequestration record as representative of the business community as a whole, but to exploit it for what it reveals about a particular type of enterprise.

The sequestrated craft businesses in lowland Perthshire offer a viable sample size and preserve cyclical characteristics of the series. The period covered by these bankruptcy cases was a relatively stable one for rural micro-scale producers. It fell between the "Agricultural Improvements" that climaxed by the 1840s, and changes in the rural economy that became more marked after the mid-twentieth century. Over the long period for which data are collected, the craft sector did not grow dramatically. A few trades, milling, shoemaking and tailoring for example, even declined slightly before 1911. Others, such as dressmaking, butchering and baking, actually increased in relative importance. The geographical distribution and structure of industrial sectors, however, were changing around micro-scale producers. In flour milling, for example, the industry concentrated around coastal steam mills controlled by large manufacturers and merchants. Locations and size of trade creditors also shifted, though the relative proportion of the sources of funding did not vary significantly. In shoemaking, rural producers came to rely on ready-made stock and mass-produced materials from the industries of Edinburgh, Glasgow, and the English Midlands. Likewise, supply of capital came in the same proportions from larger units of production and distribution.(15)

Industrial Finance in Nineteenth Century Britain

Sequestration material provides the opportunity to investigate finance from the perspective of the micro-scale enterprise. To what extent did the creditors of small firms differ from those of large industry? What particular problems did owners of micro-scale enterprises encounter, and how were they solved? Does this analysis confirm the pattern of industrial finance derived from studies of large-scale industry?

Large industrial companies raised capital from diverse sources during the nineteenth century. Personal and family assets, combined with the reinvestment of profits, provided most long-term capital. A few firms issued shares. Insurance companies, merchant banks, and financial intermediaries made only a minimal contribution to facilitating loans and mortgages. Trade credit, book debts advancing goods on credit, or bills of exchange accepted for payment offered significant sources of working and fixed capital. While partnership was a common strategy in large-scale industry, it is considered to have been less prevalent among small business.(16)

The role of banks in facility industrial expansion is a topic of controversy among economic historians. Many argue that English and Scottish banks failed to extend long-term credit commensurate with the needs generated by a burgeoning industrial economy. Most loans made by English and Scottish banks to industry were instead short-term, and industry rarely perceived banks as a solution to long-term finance needs.(17) Until 1830, cash credits of [pounds]1000-2000 advanced by discounting facilities on countersigned bonds were common. Joint-stock banks and public banks met some of the demand for credit, especially after the demise of provincial institutions. Traditional forms of security were becoming problematic, leading after 1830 to experimentation with other forms such as land, bank shares, and goods.(18) Following several mid-nineteenth century economic crises, banks became more attentive to undersecured loans. Yet by the second half of the nineteenth-century, Scottish banks claimed with some assurance that no borrower with adequate prospects and security was ever turned away. They denied any serious gap in lending facilities.(19)

Financing the Micro-Scale Enterprise I: Demand

The supply of finance to the micro-scale enterprise must be understood in relation to capital and credit demands. Raw materials and ready-made stock could be obtained by credit or cash. Plant, tools and premises, however, usually required capital investment. Rented premises, or use of the entrepreneur's own house, could reduce initial capital requirements. For the few firms with employees, wages had to be paid. Marketing costs, though small, exerted further demands on the business owner.(20)

Entry into the business community for small craft producers was relatively easy. Initial investments were small, and stock and materials could be purchased on credit.(21) For example, Alex Buchan had less than [pounds]25 when he began as a watchmaker in Blairgowrie in 1839, and George Lankham started his saddler's concern in 1853 with as little as [pounds]60 from the bank on the security of a local landowner. The median value of start-up capital was [pounds]138 (n=46) with a range from a few pounds to [pounds]500.(22) Capital requirements and prospects for success varied with readiness to undertake independent ventures. Unemployed or underemployed workers sometimes resorted in desperation to small-scale business ventures. Henry McMillan, who had worked on an irregular basis in his father's shop, probably had such motivation. McMillan started a carrier business in 1855 with a horse and cart worth as little as [pounds]8. Other individuals made more calculated transitions into the business world, or established a new business after owning a previous one. Colin McCaul invested [pounds]500 from a former concern, but had to borrow an additional [pounds]2950 to establish an inn in 1837. Small initial amounts of capital did not preordain failure. James Brown started business as a tiesher and cattle dealer in 1840 with only [pounds]7. Nearly two decades later he employed four men, handled livestock sales with a value of several thousand pounds, and qualified for a bank credit of [pounds]3000. Yet death of stock, excessive land rents and the failure of others for whom he had stood security pushed Brown eventually to bankruptcy.(23)

Established micro-scale businesses exerted slightly different demands for finance. Apart from periods of firm expansion, fixed capital requirements were lower. Circulating capital, however, was always in pressing demand for ongoing purchases of stock, and payment of rent, marketing costs, and wages. Independent operations begun with very low levels of capital, furthermore, usually failed to generate large profits. They tied up critical capital in credit to customers, and were particularly vulnerable to failure. In the early months of operation, Andrew Haggart "made all . . . payments in cash. I had no sooner got money than I had to part with it." When pressed for cash for wages, coachbuilder James Mcintosh sold off some stock. Norman Chapman, a watchmaker in Aberfeldy, contended that

