Ruling Passions: Political Economy in Nineteenth-century America (Issues in Policy History)

RULING PASSIONS: POLITICAL ECONOMY IN NINETEENTH-CENTURY AMERICA

Issues in Policy History General Editor: Donald T. Critchlow

RULING PASSIONS: POLITICAL ECONOMY IN NINETEENTHCENTURY AMERICA

Edited by

Richard R. John

The Pennsylvania State University Press University Park, Pennsylvania

This work was originally published as a special issue of Journal of Policy History (vol. 18, no. 1, 2006). This is its first separate paperback publication. Library of Congress Cataloging-in-Publication Data Ruling passions : political economy in nineteenth-century America / edited by Richard R. John. p. cm. – (Issues in policy history ; #13) “This work was originally published as a special issue of Journal of Policy History (vol. 18, no. 1, 2006)”—T.p. verso. Includes bibliographical references. ISBN 0-271-02897-1 (pbk. : alk. paper) 1. United States–Economic conditions–To 1865. 2. United States–Economic conditions–1865-1918. 3. United States–Economic policy–To 1933. 4. United States–Politics and government–19th century. I. John, Richard R., 1959– II. Journal of policy history. III. Series. HC105.R85 2006 330.973’05–dc22 2006003522 Copyright © 2006 The Pennsylvania State University All rights reserved Printed in the United States of America Published by The Pennsylvania State University Press, University Park, PA 16802-1003 The Pennsylvania State University Press is a member of the Association of American University Presses. It is the policy of The Pennsylvania State University Press to use acid-free paper. Publications on uncoated stock satisfy the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48–1992.

Contents RICHARD R. JOHN Ruling Passions: Political Economy in Nineteenth-Century America

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ROBIN L. EINHORN Institutional Reality in the Age of Slavery: Taxation and Democracy in the States

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MARK R. WILSON The Politics of Procurement: Military Origins of Bureaucratic Autonomy

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SEAN PATRICK ADAMS Promotion, Competition, Captivity: The Political Economy of Coal

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STEVEN W. USSELMAN and RICHARD R. JOHN Patent Politics: Intellectual Property, the Railroad Industry, and the Problem of Monopoly

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R. DANIEL WADHWANI Protecting Small Savers: The Political Economy of Economic Security

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NAOMI R. LAMOREAUX Did Insecure Property Rights Slow Economic Development? Some Lessons from Economic History

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Contributors

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RICHARD R. JOHN

Ruling Passions: Political Economy in Nineteenth-Century America In recent years, the Journal of Policy History has emerged as a major venue for scholarship on American policy history in the period after 1900. Indeed, it is for this reason that it is often praised as the leading outlet for scholarship on American political history in the world. Only occasionally, however, has it featured essays on the early republic, the Civil War, or the post–Civil War era. And when it has, the essays have often focused on partisan electioneering rather than on governmental institutions.1 The rationale for this special issue of the Journal of Policy History is to expand the intellectual agenda of policy history backward in time so as to embrace more fully the history of governmental institutions in the period before 1900. The six essays that follow contain much that will be new even for specialists in nineteenth-century American policy history, yet they are written in a style that is intended to be accessible to college undergraduates and historians unfamiliar with the period. The paucity of scholarship on nineteenth-century policy history can be explained in part by the relative novelty of the field. The first meeting of a group of historians to talk self-consciously about policy history did not take place until 1978, when political historians Thomas K. McCraw and Morton Keller convened a conference on this topic at Harvard University.2 A further impediment to the study of nineteenth-century policy history has been the implicit presumption of many twentieth-century policy historians that nineteenth-century policy history is an oxymoron, a contradiction in terms. In the nineteenth century, or so it is often assumed, party leaders driven by a “partisan imperative” dominated the policy process.3 The conflation of nineteenth-century public policy with partisan electioneering would have puzzled nineteenth-century lawmakers—since they devoted enormous energies to the drafting of legislation, the structuring of institutions, and the regulation of markets. Yet it

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follows plausibly from a central tenet of the present-day historiography of the United States: namely, the assumption that governmental institutions are ultimately the product of antecedent social circumstances. Each essay in this special issue challenges this assumption. Although none treat governmental institutions as altogether independent of the wider society, they share the premise that, to a significant degree, governmental institutions were autonomous—and, thus, potential agents of change. A major theme of this special issue is the extent to which public policy in the pre-1900 period was not only a prelude to what came later, or a promise that has been lost, but a project with a more-or-less coherent design that grew out of the institutional arrangements established by the founders of the republic. No one would have envisioned how the project would play out. Yet this was not the point. The key was the presumption that governmental institutions could shape the future of American society. Indeed, perhaps the most basic claim that these essays advance is the idea that there did in fact exist in the nineteenth-century United States a regulatory regime, as opposed to a constellation of discrete and often unrelated public policies. The federal Constitution—and, more broadly, the European Enlightenment out of which the Constitution emerged— cast a long shadow in the subsequent history of public policy in the United States.4 The project was a ruling passion in a dual sense. Nineteenth-century lawmakers were passionate believers in the centrality of political economy to moral philosophy: the idea that political economy and morality might somehow be divorced would have struck them as bizarre.5 In addition, lawmakers were preoccupied with the constructive channeling of the passions of self-interested individuals—such as greed, envy, complacency, and laziness. Toward this end, they designed various regulatory mechanisms to discipline the market and unleash human creativity. These mechanisms were so pervasive that the political economy of nineteenth-century America is best characterized not as a market economy but as a regulatory regime.6 In this dual sense, then, “ruling passions” is an appropriate title for a collection of essays that explores the history of political economy in the nineteenth-century United States. In no sense do we intend this special issue to be comprehensive. Rather, we seek to reorient our understanding of nineteenth-century public policy by highlighting its distinctiveness and, more broadly, its embeddedness in institutional arrangements that antedated the emergence of the mass political parties in the 1830s. Among the most important of these institutional arrangements were federalism—that is, the principles governing the relationship between the federal government and the

