The Jacksonian Backlash Against Corporations

BRIAN: We’re back with BackStory. I’m Brian Balogh.

PETER: I’m Peter Onuf.

ED: And I’m Ed Ayers. We’re talking today about the history of corporations in America. And about the conflicted feelings that Americans have had about them throughout our history. We’re going to turn now to what is probably the most important legal case having to do with the rights of corporations in early America. Now, we’ve already talked about the way that corporations were not just about business back then. And sure enough, this case centers on a corporation called Dartmouth College.

PETER: Dartmouth was created by royal charter in 1769, when George III was still king on the side of the Atlantic. Its charter specified that it was a private university. But in the 1810s the new sovereign, which would be the state of New Hampshire, attempted to modify that charter, so that lawmakers could have more say in matters of school governance. They argue that this would assure that the corporation would continue to operate in the public good. But the school’s trustees said– “Hold it! Our charter amounts to a contract. And just because you’re the government doesn’t mean that you can alter the contract.”

The case made its way to the Supreme Court, which ultimately ruled in favor of the trustees.

CHUCK MCCURDY: The Dartmouth case said that if you got a deal, a sweet deal from the state legislature, the next state legislature couldn’t interfere with that sweet deal.

PETER: This is Chuck McCurdy a legal historian at the University of Virginia.

CHUCK MCCURDY: It was a principle that said– “If it’s a private corporation, it’s immune from governmental intermeddling in the future.” That’s a big principle!

ED: As we heard at the beginning of today’s show, states granted corporate charters on a case by case basis in the early years of America. McCurdy says that, after Dartmouth, would-be corporations were emboldened to try to get the most favorable terms and conditions from lawmakers that they could, knowing that they would be set forever once they did.

CHUCK MCCURDY: Every promoter or organizer of a body politic in corporate form, and especially of banks, and, by the 1830s, railroad companies, show up to negotiate with state legislatures saying that they demand all kinds of special franchises which are not available to ordinary people in the marketplace who lack access to a corporate form. So they want tax exemptions, the right of route monopolies for railroads and turnpike roads, and so on.

ED: And that happens quickly? After–

CHUCK MCCURDY: It happens by the 1820s. James Cant, who writes the first treatise of American law generally, talked about a mighty current of corporations being generated by the several state legislatures. Their session laws each year being dominated by the creation of these entities. And, for the most part, they were privileged entities. And the legislative process was largely an annex to the marketplace.

ED: Can you give us any sense about the strong current of these corporations emerging. Any sense of scale?

CHUCK MCCURDY: Well in terms of numbers, in 1800 we know there were 310 for-profit corporations the United States. By 1819, there were 2000. By 1870, there were 100,000.

ED: So that’s a dramatic change? I’m guessing that everybody thought it was great.

CHUCK MCCURDY: Well there was one whole political party– the Democratic Party created larger by Martin Van Buren, combining the plain farmers of the North with the planters of the South– that became dedicated to an anti-monopoly and anti-charter doctrine in the late 1820s. And really continuing until they won the battle, by the mid-1840s.

ED: I noticed that you said that they are opposed to monopoly, not to corporations. Why would those two words be conflated so quickly?

CHUCK MCCURDY: Because so many monopolies were indeed created by legislative act, which could not subsequently be undone without violating the doctrine laid down by the Supreme Court of the United States in the Dartmouth College case.

ED: Can you give me an example. I mean, Dartmouth College doesn’t seem a very threatening monopoly.

CHUCK MCCURDY: Sure, the Boston & Worcester railroad was one of the very first chartered by the Massachusetts legislature. I think it was 1830. And that first charter, of the Boston and Worcester railroad, provided that it should have a monopoly of the route of travel for 30 years between Boston and Worcester. So another railroad was charted the went from Boston to someplace near Worcester. It wasn’t even the same county. But it was held that it violated the route monopoly of the Boston & Worcester.

So you can see now there was tension between economic development, which everybody was in favor of, by providing security to investors, on the one hand, and economic development being limited by the claims of monopolists.

ED: And obviously those monopolists would be people who had access to political power. I mean you have to be an insider in order to get a charter passed, I would imagine.

CHUCK MCCURDY: Absolutely.

ED: So what did the people who opposed these monopolies propose instead, Chuck?

CHUCK MCCURDY: Well, they proposed that no corporation be created except by general law. In other words, that rather than chartering corporations one at a time, by a special act of the legislature, that the state government simply enact a general law providing under what circumstances anybody with the capital to invest, to open a bank or create an insurance company– that they could go ahead and proceed. And these general laws would not authorize the state to confer upon these corporators any privileges or immunities that were not available on similar terms, or identical terms, to any other potential corporator or investor.

ED: So it would seem to me, Chuck, that they’re fighting the corporate fire with more fire. That if corporations are dangerous, their idea– “well, what you really need is to make it possible for anybody to create corporations.” So, ironically, the anti-monopoly movement actually encourages even more corporation. Is that right?

CHUCK MCCURDY: Well I don’t know that I would say ironically, because that was the intention. In other words, most of the leaders of the anti-monopoly movement subscribe to something they called the Equal Rights Creed. They had no problem with market operations, and accumulations of capital arising from market operations. What they despised were people using their political clout in order to enhance their power and authority, and ability to benefit from market operations. And those are two very different things.

ED: So, at this juncture then, the creation of corporations seemed a great democratic reform. And the more corporations, the better.

CHUCK MCCURDY: That was one way to look at it. And, in the constitutional conventions in every state in the 1840s and 1850s, Democrats pushed for mandatory general incorporation laws. And in most instances they succeeded.

ED: Chuck McCurdy is a historian at the University of Virginia.