R Gatrell's recent article on 'Labour, Power, and the Size of Firms in Lancashire Cotton in the Second Quarter of the Nineteenth Century' draws attention to a neglected body of evidence which shows the predominance ofsmall-to-middling and single-process firms in these sections of the industry in i840. The statistics are evidently reliable; the problem is to explain why so many small firms persisted for as long as they did. Gatrell offers several plausible explanations, with supporting quotations from witnesses to various parliamentary inquiries and other sources. He argues that the technology of spinning and power-loom weaving offered no substantial incentives to growth beyond a modest (but undefined) size, and suggests that entrepreneurs of the period believed in the advantages of moderation in enterprise rather than economies of scale. Meanwhile, he adds, the recruitment of small men was encouraged by cheap credit and the diversification of the market.2 There is some evidence to suggest that the technical economies of scale in spinning and weaving were modest, at any rate beyond the J8,ooo mill whose costs Montgomery analysed in I833.3 However, the average capacity of mills continued to increase through the period (eight times between I 797 and I 833/4, i6 times between I833/4 and I850) so whatever restraints existed had not brought growth to a halt. But the main comment that must be made on Dr Gatrell's line of reasoning is that his data tell us nothing about the working capital needs of the cotton industry, so that we are left in ignorance of the real financial requirements for growth. The argument of the present article is that the solution to the problem of stunted growth lies in the relations between manufacturers and merchants and the financial environment in which they struggled for markets. A large and constantly changing body of entrepreneurs, trying to sell increasing quantities to more distant and dispersed markets, was serviced by a financial system whose members were characteristically inexperienced, insecure, and unprepared to meet the unprecedented developments in industry and overseas markets. Adequate treatment of the complex relations between finance and industry demands that both parties be scrutinized as closely as possible over the whole industrial revolution period.