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states—law, and public administration.7 In keeping with what we understand to be the central concerns of nineteenth-century lawmakers, these essays focus on a single policy realm—the relationship of the state and the market—or what nineteenth-century contemporaries would have called “political economy.” We look forward to other special issues that might focus on such related, yet distinct, public policy realms as the relationship of the state and the citizenry, the relationship of the state and the international arena, and the relationship of the state and the public sphere. It might seem obvious to contend that the founding of the United States shaped the subsequent history of public policy in the United States. Yet, oddly enough, policy historians have been reluctant to link the founding era with the nineteenth century.8 To explain why, it is useful to discuss two of the foundational works for historians of nineteenthcentury public policy: Richard L. McCormick’s Party Period and Public Policy: American Politics from the Age of Jackson to the Progressive Era (1986) and Stephen Skowronek’s Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (1982). From its publication in 1986 to the present, McCormick’s Party Period and Public Policy has set the agenda for a generation of historians of nineteenth-century public policy. Few generalizations about nineteenthcentury public life have been more compelling for policy historians than the assumption that it was a “party period” dominated by party leaders. The “idea” of a nineteenth-century “party period,” for example—one of McCormick’s major interpretative contributions—has recently been termed the “most noteworthy achievement of modern research into nineteenth-century political history” and the field’s “most powerful concept.”9 Although McCormick included the phrase “public policy” in his title, his characterization of its scope was quite limited. In the nineteenth century, McCormick famously posited, “‘policy’ was little more than the accumulation of isolated, individual choices, usually of a distributive nature.”10 To reach this conclusion, McCormick excluded from public policy many issues of interest to policy historians today. These included slavery, foreign relations, communications, military procurement, intellectual property rights, and the many kinds of economic regulation that fell outside the immediate purview of legislators. His primary focus, instead, was on certain policy issues that provoked legislative debate—for example, the sale of government-owned land and the enactment of favorable tariff rates. Such policies were “highly divisible” in the sense that they could be repeated again and again.11 “Forever giving things away,” McCormick lamented, “governments were laggard in regulating the economic activities they subsidized.”12 In making this claim, he

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conveniently overlooked those other policy arenas in which compromise was more difficult to sustain. McCormick’s characterization of nineteenth-century public policy proved influential not only because of his masterful engagement with the existing historical literature but also because of his willingness to challenge the many historians who continued to regard elections, rather than government, as the “mainsprings” of American politics.13 In McCormick’s view, government—understood to embrace “popular expectations” for governmental action, as well as the rules and opportunities for “getting the using the power of the State”—was at the core of political history: “In every era, the kind of party politics that people practiced depended primarily upon the rules for obtaining office, the accepted functions of government, and the actual State structures. When governance changed, the parties changed, although the reverse was not always the case.”14 The study of “governmental policy,” McCormick declared—in a critique of historical scholarship on electoral politics—should thus become as “systematic” as the study of elections: “There is an urgent need for a satisfactory typology of governmental policies, for new methods of describing and categorizing those policies, and for new ways of identifying the significant governmental transformations in American history.”15 At the time he was writing— during the heyday of the “new” social history, with its insistent focus on rewriting history “from the bottom up”—this insight was relatively novel.16 Having conceded a good deal to governmental institutions at a time when many political historians remained preoccupied with the analysis of electoral outcomes, McCormick seemed to many to have staked out a sensible middle ground. In his view, “distributive policies”—that is, the distribution by legislators to particular claimants of discrete and often highly particularistic economic favors (such as a land sale or a favorable tariff)—had “enormous potential” for stimulating and sustaining party conflict, since they could be contested both ideologically by champions and critics of economic development and practically by rival entrepreneurs. The resulting party-led competitive free-for-all so dominated American politics in the decades between the 1830s and the 1890s—or so McCormick contended—that this era was best characterized as the “party period” in American public life. The party leaders who distributed these favors led the mass political parties that emerged in the 1830s and retained “governmental hegemony” until after 1900, when social and economic changes led to a new pattern of American politics.17 Only after 1900, in McCormick’s view, would regulation and administration come to supplement distribution as a defining feature of public policy. Only after 1900 would the “party period” come to an end.18

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Each of the contributors to this special issue echoes McCormick’s contention that economic policymaking was the “most characteristic” activity of American government at the state, federal, and local levels.19 Yet none adopt the “party period” paradigm as an interpretative frame for understanding the political economy of the United States in the period between the 1830s and the 1890s, or characterize the trajectory of economic policymaking in this period as a shift from distribution to regulation.20 Distributive benefits, such as the granting of a corporate charter, did shape several of the industries that the essayists consider, including banking and coal. Yet they were no means the only, or even the most characteristic, kind of government economic policy. For each, the nineteenth-century political economy was, from the beginning, a regulatory regime. And for each, policymaking was by no means the exclusive prerogative of the partisan officeholders who McCormick assumes to have dominated the policy process. The contributors to this collection found no more helpful the widely accepted characterization of the nineteenth-century American state as a state of “courts and parties.” This characterization was launched by political scientist Stephen Skowronek in his influential Building a New American State, and has become adopted in the past decade or so by many historians—including policy historians—eager to find some pithy way to characterize the nineteenth-century American state.21 Since Skowronek’s book was published before McCormick’s, it might make sense to consider it first. Yet New American State was embraced more slowly than Party Period, at least among historians. For example, though McCormick praised New American State in his notes, he did not explicitly embrace the “courts-and-parties” construct in his text, at least in part because he had originally published most of the essays on which his book had been based prior to 1982, when New American State appeared.22 The “courts-and-parties” construct expanded on the party period paradigm by emphasizing the instrumental role not only of party leaders but also of jurists. For Skowronek, the nineteenth-century American state had two main dimensions: a court system that fostered economic development and a party system that embodied the ideal of popular sovereignty. Courts were the “chief source” of “economic surveillance,” pushing the government into a predictable but flexible pattern of support for capital accumulation; parties, in contrast, “organized governmental institutions internally” through the disbursement of political patronage, or what contemporaries called “spoils.”23 Courts and parties were, in this way, stand-ins for capitalism and democracy—the protean

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social forces lurking in the wings of so much historical writing on nineteenth-century America. Missing from Skowronek’s analysis was an autonomous administrative apparatus—or “bureaucracy”—a circumstance, he speculated, that helped to explain the “sense of statelessness” of nineteenth-century politics.24 While McCormick was plainly troubled by the limitations of the party period, Skowronek found in the state of courts and parties much to admire. Indeed, in his conclusion, he opined that an attack on the present-day administrative state (the “bureaucracy”) might lead to a revitalization of the courts as articulators of “coherent standards of state action” as well as to a “revival” of “party organization”—a “happy if long-delayed redress” of the over-elaboration of the administrative state that had begun in the early twentieth century.25 For McCormick, the party period was a prelude to the rise in the early twentieth-century “progressive” era of the regulatory and administrative state, an innovation of which he basically approved. For Skowronek, in contrast, the state of courts and parties was a valuable counterweight to the “all-consuming bureaucracies” of the twentieth-century—making it less of a prelude to a better future than a promise that might one day be restored.26 The relative slowness with which historians embraced the courtsand-parties construct—in comparison, at least, with the “party period” paradigm—owed something to the implicit presumption of champions of the courts-and-parties construct that the United States in the nineteenth century had in fact had a state that was in some way comparable to the nation-states of Europe. Even a state of courts and parties, after all, was a state. Since many if not most post–World War II historians have regarded U.S. political history as “exceptional” in the sense of being radically different from the political history of the nation-states of Europe, this presumption was only haltingly embraced.27 For historians as well as political scientists, the statelessness of the nineteenth-century United States—not only in perception but also in fact—had by the 1980s become a rigid orthodoxy that senior scholars fiercely defended, largely for ideological reasons stemming from their opposition to fascism and Stalism and their hostility toward the Cold War Soviet Union.28 The eventual embrace by historians of the courts-and-parties construct was symptomatic of a larger sea-change in historical sensibility. Around 1980 it became once again acceptable—as it had been before World War II, but had only rarely been since 1945—for U.S.-based scholars to conceive of the United States as a state from the moment of its founding. Now that historical sociologists such as Theda Skocpol were “bringing the state back in”—as she did, in an influential essay published

