Abstract
This chapter is a case study of the political foundation of market development in the nineteenth-century United States and an application of the dual intergovernmental transformation for market development (DITMD) model in the American case. It focuses on examining the impact of federal-state relations on the rise of the American domestic common market in the first century of the United States, roughly between the founding of the republic and the end of the nineteenth century. It first briefly introduces the general allocation of governmental powers in the antebellum American economy and then discusses state activism in the antebellum American corporate regime. Subsequently, the double economic effects of state activism on the corporate economy are analyzed. After that, the chapter further examines the contribution of jurisdictional competition and judicial nationalization to the national market respectively. Finally, there is a concluding remark on this case study.
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Notes
- 1.
Also see the Constitution of the United States, Article I, § 8.
- 2.
With regard to the leeway for the states to intervene into the economy, Harry N. Scheiber (1987a: 419) remarks: “Constitutional doctrine in the period from 1790 to the Civil War…gave the states ample room in which to define their economic goals and engage in wide-ranging interventions to shape economic change. Although the Supreme Court gave vigor to the contract, the commerce, and the supremacy clauses, the states maintained their designated spheres of action and Congress chose not to exercise its power in many of the areas where the Marshall Court’s nationalistic doctrines would have permitted it to act. With respect to the classic trinity of sovereign powers—taxation, the police power, and eminent domain—the states enjoyed broad autonomous authority, which they exercised vigorously. Indeed, property law, commercial law, corporation law, and many other aspects of law vital to the economy were left almost exclusively to the states. Even the matter of free labor or slavery was left to state discretion, as a central element in the ‘federal bargain’ of 1787.”
- 3.
But, the federal judiciary played an exceptional role occasionally in safeguarding an open domestic common market . I will discuss the federal judiciary’s role in shaping the American corporate regime in detail later on. Also see Balogh (2009).
- 4.
Before the Civil War, very few corporations were chartered by Congress of the United States, instead of state legislatures. Among them, there were the First and Second Banks of the United States.
- 5.
84 U.S. (17 Wall.) 322 (1872).
- 6.
With regard to the five advantages, Andrew L. Creighton (1990: 40) remarks: “The power of selecting members could be, and was, retained by the legislature or delegated to other organizations…The ability to sue or be sued under a corporate name came into question most dramatically in the cases in this period on the ability of out-of-state, or ‘foreign’ corporation to act in law, although it was also raised with regard to the ability of a corporation to use its own members. The ability to hold property was frequently in doubt or restricted by ‘mortmain’ clauses…And the right to make by-laws was controversial in the sense that what was permissible to include in the by-laws was tightly controlled” (also see Handlin and Handlin 1947).
- 7.
In the insurance industry, life insurance corporations were among the first businesses in conducting interstate commerce in the mid-nineteenth century (Merkel 1991).
- 8.
Tony A. Freyer (1979a: xvii) has a good description on these changes: “The American economy underwent three significant institutional transformations between the early 19th century and World War II. By the end of the War of 1812 a mercantile order dominated by general, all-purpose merchants gradually gave way to a new group of specialized middlemen. A second, probably more profound, transformation occurred after the civil war when these more highly specialized merchants, faced with industrialization, in turn surrendered their central role in the economy to large corporate firms. A third significant change in the nation’s economic order also began in the post-bellum era, when Americans accepted extensive government regulation of business through numerous administrative agencies. The New Deal represented perhaps the high point of that third change. Changes in law facilitated each of these transformations, but none of these changes came without considerable legal and economic uncertainty.” (Also see Lamoreaux 2000).
- 9.
In Paul v. Virginia, which was decided in 1869, Justice Field wrote: “At the present day, corporations are multiplied to an almost indefinite extent. There is scarcely a business pursued requiring the expenditure of large capital, or the union of large numbers, that is not carried on by corporations. It is not too much to say that the wealth and business of the country are to a great extent controlled by them” (75 U.S. (7 Wall.) 168 (1869)).
- 10.
Massachusetts, for instance, even had a general incorporation law by 1799, if not earlier (Handlin and Handlin 1945).
- 11.
There was evidence to prove this point. For example, when New Jersey won the race among the states to attract incorporations in the 1890s, it succeeded mainly in attracting out-of-state firms capitalized at $100,000 or more. Local small businesses usually did not move to New Jersey simply for a better legal environment (Yablon 2006).
- 12.
Laws of New Jersey (1897), p. 124 (cited from Stoke 1930: 576).
- 13.