[t]he principle reasons for my getting into difficulties were overstocking and want of capital . . . I had always to get my goods on credit not having sufficient capital to meet claims when they fell due.(24)

John Beckett, another watchmaker, ran his business entirely on credit. Mr. McAllister, a coachbuilder, "had not been able to get into business to an extent to renumerate one for the wages and expenses I necessarily incurred."(25)

Financing the Micro-Scale Firm II: The Origins of Start-Up Capital

Credit for stock or materials to keep cash free for expenses was also important. Thomas Graham, a baker and grocer, explained that establishing credit was a gradual process that required a track record in business. Graham "generally paid cash at first, but before the first twelve months were out [he] began to get credit." Some sense of these demands can be extrapolated from liabilities itemized at the time of bankruptcy, which ranged from [pounds]60 to [pounds]10,414, with a median value of [pounds]645. The data only offer a snapshot of needs, but at crises in a firm's existence an infusion of capital determined life or death. For expanding micro-scale firms, increased capital requirements exacerbated the problem. William Keay, a Blairgowrie bootmaker, attributed failure to unsustainable growth over a rapid period. In 1853, Keay expanded his two-year-old business "by keeping a stock of ready made goods and after that I began my system of [discounting] bills which went on increasing with my business." Another small entreprenuer thought he failed because "my [shoemaking] business having grown on me too rapidly." Alexander Martin, whose cabinetmaking business grew within a decade from a capitalization of [pounds]50 to [pounds]500 and saw an enlargement of its workforce nearly six-fold, failed because of the high cost of credit, bad debts, and his wife's illness.(26)

How did owners of micro-scale firms obtain financing to begin in business? Table I shows the sources of start-up capital and the relative contributions of diverse categories of creditors. Firms usually drew capital from two or more sources. Above any other, they applied savings from previous wage employment to establish their businesses, but savings accounted for only small absolute amounts of overall capital (a range of [pounds]3-200 per firm). James Stewart "wrought at the joiner trade with two different masters" before starting his own business. Peter Wynd began his baker's business in 1871, prior to which he "was a journeyman baker." Thomas Graham entered the baker and grocer trades in 1855 with [pounds]100 saved from former labor as a carter, and William Dick financed his bakery with [pounds]150 earned as a printer.(27)

The second most common source of funds were cash advances and inheritance derived from family connections. (In absolute terms, family resources ranked only fourth in aggregate credit contributed to micro-scale sequestrated firms.) A variety of relatives were persuaded to invest essential capital in new firms. James Smart's father "furnished me with timber and what money I required" to fund a builder's business in 1852. Later, Smart "got [pounds]60 from my sister Jane Smart and [pounds]40 from [sister] Elizabeth." Thirty years afterwards, he still owed his architect father [pounds]400 and his sisters [pounds]110 each. Andrew Haggart, a joiner and boat-builder, started his business in 1892 with [pounds]36 from his father, a fellow craftsman. In addition, his wife, "who had earned money from keeping lodgers and making dresses" when single, gave him [pounds]30 "to put into the business."(28) To set up his hotel in 1904, Robert Lawrence combined [pounds]80 from previous employment with [pounds]30 his wife gave him. Mrs. Lawrence was subsequently instrumental in raising [pounds]300 from her sister and grandmother.(29)
Table 1


Origins and Value of Start-Up Capital


Origin                                  %          % of total value


Previous employment                    27                   7
Cash from family                       16                  14
Previous business                      15                  24
Partnership                            12                   8
Cash from other businesspeople          9                  11
(of which farmers 4%)
Cash from friends                       8                  15
Credit from merchant                    7                   0.6
Inherited business                      4                 N/A
Credit from bank                        4                  21


                                       n=74        n=[pounds]12,473


Source: Scottish Record Office, Concluded Sequestration Processes
brought under the 1856 Bankruptcy (Scotland) Act, CS318/9.


Note: the proportion of bank credit is overemphasized by one loan
of [pounds]2300 to an hotelier.


In many cases, loans from family members were never repaid.(30) Capital was obtained on flexible terms, privileging familial relations over hard-nosed credit policies. This attribute of family credit suggests that such loans may have been more attractive than absolute monetary amounts indicate. As Andrew Haggart explained, his father had "not pressed me for payment because he knew I was hard up."(31) Family networks often took precedence over local capital markets in determining access to funding. James Smart borrowed capital from his sister in London, while Robert McKenzie procured [pounds]25 from a relative in New York. Aspiring butcher David Kennedy borrowed [pounds]125 from his uncle in South Africa.(32) Close social interaction among those engaged in the trades reinforced capital supplied from family members. Forty-two percent of Lowland Perthshire tradesmen married women whose fathers were also in the trades, rendering many family and trade networks indistinguishable.(33)