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in 1985—it seemed high time that historians fall in line. This embrace was in one sense curious, since Skowronek based his characterization neither on existing historical scholarship nor on a detailed engagement with the primary sources. Rather, he derived it largely from classic texts in political theory, supplemented by the nineteenth-century social theorists Alexis de Tocqueville, Karl Marx, and Georg Friedrich Hegel—only one of whom had ever set foot in the United States. Morton Keller set the tone in a thoughtful review of New American State in Reviews in American History, which appeared in June 1983. Skowronek’s state of courts and parties, Keller noted approvingly, was a “decentralized, bourgeois, liberal system of government in which political parties were the carriers of popular democracy and courts served the needs of private enterprise.”29 Although Keller contested Skowronek’s claim that an altogether “new” American state had emerged in the early twentieth century, he found little to fault in Skowronek’s characterization of the nineteenth-century state it supplanted.30 That Keller endorsed the courts-and-parties construct was in one sense unsurprising: in certain respects, it echoed Keller’s own characterization of the nineteenth-century “polity” (Keller mostly avoided the term “state”) that he himself had set forth in his recently published Affairs of State (1977), a richly detailed history of late nineteenth-century public life. To be sure, Keller characterized this state as more of a “pattern” than a “patchwork,” the term Skowronek preferred. Yet he shared Skowronek’s admiration for the compromises of nineteenth-century jurists and party leaders as well as his conviction that courts and parties were the “dominant” public institutions of the day.31 New American State is justly regarded as a landmark in the emergence of policy history as a distinctive field of inquiry for historians, political scientists, and historical sociologists.32 Following its publication, a generation of scholars turned their attention to the role of governmental institutions in the making of the modern United States. Much of this scholarship, like New American State, is concerned primarily with developments that culminated in the period after 1900.33 Only rarely have policy historians used the courts-and-parties construct to explore in detail policy issues that were more or less confined to the nineteenth century, such as slavery or abolition. None of the contributors to this special issue find the courts-and-parties construct particularly useful, a telling sign of its limitations. After all, the construct had been originally designed to explain developments not in the nineteenth century, but in the twentieth. New American State explored the rise in the early twentieth century of administrative agencies that, in Skowronek’s view, had supplanted older— and in certain respects more praiseworthy—governmental institutions

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that he associated with the nineteenth century. Although hardly nostalgic, it betrayed—especially in its conclusion—a certain yearning for a world we had lost. In this way, its characterization of the early American state was more of an expression of a late twentieth-century political impulse than an empirical investigation of the political project on which nineteenth-century Americans had embarked. The authors of the essays that follow differ in matters of emphasis, but they share the conviction that the “party period” paradigm and the “courts-and-parties” construct are inadequate interpretative frames through which to view the nineteenth-century political economy. Their dissatisfaction stems in large part from the conviction that these frames are unduly restrictive.34 Although they illuminate certain facets of the American political economy, they obscure more. In particular, they exaggerate the influence on policymaking of party leaders, underestimate the integrity of the judiciary, and neglect the often-vital role in the policy process of administrators, lobbyists, and property owners (including slaveholders). Several of the contributors touch on electoral politics, but none make it a central theme or treat it as the benchmark against which present-day public life ought to be judged. No “partisan imperative,” in short, defined the “political nation”—to borrow two phrases from political historian Joel H. Silbey. None proclaim, following Silbey, that the “partisan institutional framework” of nineteenth-century politics was then—and remains now, over a century later—“critically and absolutely necessary for the effective operation and health of the American political world.”35 On the contrary, the contributors emphasize the importance for policy outcomes of structural factors that were only tangentially related to electoral politics—including federalism, law, and public administration. All highlight the preoccupation of lawmakers with restraining the disruptive passions of certain groups, whether southern yeoman, military contractors, corporate promoters, independent inventors, savings bank trustees, or investors. None find it adequate to characterize the resulting policy outcomes as merely distributive, in the sense that every claimant could get a piece of the pie. Some policy outcomes were more or less predictable; others were not. Yet they fell into certain patterns. All challenge the now thoroughly discredited notion that the nineteenth-century was a world of “laissez-faire” in which market forces reigned unchecked; several draw attention to certain features of the nineteenth-century regulatory regime that were decidedly antidemocratic and even antiliberal. Among the distinctive features of these essays is their sensitivity to the language lawmakers deployed to justify their conduct. None regard

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self-interest in a narrow sense as an adequate characterization for the behavior even of party leaders, while several explicate the often-overlooked cultural and institutional context that shaped the policy pronouncement of public figures such as Alexander Hamilton and Roscoe Conkling.36 And, finally, none try to establish a “usable past” for present-day party leaders by purporting to delineate a political tradition that links, say, Andrew Jackson with Al Gore, or Abraham Lincoln with George W. Bush.37 The “party period” paradigm treated as a single unit an epoch in American history—the 1830s to the 1890s—that was marked by extraordinary change. The most fundamental change was the Civil War and the abolition of slavery—events central to essays by Robin L. Einhorn and Mark R. Wilson. The “tax systems” of the early republic, Einhorn demonstrates, were decisively shaped by the political economy of the individual states and, above all, by slavery. In those states in which slavery remained economically vital, tax codes proscribed elected officials from valuing personal property; in those states in which slavery had been abolished, the local assessment of personal property was common. The contrast, Einhorn contends, can be explained by the refusal of slaveholders to subject themselves to the democratic politics of tax collection. A far different situation prevailed in the North, where fiscal conservatives like Alexander Hamilton had good reason to fear the power of democratic politics: “If northern elites complained more vociferously about democracy than southern elites did in the early republic, it was because the political arrangements of the North included more democratic arrangements to complain about.” The refusal of slaveholders to permit a “politics” of taxation went far to resolve the so-called “American paradox” that historian Edmund S. Morgan associated with colonial Virginia: that is, the complementarity of black slavery and white freedom. “There was no ‘American paradox’ locking democracy and slavery in a fatal embrace in American history,” Einhorn concludes: “On the contrary, there was more democracy where there was more liberty: in the places where most people were free.” The persuasiveness of Einhorn’s conclusions rests in large measure on her resolute institutionalism. Unimpressed by the supposedly momentous significance of even “revolutionary” electoral victories (such as Thomas Jefferson’s triumph in the election of 1800) and committed to recovering the social context out of which the public pronouncements of often-disparaged statesmen emerged (such as Alexander Hamilton’s strictures on democracy), she grounds her analysis in the “institutional reality” codified in state-level statutory law. The result is a stunning reinterpretation of American tax policy that underscores the uncompromising refusal

