THE TRANSFORMATION OF LAW

American law increasingly supported the efforts of entrepreneurs to participate in the market revolution, while shielding them from interference by local governments and liability for some of the less desirable results of economic growth. The corporate form of business organization became central to the new market economy. A corporate firm enjoys special privileges and powers granted in a charter from the government, among them that investors and directors are not personally liable for the company’s debts. Unlike companies owned by an individual, family, or limited partnership, in other words, a corporation can fail without ruining its directors and stockholders. Corporations were therefore able to raise far more capital than the traditional forms of enterprise. By the 1830s, many states had replaced the granting of charters through specific acts of legislation with “general incorporation laws,” allowing any company to obtain a corporate charter if it paid a specified fee.

Many Americans distrusted corporate charters as a form of government-granted special privilege. But the courts upheld their validity, while opposing efforts by established firms to limit competition from newcomers. In Dartmouth College v. Woodward (1819), John Marshall’s Supreme Court defined corporate charters issued by state legislatures as contracts, which future lawmakers could not alter or rescind. Five years later, in Gibbons v. Ogden, the Court struck down a monopoly the New York legislature had granted for steamboat navigation. And in 1837, with Roger B. Taney now the chief justice, the Court ruled that the Massachusetts legislature did not infringe the charter of an existing company that had constructed a bridge over the Charles River when it empowered a second company to build a competing bridge. The community, Taney declared, had a legitimate interest in promoting transportation and prosperity.

Local judges, meanwhile, held businessmen blameless for property damage done by factory construction (such as the flooding of upstream farmlands and the disruption of fishing when dams were built to harness water power). Numerous court decisions also affirmed employers’ full authority over the workplace and invoked the old common law of conspiracy to punish workers who sought to strike for higher wages. Not until 1842, in Commonwealth v. Hunt, did Massachusetts chief justice Lemuel Shaw decree that there was nothing inherently illegal in workers organizing a union or a strike. Like changes in work and time, changes in the law illustrated the comment of Horace Bushnell, a Connecticut minister, that the market economy had produced a “complete revolution” in Americans’ “life and manners.”

If you find an error or have any questions, please email us at admin@erenow.org. Thank you!