New firms also availed themselves of capital transferred from prior businesses. Widely utilized, this source contributed the greatest amount of capital, infusing new concerns with between [pounds]25 and [pounds]1300 each. Thomas Mcintosh, a Blairgowrie builder, started in business in 1849 with more than [pounds]70 of capital and stock from an earlier partnership. James McDonald commanded greater capital for his flesher and grazier's business, which benefited from [pounds]1300 of stock held jointly with his brother. Many tradesmen made money by buying and selling a succession of firms. David Cousins sold his Alloa hotel for [pounds]850, bought another for [pounds]120, and sold it a year later for [pounds]475. He then invested [pounds]800 in a new hotel and borrowed [pounds]595 to refurbish it. Likewise Colin McCaul owned three inns in succession. The contribution of former businesses, however, masks the fact that some entrepreneurs attempted to avoid old debts by dissolving failed concerns. Hugh McMahon, for example, started as a shoe and boot seller in Edinburgh in 1847 without capital, and quickly amassed a debt of [pounds]100. By 1849, he had moved to Dundee with his stock, and later even paid encumbrances from the Edinburgh business. In 1854 he surrendered the Dundee business, owing [pounds]300 to trade creditors and [pounds]200 to his brother. Downward mobility continued with another move to Blairgowrie, where he worked as a general draper. Similarly, Donald McGregor, a bootmaker in Killin, failed three times within five years. After each discharge of his debts, the intrepid McGregor started anew. Knowledge and contacts garnered during proprietorship often gave these men renewed chances. David Jack, a baker and grocer in Blairgowrie, told the audience at his bankruptcy that "I intend to start business again, but not with capital of my own . . . I have not been promised money with which to start business. I have an idea where I might get a start, but I do not say what it is in the way of."(34)

Partnership was also a widespread method of organizing starting capital, though it made a proportionally small contribution to funds (amounts ranging up to [pounds]500). This form of business organization consisted of formal on-going arrangements, as well as informal flexible joint ventures. Scott and Battison, joiners in Aberfoyle in 1884, had "no written agreement of partnership," and no capital except [pounds]5 of stock. When David Laing joined a masonry firm in Guildtown in 1857, he contributed no funds. Skills and experience Laing had gained from prior service as foreman to his new partner John Scott, however, likely provided inestimable human capital. In some cases, partnership did offer worthwhile financial enhancement. John Dunsmore, a baker in Almondbank, undertook a short-lived partnership with his brother in 1875, each contributing [pounds]40. William Dick of Blairgowrie joined [pounds]150 with the baking skill of his brother and new partner, as he "was not bred to the business."(35)

Cash from other businesspeople and from friends was also significant. Each of these categories comprised nearly 10 percent of all investors. The amount of capital loaned accounted for 11 percent and 15 percent, respectively, of the total capital supplied to all micro-scale firms in the sample. A lucrative source of funding consisted of loans from within the nearby business community. "[L]ocally based networks of trust," other studies have argued, "meant that transaction costs within [business] communities were usually comparatively low," and encouraged such exchanges.(36) A local tailor and clothier invested [pounds]20 of the initial capital for Peter Wynd's baker's business, while innkeeper Colin McCaul received [pounds]250 from a nearby baker. Local farmers also served as initial creditors. Tailor Alex Todd started with [pounds]70 from a Perthshire farmer, and James Douglas set up as a shoemaker with [pounds]500 from a farmer in nearby New Downie.(37) Town attorneys and solicitors may have mediated such loans. Craft events, moreover, provided an opportunity for "networking" with other businesspeople. The annual supper and ball of the bakers of Mason's Hall, "specially got up for the purpose of social and mutual intercourse," included millers and other important business and credit contacts among the guests? Peter Wynd, based in Inchture, received a total of [pounds]228 of credit from millers in nearby towns; James Cree of Alyth itemized [pounds]13 of credit from a miller at Quech by Alyth; and David Jack of Blairgowrie borrowed [pounds]73 from a miller at Alyth.(39)

Few micro-scale businesses chose to or were able to secure credit from banks and merchants.(40) Most aspiring operators lacked property, plant, or track record to make them creditworthy. William Wisley, proprietor of a butcher's firm in Alyth, conceded "that he was promised money but could not raise the money on the security offered."(41) Banks increasingly sought new assurances for loans. Property was a recognized form of security, though its ownership was common only among builders and innkeepers, for whom it was an indispensable factor in doing business.(42) Paradoxically, although smallholding farms were common, many businesspeople did not own land and could not procure mortgage loans.(43)

Occasionally, start-up capital was extracted from banks without security. Colin McCaul raised [pounds]2300 from the Edinburgh and Glasgow Bank, probably leveraging his experience as an hotelier. Merchants, too, might be persuaded to relax credit requirements. Alfred Dubber obtained [pounds]3350 from W. B. Thompson Ltd. (whisky merchants) for the purchase of his hotel, though his creditors likely viewed the premises as collateral.(44) Guaranties of relatives and friends continued to substitute for lack of assets. Alfred Dubber induced four friends to countersign a [pounds]200 bank loan, while the brother-in-law of baker Thomas Graham stood as surety for a loan of [pounds]200 from the Royal Bank. One of the partners of a drapers and clothiers firm explained that "my bills were backed by friends not those with whom I was trading. I got these names on my bills by personal friendship merely."(45)

A lack of security also helps account for the infrequent involvement of financial intermediaries, such as local solicitors, in arranging loans from individuals. Micro-scale businesses may have looked to local newspaper advertisements for regional and national creditors. In 1870 David Keay, a Perth solicitor, offered "[pounds]500 To Lend on Heritable Security." London surveyors Kendall & Naylor promised

Money to lend. To Farmers, Tradesmen and Others. Loans from [pounds]50 to [pounds]1000, at 5 percent upon PERSONAL SECURITY, can be quickly obtained by responsible parties, with easy payments from one to five years.(46)

In general, however, meager resources of micro-scale business owners did not satisfy demands for security.