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of slaveholders and eventually, following the abolition of slavery, corporate managers to permit their assets to be subjected to the give-and-take of democratic politics. The limitations of the “party period” paradigm are further elaborated on in Wilson’s revisionist analysis of the origins of bureaucratic autonomy in modern America. Civil War military procurement, Wilson demonstrates, was not only one of the largest single economic projects undertaken in the nineteenth-century United States, but it was also a case-study in the bureaucratic autonomy of the nineteenth-century military. The project was coordinated not by Republican party leaders—as champions of the party period paradigm had assumed—but instead by high-ranking, careerist military procurement officers. The origins of these officers’ bureaucratic autonomy, Wilson posits, antedated the war and dated back to reforms in the War Department instituted by secretary of war John C. Calhoun immediately following the War of 1812. In the United States—no less than in Great Britain, France, or Prussia—big government preceded big business, with the military leading the way. The autonomy of procurement officers owed less to their cultivation of a favorable public reputation, as political scientist Daniel P. Carpenter might contend, than to their formal authority.38 “In the very heyday of what is often called the ‘party period,’” Wilson concludes, “there existed in the Quartermasters’ Department a resilient, and potentially powerful, reservoir of bureaucratic autonomy that was distinct from, though never entirely unrelated to, the partisan imperative long assumed to have been the dominant political force of the age.” The formal authority of Civil War era procurement officers, in turn, furnished a template for the creation in the post–Civil War period of the giant, bureaucratic organizations that would by the mid-twentieth century become a defining feature of American business, government, and the professions.39 The limitations of the courts-and-parties construct are very much in evidence in essays by Sean Patrick Adams and Steven W. Usselman and Richard R. John. The coal industry in nineteenth-century America, Adams demonstrates, was shaped by a constellation of public policies at the state and federal level that culminated in a single, highly significant outcome: an abundance of cheap coal. At all levels of government, the maximization of output was the paramount goal. “Nature made coal abundant,” Adams observes, while “public policy made it cheap.” In this policy mix, state governments were often rivals, while administrative bodies at both the state and the federal level sponsored geological surveys to encourage the rapid extraction of mineral wealth. The resulting competitive free-for-all was less the product of happenstance than of

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deliberate design: a design rooted ultimately in the planned decentralization that was—and is—a hallmark of federalism. Coal policy might seem to be merely distributive, yet even here there were winners and losers, and not even Franklin Gowen, as the owner of a large railroad and coal mine empire in Pennsylvania, could circumvent the logic of federalism and corner the market for coal. Few conclusions have been repeated more often by historians of nineteenth-century economic policy than the irrelevance of the federal government to the regulatory process in the period before the enactment of the Interstate Commerce Act in 1887 and the Sherman Antitrust Act in 1890.40 Yet this characterization of the nineteenth-century political economy is vulnerable on several counts. It ignores, for example, the history of finance, the military, communications, and slavery—realms in which distributive politics rarely, if ever, prevailed.41 In addition, it overlooks the history of patents and copyright—or what we would today call intellectual property. Here was another realm in which, as Usselman and John show, the bureaucratic autonomy of a federal administrative agency—the federal patent office—had far-reaching consequences for the political economy. The patent office, they conclude, was a “bastion of administrative autonomy deep within the federal bureaucracy that exerted a subtle yet pervasive influence on public policy,” and that “anchored the ever-broadening community of experts, including influential figures in Congress and the courts who interacted with it as lawmakers and litigants.” Perhaps the most startling finding of this essay is the rehabilitation of New York Republican party leader Roscoe Conkling. Although Conkling is often characterized as the most rapacious of political spoilsmen, he emerges here as the conscientious champion of an economic order—proprietary capitalism—that was gradually being thrust aside with the emergence of giant corporations. The granting and regulation of patents, they demonstrate, had an intellectual integrity that the courtsand-party construct obscured. To presuppose, for example, that the courts unambiguously sustained economic development is to overlook the extent to which competing economic groups (such as railroad managers and independent inventors) jostled for advantage—as well as the highly credible threat that unfavorable legal action posed for the railroad, one of the largest and most powerful economic institutions of the day.42 The complex role of the courts in economic regulation is the theme of the final two essays, by R. Daniel Wadhwani and Naomi R. Lamoreaux, on the regulation of savings banks and the property rights of investors. Both demonstrate that the nineteenth-century judiciary was less the supine tool of commercial groups than the courts-and-parties construct

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would imply. In the case of savings banks, the courts elaborated on charter restrictions mandated by state legislatures to protect small savers against the potentially risky decisions of bank trustees. “This innovation,” Wadhwani concludes, “was in itself highly significant, and in no sense merely a prelude to the kinds of protection that depositors would come to be afforded in the twentieth century by the administrative state. Long before the Great Depression, lawmakers had recognized the need to protect small savers from the vagaries of the market.” Here was one realm in which the courts protected not ventures but vested rights.43 The legacy of nineteenth-century public policy is also a theme for Lamoreaux. In a series of leading court decisions concerning minority shareholders, Lamoreaux demonstrates, lawmakers systematically discriminated in favor of managers and against investors. This finding, Lamoreaux elaborates, is relevant to twenty-first-century policymakers intent on spurring economic development, since it demonstrates that— contrary to the common view among present-day development experts in the United States—economic development can proceed rapidly even if property rights are not secure. Even more important in spurring development, Lamoreaux concludes, were the protections government has traditionally afforded inventors through the patent system, as well as government-sponsored promotional ventures in transportation, land allocation, the surveying of mineral resources, and education. “Policymakers interested in economic development today,” she contends, in summarizing her argument, “might well conclude from the preceding discussion that they have devoted too much attention in recent years to the issue of property rights and too little to strategies for fostering profitable projects.” Taken together, the essays in this special issue point toward a new way of thinking about the nineteenth-century political economy. They characterize it neither, like Skowronek’s New American State, as a promise that might one day be recovered, nor, like McCormick’s Party Period, as the prelude to things to come. Rather, the nineteenth-century political economy emerges as a distinctive project that is best understood as a legacy of the founding of the United States. The title of this volume, “Ruling Passions,” highlights two eighteenth-century legacies that shaped the nineteenth-century American political economy. The first of these legacies was the often-passionate preoccupation of lawmakers with the art of statecraft.44 To a degree that is often overlooked today, nineteenth-century lawmakers took it for granted that governmental institutions were a major—and often the

