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20 Pages

The Society of Friends and the Family Firm, 1700–1830

Historians have regularly observed the over-representation of Friends among successful entrepreneurs in the formative years of British industrialisation during the eighteenth and nineteenth centuries. It has also been noted that, given the uncertain and high-risk business environment of the day, the longevity of many of the Quaker business dynasties founded at that time was remarkable. Moreover, Friends' success was achieved with a reputation for honesty and integrity in business. When it is considered that, 'eighteenth century Englishmen were conditioned to living in a world where indebtedness was endemic and bad debts an accepted concomitant of widespread credit', 1 and that fraudulent activities were endemic amongst bankrupts, creditors and their solicitors,2 Friends' reputation for honesty can only be admired. Here may lie the over-riding influence behind the Quaker success story. Casson has argued convincingly for a crucial link between entrepreneurship and business culture. 'With highly subjective information, the quality of entrepreneurship depends on the quality of business culture', and 'the most important aspect of business culture is the extent to which it promotes trust. Trust facilitates cooperation between entrepreneurs and cooperation is just as important as competition in achieving efficiency.,3

Recent work on the theory of the firm, building upon an original paper by Coase,4 has highlighted the concepts of transaction costs and internalisation.5 As Coase emphasised, the co-ordination and allocation of resources via competitive markets imposes costs on a business. However, these 'transaction costs' may be reduced as a result of intern alisation, that is, the supercession of market functions by the individual firm. The focus on internalisation as a cost-reducing strategy has received much attention in recent business history, no more so than in Alfred Chandler's empirical work on the rise of the modern business corporation. However, Chandler has observed that 'as long as legal and personal ties and relationships helped to assure the fulfillment of contractual arrangements, manufacturers usually preferred to buy their supplies rather than invest in and manage the production of these supplies' .6 Casson has argued similarly that, 'cooperation between fam-

ily firms, which use paternalism for internal coordination and reciprocity for external coordination, may achieve better results than a merger which integrates the firms within a larger managerially controlled enterprise,.7 For Casson, it is the cultural quality, rather than the type of organisation, which is the crucial factor. From the foregoing, it is apparent that the concept of external networks, as an alternative means of reducing transaction costs arising from uncertainty and imperfect knowledge, can be examined in the context of the Coase-Chandlerian view of the theory of the firm. Casson has emphasised the importance of trust in determining the rate of transaction costs. Thus, where trust is low, transaction costs will be relatively high and business performance will be hindered. The membership of the Society of Friends, however, was instilled with a high moral culture, the product in part of an extensive family and kinship network. This, together with an inherited religious code emphasising spiritual priorities, redounded to the advantage of Quaker men of business in terms of confidence and expectations.