While the late Victorian economy might only have contained about 300,000 people "in a position to do most of the investing," the cumulative impact of millions of people with modest capital is evident in micro-scale enterprise.(47) Small local businesses proved attractive investments particularly when creditors and business owners were personally acquainted or related. Women, whose social lives and productive activities were intimately connected to kin groups, were important in funding this level of enterprise. Of the seventy-five identifiable investors who made loans at the establishment of a micro-scale firm, 15 percent were women.

Prior employment, previous business ownership and the family provided crucial support to finance the start-up of micro-scale businesses. In its reliance on family and personal wealth, the experience of small firms parallels that of large-scale industry. Partnerships, though common in micro-scale enterprises, actually contributed little toward the financial independence of the new concern. Merchant and bank credit was nearly impossible to obtain but this was probably not unusual for the early stages of small and large businesses. Other financial institutions were absent, though insurance policies were used occasionally by small business owners as collateral for loans.(48) Whether these features of finance were continued in micro-scale enterprises as they operated over a longer period is examined in the next section.

Financing the Micro-Scale Firm III: Established Business

Once established, how did micro-scale firms continue to attract the funds requisite for production and expansion? Starting with such small amounts of capital made firms immediately vulnerable, and expansion was often necessary to ensure stability.(49) Small ventures, however, suffered from the same disadvantages incurred in procuring initial investment. In particular, levels of profit for reinvestment were low. Yet many of these firms did survive over several years and became a vital element in the local economy.(50)

Low profits and retained earnings among sequestrated firms may have themselves led to bankruptcy. Banks were decidedly reluctant to fund risky concerns, which may have experienced a higher rate of failure for the same reasons banks avoided them. It is possible that robust micro-scale firms, which do not appear in this sample, might have enjoyed more access to bank credit. Family credit may have increased the survival of firms that relied most on financing from those investors. At times of crisis, for example, female relatives sacrificed their interests for the good of the family firm.(51) Yet, bankrupt firms may show an unusually high level of investment by relatives, the only investors willing to aid a troubled operation. Such considerations should be kept in mind in the following analysis.

Table 2 breaks down creditors of established micro-scale concerns who could be positively identified (86% of the whole) into types of investors.(52) Column 1 displays the results for all firms in the sample. Remaining columns illuminate the patterns across different sectors of micro-scale business, specifically shoemaking, innkeeping, building and skilled trades.

In contrast to its minor role in initial funding, trade credit from merchants and larger manufacturers for raw materials and goods supplied was the most widely tapped source of financing. Moreover, it provided the largest overall amount of credit. Firms with small initial funds were urgently short of circulating capital. A period of successful operation persuaded merchants and manufacturers to grant credit to these firms. Trade credit supplied their needs through direct investment, or by indirectly releasing funds that could be applied elsewhere.

Credit from other tradespeople (wages or payments for subcontracting) and retailers (for products sold on account) offered the second most common source of operating capital. It also accounted for a significant portion of the combined capital of all firms in the sample. Of the remaining categories, the amount of credit supplied by banks is sizable - again in contrast to patterns of start-up capital. Professional financial intermediaries, farmers and landowners had little to do with financing at this level of enterprise. Family resources, already stretched thin by early contributions, were substantial in only a few cases. Trade credit from larger manufacturers and merchants filled the vacuum left by other sources, and became integral to the continued operation and expansion of the micro-scale enterprise. Credit from other tradespeople or retailers for services performed and goods sold also formed a critical mechanism by which micro-scale enterprises sustained themselves.

Distinctive sectoral variations occurred in the supply of credit. Shoemaking, innkeeping and baking conform to the overall importance of advances from merchants and manufacturers. Those tradespeople [TABULAR DATA FOR TABLE 2 OMITTED] and suppliers who did the most business with each group were logically the predominant lenders. Shoemakers received credit from tanners and curriers, boot, shoe, rubber and blacking manufacturers, and leather merchants.(53) For innkeepers, brewers, distillers, and wine, spirit and food merchants were principal business contacts and creditors. Mary Smith's hotel in Muthill received credit from a number of brewers, including Bernard's Ltd. (Edinburgh), Bass and Ind Coope (Burton-on-Trent), R. & D. Sharpe (Blackford) and Arrol and Sons (Glasgow).(54) For baking enterprises, credit was advanced by millers, bread and biscuit makers, brewers, chemical companies, and flour, grain, and provisions merchants. The baker David Jack obtained flour from Dundee, Glasgow and Alyth, ready-made goods from biscuit manufacturers McCall & Steven and Herbert & Co., and products from wholesale confectioners Buchanan & Sons (all of Glasgow).(55) Trade credit from similar sources was also imperative for builders and skilled producers, who dealt with lime, coal, and brick merchants, quarriers and founders, ironmongers, timber merchants, and others. For these two sectors, trade credit was more important than in other areas, and reflected the pervasiveness of wage work and sub-contracting.(56)