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major—catalyst for innovation. The second was what one might call the “moral imperative” of lawmakers to redirect socially destructive passions into constructive channels. Each essay in this special issue highlights themes that may well be unfamiliar even to specialists in the period, and that have yet to be embraced by policy historians who specialize in the more recent past. At least in part, this is because policy historians influenced by McCormick and Skowronek often generalize about the nineteenth-century policy economy without displaying more than a passing familiarity with either the historical scholarship or the primary sources on which such generalizations must ultimately be based. All too often, scholarship is based on findings that are in some instances fifty years old. Few policy historians compare nineteenth-century governmental institutions to their eighteenth-century colonial counterparts—or even, for that matter, with their nineteenth-century counterparts in Great Britain, France, Canada, or Prussia.45 It is high time, we believe, for historians who specialize in the nineteenth century to enter into a dialogue with political scientists and historical sociologists that will highlight some of the ways in which historical inquiry can contribute to the study of governmental institutions.46 That policy historians have devoted so little attention to the nineteenth century is in one sense understandable. There is, after all, good reason to study the more recent past. The day-to-day lives of millions of Americans are shaped by the health-care legislation Congress enacts, while the future of the planet may well depend on the military doctrine the executive follows. Public policy matters: it is, thus, easy to understand why so much attention has been focused on issues that are of present-day concern. Yet this present-mindedness is not without its subtle perils. Policy history is predicated on the assumption that institutions beget institutions. It should, thus, be instructive to have a better understanding of the nineteenth-century governmental institutions that laid the foundations for the political economy of the present. In addition, in an age in which the position of the United States in the international political economy is once again becoming—as it was in the nineteenth century—a matter of intense concern, it is worth recalling the extent to which the emergence of the United States as one of the world’s leading economic powers was a product not merely, or even primarily, of impersonal market forces, but also of deliberate design. Finally, in a post-9/11 world—a world in which the threat of global terrorism has underscored the interrelationship of governmental institutions, political liberty, and economic development— it may well be time to acknowledge the achievements, as well as the

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limitations, of the lawmakers who have devised the governmental institutions upon which the political economy of the present-day United States has come to rest.

Acknowledgments For comments and suggestions, I am grateful to Sean Patrick Adams, Richard Bensel, Colleen A. Dunlavy, Robin L. Einhorn, and Mark R. Wilson. Notes 1. Mark Walgren Summers, “‘To Make the Wheels Revolve We Must Have Grease’: Barrel Politics in the Gilded Age,” Journal of Policy History 14, no. 1 (2002): 49–69; Joel H. Silbey, “The State and Practice of American Political History at the Millennium: The Nineteenth Century as Test Case,” Journal of Policy History 11, no. 1 (1999): 1–30; William E. Gienapp, “The Myth of Class in Jacksonian America,” Journal of Policy History 6, no. 2 (1994): 232–59. For a notable exception, see Charles W. Calhoun, “Political Economy in the Gilded Age: The Republican Party’s Industrial Policy,” Journal of Policy History 8, no. 3 (1996): 291–309. 2. Robert Kelley, “The History of Public Policy: Does It Have a Distinctive Character and Method?” in Federal Social Policy: The Historical Dimension, ed. Donald T. Critchlow and Ellis W. Hawley (University Park, Pa., 1988), 1. Kelley for some reason dated the conference to 1979. For a more detailed history of the emergence of policy history as a distinctive field of inquiry, based in part on the personal papers of one of the participants (Ellis Hawley), as well as the correct date of the first meeting (November 1978), see Julian E. Zelizer, “Clio’s Lost Tribe: Public Policy History Since 1978,” Journal of Policy History 12, no. 3 (2000): 369–94, esp. 373. 3. Although this assumption is shared by many political historians, it has been developed in the greatest detail by Joel H. Silbey. See, for example, Silbey’s Partisan Imperative: The Dynamics of American Politics Before the Civil War (New York, 1985). For the fullest elaboration of Silbey’s position, see Silbey’s American Political Nation, 1838–1893 (Palo Alto, 1991). For a brief synopsis, see Silbey, “Foundation Stones of Present Discontents: The American Political Nation, 1776–1945,” in Present Discontents: American Politics in the Very Late Twentieth Century, ed. Byron E. Shafer (Chatham, N.J., 1997), 1–29. 4. On the political psychology of the founders, as well as the influence of the Enlightenment on the framing of the Constitution, see Daniel Walker Howe, Making the American Self: Jonathan Edwards to Abraham Lincoln (1997), chaps. 2 and 3. 5. Lance Banning, “Political Economy and the Creation of the Federal Republic,” in Devising Liberty: Preserving and Creating Freedom in the New American Republic, ed. David Thomas Konig (Stanford, 1995), 11–49; John R. Nelson Jr., Liberty and Property: Political Economy and Policymaking in the New Nation, 1789–1812 (Baltimore, 1987); Drew R. McCoy, The Elusive Republic: Political Economy in Jeffersonian America (Chapel Hill, 1980). 6. William J. Novak, The People’s Welfare: Law and Regulation in Nineteenth-Century America (Chapel Hill, 1996); Peter Karsten, Head Versus Heart: Judge-Made Law in NineteenthCentury America (Chapel Hill, 1997). 7. Richard R. John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic, 1787–1835,” Studies in American