For the argument that competition among states will lead to “race to the bottom,” see, for instance, Cary 1974; Eisenberg 1983; Schwartz 1984; and Bebchuk 1992. For an opposite position holding that competition among states will lead to “race to the top,” see, for instance, Winter 1977; Fischel 1982; Romano 1985, 1986–1987. For the proposition arguing an uncertain effect of jurisdictional competition, see, for instance, Kobayashi and Ribstein (2012).
- 14.
As is remarked by Gregory A. Mark (1997: 416): “Lacking a clear constitutional allocation of power, the Justices generally strained to leave open the possibility of something other than a constricted local vision of enterprise where corporations were concerned.”
- 15.
22 U.S. (9 Wheat.) 1, 1824.
- 16.
41 U.S. (16 Pet.) 1 (1842).
- 17.
17 U.S. 518.
- 18.
But, the Marshall Court did try to answer the question whether a foreign corporation could sue or be sued before the federal judiciary under diversity jurisdiction, such as in Bank of the United States v. Deveaux (1809).
- 19.
38 U.S. Pet. 519 (1839).
- 20.
38 U.S. Pet. 519 (1839).
- 21.
75 U.S. (7 Wall.) 168 (1869).
- 22.
75 U.S. (7 Wall.) 168 (1869).
- 23.
75 U.S. (7 Wall.) 168 (1869).
- 24.
For instance, in Hooper v. California (1895), writing for the majority opinion of the Court, Justice White made a similar argument through citing the Paul decision frequently: “The State of California has the power to exclude foreign insurance companies altogether from her territory, whether they were formed for the purpose of doing a fire or a marine business. She has the power, if she allows any such companies to enter her confines, to determine the conditions on which the entry shall be made. And as a necessary consequence of her possession of these powers, she has the right to enforce any conditions imposed by her laws as preliminary to the transaction of business within her confines by a foreign corporation, whether the business is to be carried on through officers or through ordinary agents of the company, and she has also the further right to prohibit a citizen from contracting within her jurisdiction with any foreign company which has not acquired the privilege of engaging in business therein, either in his own behalf or through an agent empowered to that end. The power to exclude embraces the power to regulate, to enact and enforce all legislation in regard to things done within the territory of the state which may be directly or incidentally requisite in order to render the enforcement of the conceded power efficacious to the fullest extent, subject always, of course, to the paramount authority of the Constitution of the United States” (155 U.S. 648 (1895)).
- 25.
75 U.S. (7 Wall.) 168 (1869).
- 26.
94 U.S. 535 (1876).
- 27.
Section 11 of the Judiciary Act of 1789.
- 28.
Section 12 of the Judiciary Act of 1789.
- 29.
Section 1 of the Jurisdiction and Removal Act of 1875 provides: “Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the circuit courts of the United States shall have original cognizance, concurrent with the courts of the several States, of all suits of a civil nature at common law or in equity, where the matter in dispute exceeds, exclusive of costs, the sum or value of five hundred dollars, and arising under the Constitution or laws of the United States, or treaties made, or which shall be made, under their authority , or in which the United States are plaintiffs or petitioners, or in which there shall be a controversy between citizens of different States or a controversy between citizens of the same State claiming lands under grants of different States, or a controversy between citizens of a State and foreign states, citizens, or subjects; and shall have exclusive cognizance of all crimes and offenses cognizable under the authority of the United States, except as otherwise provided by law, and concurrent jurisdiction with the district courts of the crimes and offenses cognizable therein.”
- 30.
Section 2 of the 1875 Act provides: “That any suit of a civil nature, at law or in equity, now pending or hereafter brought in any State court where the matter in dispute exceeds, exclusive of costs, the sum or value of five hundred dollars, and arising under the Constitution or laws of the United States, or treaties made, or which shall be made, under their authority , or in which the United States shall be plaintiff or petitioner, or in which there shall be a controversy between citizens of different States, or a controversy between citizens of the same State claiming lands under grants of different States, or a controversy between citizens of a State and foreign States, citizens, or subjects, either party may remove said suit into the circuit court of the United States for the proper district. And when in any suit mentioned in this section there shall be a controversy which is wholly between citizens of different States, and which be fully determined as between them, then either one or more of the plaintiffs or defendants actually interested in such controversy may remove said suit to the circuit court of the United States for the proper district.”
- 31.
9 U.S. (5 Cranch) 61 (1809).
- 32.
43 U.S. (2. How.) 497 (1844).
- 33.
74 U.S. 574 (1870).
- 34.
96 U.S. 369 (1877).
- 35.
161 U.S. 545 (1896).
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Cheng, J. (2019). Federalism and the Rise of the Corporate Economy in the Nineteenth-Century United States. In: States, Intergovernmental Relations, and Market Development. Governing China in the 21st Century. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-58357-4_4
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