To the extent that accounts at bankruptcy reveal an accurate picture, banks rarely lent to established micro-scale firms. Banks comprised only three percent of all creditors, though their loans were significant in overall value. Joint-stock banks, relatively new among financial institutions, played a growing role in underwriting in this period. Of forty-three bank loans, twenty-nine were from joint-stock banks, ten were from public banks, while one was from the Dundee Banking Company, a provincial bank. The localized nature of bank lending is underscored by the appearance in the records of a vast majority of transactions originating from community branches and bank agents. Where bank loans were obtained, individual firms were highly dependent on the capital infusion they provided. Some firms procured as much as 62 percent of their capital from banks. Dependence on such loans varied widely, however, and comprised on average 21 percent of a firm's credit.

Did banks discriminate against the small investor? Banks were willing to finance only some micro-scale businesses, namely those with sufficient security. Personal guarantors presented in combination with tangible property were attractive assurances for banks. Thomas Graham, baker and grocer, borrowed [pounds]200 from the Royal Bank of Scotland, offering his brother-in-law as surety. Builder James Smart provided [pounds]350 on the guarantee of his brother. A concentration of loans made to building and innkeeping firms likely reflected their greater assets in plant, stock and property. Thomas Mcintosh built his own house and mortgaged it for [pounds]1000 to the Bank of Scotland. Similarly, James Reid and Co. raised [pounds]4000 on buildings the firm had erected in Glasgow, and subsequently borrowed an additional [pounds]3000 on a newly-built property in Dunblane.

Bankers willingly negotiated with micro-scale business owners if they were known to them and could give a good account of business. Builder Thomas Mcintosh described his "communing" with Mr. Duff, bank agent, for a loan of [pounds]300: "I made Mr. Duff understand I was behind in the world but I expected . . . if I was remunerated for the Dunalister contract . . . I would be able to carry on. That in the course of time I might be enabled through my business to realize as much as would permit me to do so."(57)

The mere existence of loans to the micro-scale sector does not allow a definitive assessment of gaps in lending facilities at this level of enterprise. The foregoing examples do suggest, however, that banks funded very small industry when entrepreneurs provided security. For small sums, personal guarantors were still acceptable. Banks may have had an innate bias against micro-scale industry, but in exercising it they were behaving in a responsible manner. Most micro-scale enterprise did not receive bank funding, primarily because most firms were unable to provide security.

Thus, important changes occurred in the financing of these firms between their genesis and later expansion. The family was no longer as able or willing to contribute substantially. Formal access to the banking sector (though still minimal) and trade credit from merchants and principal manufacturers replaced the primacy of family capital. Profit reinvestment never offered relief, and personal wealth was fully utilized at the infancy of most firms. Though loans from relatives were still made, compared to trade credit the amounts were minimal. Similarly, the contribution of women declined. Whereas women comprised 15 percent of creditors at start-up, they represented only 1.4 percent of all creditors to established businesses. (They advanced only 2 percent of total credit.)(58) That many women were also relatives suggests that their behavior was closely linked to the same factors that affected family creditors. Conversion to partnerships was rare; evidence points instead to partners leaving firms, though this may be a characteristic of failure. Banks and finance companies were not significant sources of long-term finance, apart from a few individual cases. Only two firms received any support from other institutions (finance companies). Micro-scale firms were typically even more reliant on trade credit during operation than at initial establishment. In the absence of effective contributions from most sources, trade credit assumed greater significance for the survival of firms at this level of enterprise.

Conclusion

The owners of micro-scale firms faced particular problems in financing production. At start-up, a micro-scale business had minimal access to bank, merchant, or manufacturer's credit. The lack of credit correlates with insufficient collateral to appease banks. Micro-scale firms had no track record, few profits, and little appeal to novelty to lure stock investors.(59) Merchants and manufacturers sought tangible assets as well as a track record. To meet the need for funds, informal channels were utilized. Earnings from wage labor, savings from a previous business, and the contribution of the family were the most important sources. Partnerships were common, but brought only minor financial resources to micro-scale enterprises.

Once established, firms were peculiarly hampered because two vital mechanisms of financing used by major British businesses - profit plough-back and family resources - were less significant for micro-scale enterprises. Banks, non-bank financial institutions, and the various intermediaries of the capital market continued to resist loans to small concerns. To overcome this problem, proprietors turned to intra-industry finance in the form of trade credit. Micro-scale firms were also heavily reliant on loans from tradespeople in the form of funds or goods and services advanced. This financial strategy was inherently unstable. Bankruptcy records, however, may overemphasize the weakness of micro-scale enterprises dependent on these credit sources.