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Political Development 11 (Fall 1997): 347–80; Ronald P. Formisano, “State Development in the Early Republic: Substance and Structure, 1780–1840,” in Contesting Democracy: Substance and Structure in American Political History, 1775–2000, ed. Byron E. Shafer and Anthony J. Badger (Lawrence, Kan., 2001), 7–35. 8. Among the notable exceptions is John Lauritz Larson’s Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (Chapel Hill, 2001). In a dust-jacket blurb, the distinguished political historian Peter S. Onuf termed Larson’s book the “single most important contribution to our understanding of the antebellum American political economy in the last generation.” 9. Mark Voss-Hubbard, “The ‘Third Party Tradition’ Reconsidered: Third Parties and American Public Life, 1830–1900,” Journal of American History 86 (June 1999): 122. No enthusiast himself for the party period paradigm, Voss-Hubbard praised, as counterweight, an alternative “nonpartisan framework” that would reorganize nineteenth-century political history around “movements of reform and policy innovation” (141, 149). For a book-length elaboration of this theme, see Voss-Hubbard, Beyond Party: Cultures of Antipartisanship in Northern Politics Before the Civil War (Baltimore, 2002). 10. Richard L. McCormick, The Party Period and Public Policy: American Politics from the Age of Jackson to the Progressive Era (New York, 1986), 206. McCormick’s characterization of nineteenth-century policymaking as distributive was indebted, as his footnotes make plain, to the scholarship of James Willard Hurst, the celebrated legal historian who faulted late nineteenth-century policymaking for “drift and default.” Interestingly, both McCormick and Hurst viewed the nineteenth-century political economy through the lens of the early twentieth-century Progressive Era—rather than, say, from the standpoint of the founders of the republic. For a cogent critique of Hurst’s preoccupation with “drift and default,” see Harry N. Scheiber, “At the Borderland of Law and Economic History: The Contributions of Willard Hurst,” American Historical Review 75 (February 1970): 753–55. Drift and default, Scheiber observed, might well characterize resource allocation (Hurst’s specialty), yet did not characterize other policy arenas such as transportation or economic regulation. An analogous critique could be made of McCormick. Hurst’s characterization of the nineteenth-century political economy owed a good deal (as is well known) to his detailed investigation of the Wisconsin lumber industry. One wonders how his characterization of nineteenth-century law might have differed had he studied policy arenas in which economic regulation was more deliberate, elaborate, and sustained—such as communications, banking, or intellectual-property rights. 11. McCormick, Party Period, 208. “Unlike regulatory questions, sectional issues, or cultural matters,” McCormick hypothesized, “distributive decisions seldom threatened consensus or risked unmanageable divisions in the party coalitions” (212). For a case-study that applied McCormick’s idea to the pivotal state of New York, see L. Ray Gunn, The Decline of Authority: Public Economic Policy and Political Development in New York, 1800–1860 (Ithaca, 1988), esp. chap 4 (“The Political Economy of Distribution”). 12. McCormick, Party Period, 205. McCormick credited the insight that distributive policies were “pervasive” to political scientist Theodore J. Lowi, who set forth a “seminal” typology of policy outputs in an essay that he published in 1964 (204). The essay was “American Business, Public Policy, Case-Studies, and Political Theory,” World Politics 16 (July 1964): 677–715. Lowi’s typology distinguished between policy outputs that were distributive, regulatory, and redistributive. “Distribution,” Lowi famously declared, was “almost the exclusive type of national domestic policy from 1789 until virtually 1890” (689). Given the enormous influence of Lowi’s characterization, it is worthwhile to inquire on what empirical evidence it was based. This is by no means easy to determine, since, in an essay that included thirty-two footnotes, Lowi did not cite a single work of historical scholarship on the nineteenth-century United States. It is, thus, perhaps, a bit surprising that a historian as judicious as McCormick would rely on Lowi’s characterization as a master-key to nineteenth-century public policy.

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Among the historians to express misgivings about the relevance of Lowi’s typology to the nineteenth-century United States were Morton Keller, whose Affairs of State: Public Life in Late Nineteenth-Century America (1977) remains a landmark in the field. “American law and public policy”—Keller wrote in 1979, in an explicit critique of Lowi’s typology—“always have been committed to the dual (and often contradictory) goals of economic growth and social order. . . . What is needed is an overview—a style of scholarship— that accepts this inherent ambiguity of social ends and proceeds to explore its manifestation in law and public policy.” Morton Keller, “Business History and Legal History,” Business History Review 53 (Autumn 1979): 298. Yet even Keller regarded Lowi’s notion of “distributive” policy as of enduring value. Keller, “Social Policy in NineteenthCentury America,” in Critchlow and Hawley, Federal Social Policy, 104. For a similarly mixed assessment of the utility of Lowi’s typology as a characterization of nineteenth-century public policy, see Scheiber, “Borderland,” 753. 13. McCormick, Party Period, 18. By politics, McCormick meant primarily the history of political party competition. “Collectively,” McCormick wrote, at another point, “these governmental matters—beliefs, policies, and rules—have been the mainsprings of American party history” (144). 14. Ibid. 15. Ibid., 87. 16. “Fundamentally,” McCormick added, both politics and policymaking derived “not from one another” but instead from “social conditions and economic opportunities” that were part of the “larger environment”—and, thus, largely independent of and unrelated to governmental institutions. Ibid., 18–19, 16. Political scientists interested in American political development might find McCormick’s claim surprising, since they have long regarded the state as a potentially autonomous agent of change; yet it was entirely in keeping with the society-centered worldview in which most historical inquiry in the 1980s was framed. Nowhere was the society-centered functionalism of McCormick’s analysis more manifest than in his treatment of the Progressive Era. In this age, McCormick wrote, changes in politics and government were “products” of those “all-powerful, ubiquitous forces in modern American history: industrialization, urbanization, and immigration” (275). The limitations of such a society-centered analytical framework—which reified “social change” as a kind of unmoved first mover—have been detailed by historically oriented social scientists. For an influential critique, see Theda Skocpol, “Bringing the State Back In: Strategies of Analysis in Current Research,” in Bringing the State Back In, ed. Peter Evans, Dietrich Rueschemeyer, and Theda Skocpol (Cambridge, 1985), 3–37, and Charles Tilly, Big Structures, Large Processes, Huge Comparisons (New York, 1985). 17. McCormick, Party Period, 19. 18. Ibid. “The decades from the 1830s to the early 1900s,” McCormick wrote, “form a distinctive era in American political history, with patterns of party politics, electoral behavior, and economic policy that set it apart from the eras that came before and after. . . . [T]his was the period when parties dominated political participation and channeled the flow of government policies. Even as the nation grew in size and numbers, fought the Civil War, and industrialized, parties continued to perform these functions and retained their dominance” (200–201). 19. Ibid., vii. 20. For a similar caveat, see Donald J. Pisani, “Promotion and Regulation: Constitutionalism and the American Economy,” Journal of American History 74 (December 1987): 768. In this essay, Pisani surveyed the secondary literature on economic policymaking and observed—correctly—that many historians associated distribution (or promotion) with the nineteenth century and regulation with the twentieth. “The paramount question raised here,” Pisani observed in his conclusion, is “whether such sweeping categories as promotion and regulation—as well as the identification of one as an essentially nineteenth-

