Corporation formation in the antebellum United States in comparative context

Abstract

Between 1790 and 1860, US state governments chartered 22,419 businesses, with minimum authorised capital totalling $4.58 billion, by special statute. The US, in both total and per capita terms, had considerably more corporations and authorised corporate capital than the UK, France or Prussia did over that same span. Differences in incorporation and capitalisation rates between nations were largely a function of differences in laws and politics but differences among American states resulted more from differences in the timing and character of economic development.

Keywords:

• charters
• corporations
• economic growth
• legal origins
• governance
• politics

Acknowledgements

The authors thank their research assistants, especially Tom Downey, Mary Inkrot, and Margaret R. Griggs, and the following funding organisations: Berkley Center for Entrepreneurial Studies, Ewing Marion Kauffman Foundation, National Science Foundation (Grant No. 0751577), Nef Family Foundation, and New York University. Any errors, however, remain the authors' sole responsibility.

Notes

^1. As quoted in Smith and Cole, Fluctuations, 21.

^2. Also, some studies, including Kaufman, “Corporate Law,” Maier, “Revolutionary Origins,” and Neem, Creating a Nation of Joiners, conflate business and non-business corporations. Ones that made a distinction between business and non-business corporations, but in a general and mostly non-quantitative way, include Handlin and Handlin “Origins”; Hartz, Economic Policy; Heath, Constructive Liberalism; Horwitz, Transformation of American Law. Quantitative studies of particular states and regions, not always covering the entire 1790–1860 period, include Blandi, Maryland Business Corporations; Cadman, Corporation in New Jersey; Davis, Essays; Evans, Business Incorporations; Fundaburk, “Business Corporations in Alabama”; Kessler, “Incorporation in New England”; Miller, “A Note.” Studies of particular industries include Durrenberger, Turnpikes; Kessler, “A Statistical Study”; Fenstermaker, Development of Commercial Banking; Weber, “Listing of All State Banks.”

^3. Carter et al., Historical Statistics, vol. 3, 3–496.

^4. Hamill, “From Special Privilege to General Utility,” 180; Seavoy, Origins of the American Business Corporation, 97–8; Hilt and O'Banion, “The Limited Partnership in New York, 1822–1858.”

^5. Corporations that were difficult to charter, like banks, almost always began operations. By contrast, corporations that were easier to charter, like turnpikes, failed to complete their roads up to half of the time. Durrenberger, Turnpikes, 55, 74, 107; Taylor, “Turnpike Era,” 164.

^6. Fishlow, American Railroads, 383, estimated total US investment in railroads as of 1860 to be about $1.1 billion, whereas our database indicates minimum capital of railroads as authorised by their charters to be about $2.4 billion. Since many railroad corporations were recent creations in 1860, the two figures are not as far apart they might seem to be.

^7. Some states did not keep track of corporations chartered under general laws, and others such as Michigan and New York have archival rules that make it difficult for researchers to survey the extant records.

^8. Hilt, “When did Ownership Separate from Control,” 663.

^9. Wright, “Governance and the Success of U.S. Community Banks”; Weber, “Listing of All State Banks.”

^10. “Manufacturing Corporations,” 94.

^11. Smith, Inquiry, Book 5, Chapter 1, Part III, Article 1.

^12. Wright, Corporation Nation.

^13. Tucker, Notes, 67–9; Sylla, “Early American Banking,” 111.

^14. Moss, When All Else Fails.

^15. Hansmann, Kraakman and Squire, “Law and the Rise of the Firm”; Tucker, Notes, 6, 10.

^16. Tucker, Notes, 9; Wright, Wealth.

^17. Hilt, “Rogue Finance”; Kamensky, Exchange Artist; Shalhope, Baltimore Bank Riot.

^18. Wright, Corporation Nation.

^19. Wright, Corporation Nation; Wright and Sylla, “Corporate Governance,” 236; Tucker, Notes, 63–4.

^20. Wright, “Corporate Entrepreneurship.”

^21. Berkowitz and Clay, “American Civil Law Origins,” 62, 84.

^22. Sacher, “Sudden Collapse of the Louisiana Whig Party,” 226; Reed, “Government Investment and Economic Growth,” 191.

^23. Reed, “Government Investment and Economic Growth,” 192; Sacher, “The Sudden Collapse of the Louisiana Whig Party,” 227–30.

^24. Wright, “Banking and Politics,” 274–5; Howe, What Hath God Wrought, 278–80, 501–8, 541–4; Wright, Corporation Nation.

^25. Bogart and Majewski argue that differences in urbanisation accounted for much of the difference between the UK and the US in rates of incorporation of transportation companies, which they found to be considerably higher in the US. We suggest here that different degrees of urbanisation may also have been related to different rates of incorporation across states within the US. Bogart and Majewski, “Two Roads to the Transportation Revolution.”

^26. Mitchell, European Historical Statistics, Table A1; Carter et al., Historical Statistics of the United States.

^27. Freedeman, Joint-Stock Enterprise in France, xv; Lamoreaux and Rosenthal, “Legal Regime.”

^28. Freedeman, Joint-Stock Enterprise in France, 55–6.

^29. Ibid., 132.

^30. Harris, Industrializing English Law, 289.

^31. Cited by Harris, Industrializing English Law, 67.

^32. White, Free Banking.

^33. Harris, Industrializing English Law, 194, 218. Joint stock capital in 1810 is obtained by subtracting from Harris's total capital reported in Table 7.2, p. 194, the capital of the three old “moneyed” corporations, the Bank of England and the East India and South Sea Companies. We convert French, British and Prussian company capital estimates reported in this paper to US dollars by simple approximations of the currency exchange rates of the early nineteenth century, namely $5 per British pound, 5 French francs per dollar and $0.75 per Prussian thaler.

^34. Ibid., 230–45.

^35. Ibid., 221–2.

^36. Freeman, Pearson and Taylor, Shareholder Democracies?, 15–16.

^37. Harris, Industrializing English Law, 288.

^38. Ibid.

^39. Maggioni, “Introduction of Limited Liability in Nineteenth Century England.”

^40. Harris, Industrializing English Law, 230–45, 250–57.

^41. Bogart and Majewski, “Two Roads to the Transportation Revolution.”

^42. Thieme, “Statistische Materialien,” begins his count of Prussian corporations in 1770 and lists all of them apart from railways and road companies to 1867, just before Germany followed in the footsteps of many US states, the UK and France in introducing a general incorporation law. Ilgmann, “The Advent of Corporate Limited Liability in Prussia,' cites an even earlier Prussian corporation, the Brandenburgische-Afrikanische Kompagnie, founded in 1682.

^43. Thieme, “Statistiche Materialien,” 286, 292–8.

^44. Ilgmann, “Advent of Corporate Limited Liability in Prussia 1843.”

^45. Wright, One Nation Under Debt; Rousseau and Sylla, “Emerging Financial Markets.”

^46. Wright and Sylla, “Corporate Governance”; Wright, One Nation Under Debt; Smith, Sylla and Wright, “Diamond of Sustainable Growth.”

^47. Pollard, Genesis of Modern Management; Smith, Sylla, and Wright, “Diamond of Sustainable Growth.”

^48. Johnston and Williamson, “What was the U.S. GDP Then?”