One might anticipate that women had little involvement in industrial finance. Important channels of investment were highly gender-specific. Intermediary levels of finance, solicitors and attorneys for example, were male dominated. Business networks in which creditors and lenders interacted were typically, though not exclusively, male purviews. Gendered societal expectations and legal regulation of property rights protected these arenas from women's interference.(60) But the exclusion of women from credit networks, as investors if not as borrowers, is not supported by the evidence.(61) Widows in particular frequently appeared as small investors. Other research suggests that the important role women played in financing micro-scale firms extends beyond lower Perthshire. In Victorian Edinburgh, for instance, female family members exercised investment power as well.(62)

Does the pattern of micro-scale finance correspond to the general pattern for British industry? In most instances, the relative importance of credit sources parallels the funding of major British businesses. Partnerships were more prevalent than might have been expected in micro-scale firms, though their financial contribution was perhaps limited. In established micro-scale concerns, profit plough-back, personal wealth, and the contribution of the family were much less important than in historical analyses of large industry. Marked dependence on trade credit was a characteristic of small enterprise. Bank finance did not represent a gap in lending practices, because banks were prepared to make some loans. Rather, the minor involvement of banks reflects a rational demand for collateral, which micro-scale business owners rarely could offer. Women were important creditors to micro-scale enterprises at start-up, and they may have played even more marked roles in large-scale industry.

Only more research on micro-scale enterprises will fully uncover their economic history and provide a more representative financial picture of nineteenth-century British industry. Within the context of Scotland the richly detailed sequestration records can shed light on other geographical areas and industrial sectors. The role of banking, the gendered nature of industrial finance, and the strategies adopted by micro-scale entrepreneurs to fulfill their financial needs all require further research. Investigations of micro-scale enterprise can further shape our understanding of the social status of small proprietors and their role in social transformations.(63)

1 Recently, however, interest in this topic has increased. See D. A. Kent, "Small Businessmen and their Credit Transactions in Early Nineteenth-Century Britain," Business History 36 (1994): 47-64; Stana Nenadic, "The Small Family Firm in Victorian Britain," Business History 35 (1993): 86-114; Craig Young, "The Economic Characteristics of Small Craft Businesses in Rural Lowland Perthshire, c. 1830-c. 1900," Business History 36 (1994): 33-52; M. G. Blackford, "Small Business in America: A Historiographic Survey," Business History Review 65 (1991): 1-26.

2 For examples from Europe and the Americas see Ewan Knox, "Between Capital and Labor: The Petite Bourgeoisie in Victorian Edinburgh," (Ph.D. diss., Edinburgh, 1986); Geoffrey Crossick and H.-G. Haupt, eds., Shopkeepers and Master Artisans in Nineteenth Century Europe (London, 1984); Blackford, "Small Business in America"; Frank Bechhofer and Brian Elliot, eds., The Petite Bourgeoisie: Comparative Studies of the Uneasy Stratum (London, 1981); Geoffrey Crossick, ed., The Lower Middle Class in Britain (London, 1977).

3 This definition draws on Blackford, "Small Business in America," 3.

4 Tayside region, for example, had a rather unique employment structure. Male employment in agriculture was higher there than in other areas of the east-central low-lands (27% in 1851, 20% in 1881 and 18% in 1911). The manufacturing sector, especially textiles, dominated employment in the region. Manufacturing employed 45%, 46% and 42% of the male population in 1851, 1881 and 1911 respectively. J. H. Treble, "The Occupied Male Labor Force," in W. H. Fraser and R. J. Morris, eds., People and Society in Scotland, vol. 2 (Edinburgh, 1990), 194-205.

5 Young, "Economic Characteristics" and Craig Young, "Women's Work, Family and the Rural Trades in Nineteenth-Century Scotland," Review of Scottish Culture 7 (1991): 53-8.

6 Concluded Sequestration Processes brought under the 1856 Bankruptcy (Scotland) Act, CS318 [hereafter CS318], Scottish Record Office [hereafter SRO]. Liabilities ranged from [pounds]60 to [pounds]10,414.

7 Craig Young, "An Assessment of Scottish Sequestrations as a Source in Historical Analysis," Journal of the Society of Archivists 12 (1991): 127-35; P. Jobert and M. S. Moss, eds., The Birth and Death of Companies: An Historical Perspective (Park Ridge, N.J., 1990). The source is described in Craig Young, "The Content and Use of Scottish Sequestrations: Businesses in Lowland Perthshire, 1856-1913," The Local Historian 24 (1994): 4-14.

8 Compare M. S. Moss and J. R. Hume, "Business Failure in Scotland 1839-1913: A Research Note," Business History 25 (1983): 3-10 and R. G. Rodger, "Business Failure in Scotland 1839-1913," Business History 27 (1985): 75-99.

9 Moss and Hume give annual totals of sequestrations by occupational group 1850-1879 and Rodger lists annual totals of sequestrations in the building trades 1857-1913. Neither set of data suggests significant changes in the relative proportions of occupational groups. See Moss and Hume, "Business Failure," 8-9; Rodger, "Business Failure," 98-99.

10 Moss and Hume, "Business Failure," 7-9.

11 Rodger, "Business Failure," 78.

12 Rodger, "Business Failure," 75; see also Sheila Marriner, "English Bankruptcy Records and Statistics before 1850," Economic History Review 33 (1980): 351-66.