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century phenomenon and the other as a creature more of this century—do not obscure more than they illuminate.” Pisani’s misgivings find many echoes in the essays that follow. 21. Stephen Skowronek, Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (Cambridge, 1982). 22. McCormick cited Skowronek’s book, along with William E. Nelson’s Roots of American Bureaucracy (1982), as one of the most interesting recent works on nineteenth-century American governance. McCormick, Party Period, 13. 23. Skowronek, Building a New American State, 27, 25. 24. Ibid., 5. The “exceptional character” of the early American state, Skowronek declared, is “neatly summarized in the paradox that it failed to evoke any sense of a state.” For a critique of this characterization of nineteenth-century public life, see John, “Governmental Institutions,” 347–80. See also John, “Affairs of Office: The Executive Departments, the Election of 1828, and the Making of the Democratic Party,” in The Democratic Experiment: New Directions in American Political History, ed. Meg Jacobs, William J. Novak, and Julian E. Zelizer (Princeton, 2003), 50–84. 25. Skowronek, Building a New American State, 292. “This new cycle of reconstruction politics,” Skowronek speculated, “might end with reenergized parties, a vigilant judiciary, and disciplined bureaucracies all working in harmony under the Constitution.” 26. Ibid., 291. The erroneous characterization of the United States in the period before 1880 as pre-bureaucratic has long been a favorite conceit of institutional historians such as Louis Galambos who specialize in the post-1880 period. Although the origins of this conceit are complex, it owed something to the distinction that social historian Samuel P. Hays drew between bureaucracies and “technical systems.” The “technical system of the modern world,” Hays declared, was “vastly different from the bureaucracies and organizations or earlier times.” Significantly, Hays did not contend that the United States lacked bureaucracies in the pre-1880 period; indeed, he more or less took their existence for granted. Samuel P. Hays, “The New Organizational Society,” in Building the Organizational Society: Essays on Associational Activities in Modern America, ed. Jerry Israel (New York, 1972), 3. For Galambos’s characterization of the pre-1880 period as “non-bureaucratic,” see Galambos, “The Emerging Organizational Synthesis in American History,” Business History Review 44 (Autumn 1970): 288. Before 1880, Galambos observed, there was “virtually” no bureaucracy for government officials to direct, making the nineteenth-century state—just as Skowronek has contended—“essentially a government of courts and parties.” Galambos, “By Way of Introduction,” in The New American State: Bureaucracies and Policies since World War II, ed. Galambos (Baltimore, 1987), 7. For a book-length critique of the idea that bureaucratic institutions did not exist in the nineteenth-century United States, see Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, 1995). See also John, “Leonard D. White and the Invention of American Administrative History,” Reviews in American History 24 (June 1996): 344–60. 27. “Of all the aspects of American history,” wrote Daniel T. Rodgers in a perceptive review essay, “political history clings most strongly to the old exceptionalist story line.” Daniel T. Rodgers, “Exceptionalism,” in Imagined Histories: American Historians Interpret Their Past, ed. Anthony Molho and Gordon S. Wood (Princeton, 1998), 34. 28. For a cogent analysis of the rejection of the state as an interpretative frame in the post–World War II period by American scholars, led by political scientists, see David Ciepley, “Why the State Was Dropped in the First Place: A Prequel to Skocpol’s ‘Bringing the State Back In,’” Critical Review 14, nos. 2–3 (2000): 157–213. 29. Keller, “New American State,” 248. 30. Morton Keller, “(Jerry-) Building a New American State,” Reviews in American History 11 (June 1983): 248. Keller faulted Skowronek for neglecting the “really important business of government” in the late nineteenth century—which he took to be opening the western lands, tariff and currency policy, and social policymaking on the state and local level (249). In addition, he questioned the magnitude of the transformation that

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Skowronek described. In Keller’s reading, the “springs” of government were hardly less “weak” in 1920 than they had been in 1877 (252). 31. Keller, “New American State,” 250, 249. Interestingly, Keller remained reluctant to characterize as a “state” a structure of politics and government that was “so varied, decentralized, and responsive,” as opposed to being “initiatory.” Keller, “Social Policy in Nineteenth-Century America,” 109. 32. The importance of the book for policy history, as well as for the related field of American political development, was recently highlighted by a special issue of Social Science History. See, in particular, Julian E. Zelizer, “Stephen Skowronek’s Building a New American State and the Origins of American Political Development,” Social Science History 27 (Fall 2003): 425–41. 33. This is particularly true of historically oriented social scientists—for example, Gerald Berk, Alternative Tracks: The Constitution of American Industrial Order, 1865–1917 (Baltimore, 1994), and Theda Skocpol, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States (Cambridge, Mass., 1992). 34. For a related discussion that focused on state and local government, see Terrence J. McDonald, “The Burdens of Urban History: The Theory of the State in Recent American Social History,” Studies in American Political Development 3 (1989): 29. “When one considers,” McDonald wrote, the “various ways that the subnational state helped to constitute society by acting or refusing to act, the various issues around which political mobilization occurred or failed to occur, and the various ideologies that these actions generated, the most damning thing that can be said about viewing politics from the perspective of ethnicity, patronage, and machines is simply that it is an extraordinarily narrow way of viewing the relationship between state and society in America” (29). 35. Silbey, “Foundation Stones of Present Discontents,” 8. Only in the twentieth century, Silbey observed, did policymaking shift from “smoke-filled rooms and the hustings” to boardrooms, administrative agencies staffed by civil servants, and the courts (21). The essays in this special issue call into question Silbey’s characterization of nineteenthcentury policymaking. None, for example, devotes much attention to backstage political maneuvering or partisan electioneering. For a more general critique of the idealization of nineteenth-century popular politics that Silbeyeque political historians have done so much to foster, see Richard Franklin Bensel, The American Ballot Box in the Mid-Nineteenth Century (Cambridge, 2004); Glenn C. Altschuler and Stuart M. Blumin, Rude Republic: Americans and Their Politics in the Nineteenth Century (Princeton, 2000); and Michael Schudson, The Good Citizen: A History of American Civic Life (Cambridge, Mass., 1998). 36. The propensity of historians to disparage as narrowly self-serving the pronouncements of nineteenth-century legislators, administrators, and jurists helps explain why so many dimensions of nineteenth-century policy history remain obscure. Relatively few historians today are conversant with the details of nineteenth-century policy debates, much less the specific cultural and institutional context out of which they emerged. It is thus easy to misinterpret the import of a particular sentence or phrase. Compounding the problem has been the often-uncritical adoption by historians of the interpretative conventions of certain contemporaries—such as, for example, labor leaders. It is “absolutely wrongheaded” and an “act of intellectual bad faith”—as the urban historian Philip J. Ethington has astutely observed, in a critique of labor historian Sean Wilentz—to “consider genuine only the words of labor leaders, while writing off as disingenuous those of the mainstream party leaders. It is also poor critical theory.” H-SHGAPE electronic list, posted 28 November 1995. Among the interpretative conventions that historians would do well to reconsider is the characterization of the post–Civil War decades as a “Gilded Age.” Although the phrase was coined in 1873 by Mark Twain and Charles Dudley Warner, it was never embraced by contemporaries, and it has recently been challenged by political historians Rebecca Edwards and Alan Lessoff. On this point, I have found useful Lessoff’s “Van Wyck Brooks, Lewis Mumford, and the Gilded Age: Provenance of a Usable Past,”