13 Young, "Economic Characteristics," 38-40 demonstrates that in some sectors over 60% of all craft shops in this area went bankrupt between 1890-1900.

14 Young, "Assessment of Scottish Sequestrations"; see also Young, "Economic Characteristics"; Kent, "Small Businessmen"; Nenadic, "The Small Family Firm"; Sheila Marriner, "Cash and Concrete: Liquidity Problems in the Mass Production of Homes for Heroes," Business History 18 (1976): 163; David Alexander, Retailing in England During the Industrial Revolution (London, 1970); J. R. Ward, "Speculative Building at Bristol and Clifton, 1783-93," Business History 20 (1978): 3-18; Ian Donnachie, "Sources of Capital and Capitalization in the Scottish Brewing Industry, c. 1750-1830," Economic History Review 30 (1977): 269-83.

15 Craig Young, "The Economic, Social and Geographical Aspects of Rural Tradespeople in Lowland Perthshire, c.1750-c.1950" (Ph.D. diss., Edinburgh, 1990).

16 Michael Collins, Banks and Industrial Finance in Britain, 1800-1939 (London, 1991), 24, 31-4; P. L. Cottrell, Industrial Finance, 1830-1914 (London and New York, 1980); R. C. Michie, "Options, Concessions, Syndicates and the Provision of Venture Capital, 1880-1913," Business History 23 (1981), 147-64; M. B. Rose, "The Role of the Family in Providing Capital and Managerial Talent in Samuel Greg and Co. 1784-1840," Business History 19 (1977): 37-54; Nenadic, "The Small Family Firm," 93.

17 The role of banks in industrial finance is fully discussed in Collins, Banks and Industrial Finance. On the lending practices of Scottish banks see S. G. Checkland, Scottish Banking: A History, 1695-1973 (Glasgow, 1975), 416, 488; C. W. Munn, "The Development of Joint-Stock Banking in Scotland, 1810-1845," in Anthony Slaven and D. H. Aldcroft, eds., Business, Banking and Urban History, (Edinburgh, 1982), 114. However, bank lending was significant in the early Scottish brewing industry and in the West Yorkshire wool textile industry. See Donnachie, "Scottish Brewing Industry," 277, and Pat Hudson, "The Role of Banks in the Finance of the West Yorkshire Wool Textile Industry, c. 1780-1850," Business History Review 55 (1981): 379-402.

18 Munn, "Joint-Stock Banking," 113-17.

19 Checkland, Scottish Banking, 478, 506; Rodger, "Business Failure," 91. The view is questioned by Collins, Banks and Industrial Finance, 41-2.

20 Young, "Economic Characteristics," 40-1.

21 The relationship between capital requirements and capital obtained is not entirely simple, however, as some of these firms may well have required more capital than they could raise. Indeed, a frequent cause of bankruptcy was under-capitalization. Nenadic, "The Small Family Firm," 97; Geoffrey Crossick and H.-G. Haupt, "Shopkeepers, Master Artisans and the Historian: The Petite Bourgeoisie in Comparative Focus" in Crossick and Haupt, Shopkeepers and Master Artisans, 9; Clive Behagg, "Masters and Manufacturers: Social Values and the Smaller Unit of Production in Birmingham, 1800-50" in Crossick and Haupt, Shopkeepers and Master Artisans, 141-4; Haupt, "Petite Bourgeoisie in France," 100; on shopkeepers see M. J. Winstanley, The Shopkeeper's World, 1830-1914 (Manchester, 1983), 10.

22 CS318/6/37 1864; CS318/2/100; CS318. SRO.

23 CS318/8/276 1864; CS318/6/242 1861; CS318/2/14 1858. SRO.

24 CS318/45/125 1900; CS318/40/264 1894; CS318/46/59 1899. SRO.

25 CS318/22/27 1865; CS318/17/259 1872. SRO.

26 CS318/11/97 1862; CS318/11/145 1862; CS318/15/295 1870; CS318/10/233 1866. SRO.

27 CS318/48/297 1903; CS318/17/367 1871; CS318/11/97 1862; CS318/15/98 1870. SRO.

28 CS318/25/515 1880; CS318/45/125 1900. SRO.

29 CS318/51/171 1905. SRO.

30 For example CS318/45/125 1860, CS318/29/242 1881, CS318/25/515 1880. SRO.

31 CS318/45/125 1900. SRO.

32 CS318/25/515 1880; CS318/29/242 1881; CS318/52/137 1907. SRO.

33 Registrar General's marriage certificates, SRO. Sample consists of all marriages between 1860-70 where the groom was a tradesman in 10 parishes in lowland Perthshire.

34 CS318/8/246 1860; CS318/6/226 1860; CS318/6/242 1881; CS318/12/87 1867; CS318/1/72 1857; CS318/43/197 1896; CS318/34/174 1888. SRO.

35 CS318/34/333 1888; CS318/8/376 1864; CS318/32/105 1887; CS318/15/98 1870. SRO.

36 Geoffrey Jones and M. B. Rose, "Family Capitalism," Business History 35 (1993), 8.

37 CS318/17/367 1871; CS318/6/242 1861; CS318/9/305 1863; CS318/9/83 1861; see also CS319/60 1856. SRO.

38 Perthshire Courier and General Advertiser [hereafter Courier], 26 September 1865; Perthshire Advertiser and Strathmore Journal [hereafter Advertiser], 8 February 1855; Courier, 26 September 1865.

39 CS318/17/367 1871; CS318/24/103 1878; CS318/34/174 1888. SRO.

40 The figure for merchant credit excludes a unique loan of [pounds]3350 to another hotelier, as this isolated example would otherwise vastly overemphasize the contribution of this source.

41 CS318/46/401 1901. SRO.

42 CS318/5/88 1861; CS318/6/242 1861. SRO.

43 Cf. B. A. Holderness, "Credit in a rural community, 1660-1800," Midland History 3 (1975): 110-13; Pat Hudson, The Genesis of Industrial Capital (Cambridge, 1986).

44 CS318/6/242 1861; CS318/45/88 1900. SRO.

45 CS318/45/88 1900; CS318/11/97 1862; CS318/25/307 1878; see also CS318/25/515 1880, CS318/15/98 1870, CS318/2/69 1857. SRO.

46 Advertiser, 6 January 1870, 3 March 1870; on the role of the attorney in England see M. Miles, "The Money Market in the Early Industrial Revolution: the Evidence from West Riding Attorneys," Business History 23 (1981): 127-46; B. L. Anderson, "The attorney and the early capital market in Lancashire" in Francois Crouzet, ed., Capital Formation in the Industrial Revolution (London, 1972), 223-56.

47 Michie, "Provision of Venture Capital," 147.

48 Nenadic, "The Small Family Firm;" H.-G. Haupt, "The Petite Bourgeoisie in France, 1850-1914: In Search of the Juste Milieu?" in Crossick and Haupt, Shopkeepers and Master Artisans, 100-1, 115; Alain Faure, "The Grocery Trade in Nineteenth-Century Paris: A Fragmented Corporation" in Crossick and Haupt, Shopkeepers and Master Artisans, 168, 172; Winstanley, Shopkeepers World, 10.

49 Young, "Economic Characteristics," 41-2.

50 Hudson, Genesis of Industrial Capital, 17.

51 Nenadic, "The Small Family Firm," 103.

52 It is not always possible to identify the primary economic activities of the creditors, especially when the sources do not list the names of their companies. However, only 14% of creditors remain unidentified, many of whom were individual creditors and local farmers. The type of debt, moreover, sometimes remains obscure, though the percentage does not greatly affect overall results. Creditors could be ranked for debts of cash, bills, rent, goods or services, trade and wages.

53 James Murray, for example, received leather on credit from firms such as McBride and Logic of Glasgow, Sinclair & Moir of Edinburgh, and McNab's of Dundee. CS318/56/152 1911. SRO.

54 CS318/47/339 1902. SRO.

55 CS318/34/174 1888. SRO.

56 For example, CS318/21/111 1872, CS318/8/376 1864. SRO.

57 CS318/11/97 1862; CS318/25/515 1880; CS318/8/246 1860; CS318/24/481 1877; CS318/25/515 1880; CS318/8/246 1860. SRO.

58 SRO, CS318. Total creditors = 1747, total credit = [pounds]55,581, number of firms = 67.

59 Public flotations, moreover, were costly, and the market discriminated against small concerns (issues below [pounds]30,000 to 60,000). A. E. Harrison, "Joint-Stock Company Flotation in the Cycle, Motor-Vehicle and Related Industries, 1882-1914," Business History 23 (1981): 178-9; Collins, Banks and Industrial Finance, 31.

60 In Scotland, the transfer of a woman's estate to her husband (her legal representative upon marriage) effectively continued until 1920. Though it was legally possible for married women to retain control over their own capital it rarely happened because of earlier social pressures and women's own view of their roles. See, for example, Leonore Davidoff and Catherine Hall, Family Fortunes: Men and Women of the English Middle Class, 1780-1850 (London, 1987); Anita Goransson, "Geuder and Property Rights: Capital, Kin, and Owner Influence in Nineteenth- and Twentieth-Century Sweden," Business History 35 (1993): 11-32.

61 Labor historians have documented the widespread labor force participation of Scottish women, and the central role work played in shaping their self-identities. See, for example, E. Gordon and E. Breitenbach, eds., The World is Ill Divided (Edinburgh, 1990).

62 An example of a widow investing is given in A. E. Harrison, "F. Hopper and Co. - the Problems of Capital Supply in the Cycle Manufacturing Industry, 1891-1914," Business History 23 (1981): 165-90. Nenadic, "The Small Family Firm," 103.

63 Young, "Economic Characteristics," 45-9; Craig Young, "Small Craft Business Owners, Finance and Social Relations in Nineteenth Century Rural Lowland Perthshire, Scotland," The Journal of Regional and Local Studies 15 (1995): 21-37.

DR. CRAIG YOUNG is currently senior lecturer in geography in the Department of Environmental and Geographical Sciences at the Manchester Metropolitan University.

I would like to thank the referees for their valuable comments and the editorial staff of Business History Review for their suggestions and continued interest in this paper. Thanks also to Dr. Dorothy Kidd and Dr. John Shaw for their help with illustrations.
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