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unpublished essay in the author’s possession, and Rebecca Edwards’s New Spirits: Americans in the Gilded Age, 1865–1905 (Oxford, forthcoming). Lessoff’s essay demonstrated that late-nineteenth-century social commentators almost never used the phrase “Gilded Age” to describe the period in which they were living—unlike, for example, the “Progressive Era,” which was embraced by contemporaries. As it happens, the phrase “Gilded Age” would not be popularized until the 1920s, when social critics Van Wyck Brooks and Lewis Mumford adopted it as part of a broader critique of American industrialism. Edwards rejects the “Gilded Age”/”Progressive Era” duality—she contends, on the contrary, that a great deal of continuity marked the period between 1865 and 1905— yet she found it impossible to avoid the phrase “Gilded Age” in her title, in large part because her editors presumed that this was how the period is commonly identified by the general readers for whom her book is intended. Rebecca Edwards to Richard R. John, email communication, 18 May 2005. 37. The propensity of political historians to connect-the-dots between nineteenthcentury party leaders and their twentieth—and now, twentieth-first—century successors is one of the oldest genres of American political writing. Although hard to justify intellectually, such an exercise has a peculiar fascination for political historians, most of whom incline toward the Democratic side of the political spectrum—and, thus, find it congenial to link nineteenth-century Democrats with policy positions of which they approve. For a recent example, see Peter B. Kovler, ed., Democrats and the American Idea: A Bicentennial Appraisal (Washington, D.C., 1992). 38. Daniel P. Carpenter, The Forging of Bureaucratic Autonomy: Reputations, Networks, and Policy Innovation in Executive Agencies, 1862–1928 (Princeton, 2001). 39. The centrality of the military to the making of the United States is a much-neglected topic. For some suggestive leads, see Charles Royster, A Revolutionary People at War: The Continental Army and American Character (Chapel Hill, 1979), 38, 147, 319–20, 360, and Joseph J. Ellis, Founding Brothers: The Revolutionary Generation (New York, 2001), 154–55. 40. “Significant government intervention” in regulatory policy, “especially at the federal level,” declared the respected economic historians Claudia Goldin and Gary D. Libecap in 1994, in summarizing what has long been a scholarly consensus among economic historians, “took place only after 1880.” Claudia Goldin and Gary D. Libecap, “Introduction,” to The Regulated Economy: A Historical Approach to Political Economy, ed. Goldin and Libecap (Chicago, 1994), 10. The persistence of such a claim in the face of the large body of evidence to the contrary raises the suspicion that the denigration of the role of the federal government in nineteenth-century economic development is, at its core, less of an empirical observation than an ideological cri de coeur. That this claim is, for example, often voiced by economists who are professionally predisposed to favor market incentives over regulatory mechanisms may not be altogether coincidental. To be sure, not all economic historians share this consensus. For one dissent, see Richard Sylla, “Experimental Federalism: The Economics of American Government, 1789–1914,” in The Cambridge Economic History of the United States, vol. 2, The Long Nineteenth Century, ed. Stanley L. Engerman and Robert E. Gallman (Cambridge, 2000), 483–541. For another, see Richard R. John, “Private Enterprise, Public Good? Communications Deregulation as a National Political Issue, 1839–1851,” in Beyond the Founders: New Approaches to the Political History of the Early American Republic, ed. Jeffrey L. Pasley, Andrew W. Robertson, and David Waldstreicher (Chapel Hill, 2004), 328–54. 41. For a sampling of historical scholarship on these topics, see Max M. Edling, A Revolution in Favor of Government: Origins of the U.S. Constitution and the Making of the American State (New York, 2003); Richard Frankin Bensel, The Political Economy of American Industrialization, 1877–1900 (Cambridge, 2000); Sylla, “Experimental Federalism”; Bensel, Yankee Leviathan: The Origins of Central State Authority in America, 1859–1877 (Cambridge, 1990); Fred Anderson and Andrew Cayton, Dominion of War: Empire and Liberty in North America, 1500–2000 (New York, 2005); Ira Katznelson, “Flexible Capacity: The Military

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and Early American Statebuilding,” in Shaped by War and Trade: International Influences on American Political Development, ed. Katznelson and Martin Shefter (Princeton, 2002), 82–110; Merritt Roe Smith, ed., Military Enterprise and Technological Change: Perspectives on the American Experience (Cambridge, Mass., 1985); Paul Starr, The Creation of the Media: Political Origins of American Communications (New York, 2004); Richard R. John, “Recasting the Information Infrastructure for the Industrial Age,” in A Nation Transformed by Information: How Information Has Shaped the United States from Colonial Times to the Present, ed. Alfred D. Chandler Jr. and James W. Cortada (New York, 2000), 55–105; Robin L. Einhorn, American Taxation, American Slavery (Chicago, forthcoming, 2006); Don E. Fehrenbacher, edited and completed by Ward M. McAfee, The Slaveholding Republic: An Account of the United States Government’s Relations to Slavery (New York, 2001); Leonard L. Richards, The Slave Power: The Free North and Southern Domination, 1780–1860 (Baton Rouge, 2000); William W. Freehling, The Reintegration of American History: Slavery and the Civil War (New York, 1994). For additional citations, see Richard R. John, “Farewell to the ‘Party Period’: Political Economy in Nineteenth-Century America,” Journal of Policy History 16, no. 2 (2004): 117–25; John, “Governmental Institutions,” 347–80; and Michael J. Lacey, “Federalism and National Planning: The Nineteenth-Century Legacy,” in The American Planning Tradition: Culture and Policy, ed. Robert Fishman (Washington, D.C., 2000), 89–145. 42. This characterization of Conkling provides a fresh perspective on his notorious contention as a litigant in the Supreme Court case of San Mateo County v. Southern Pacific (1882) that Congress intended the Fourteenth Amendment to protect the rights not only of ex-slaves but also of corporations. In articulating what was regarded at the time as a quite-novel view, Conkling may well have been intended less to invest corporations with a new kind of right than to extend to them a right long associated with proprietary firms. For a related discussion, see Naomi R. Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom in U.S. History: An Essay in Economics, Law, and Culture,” in Constructing Corporate America: History, Politics, Culture, ed. Kenneth Lipartito and David B. Sicilia (New York, 2004), 29–65. 43. For a classic statement of the preference of nineteenth-century courts for ventures and their relative neglect of vested rights, see James Willard Hurst’s Law and the Conditions of Freedom in Nineteenth-Century America (Evanston, Ill., 1956). 44. The notion that mid-nineteenth-century Americans had a political conception of society is a major theme of Philip J. Ethington’s The Public City: The Political Construction of Urban Life in San Francisco, 1850–1900 (Cambridge, 1994). The emphatically political cast of nineteenth-century social thought about wealth distribution—a topic often studied today as a purely economic phenomenon—is explored with discernment in James L. Huston, Securing the Fruits of Labor: The American Concept of Wealth Distribution, 1765–1900 (Baton Rouge, 1998). 45. Notable exceptions include Colleen A. Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (Princeton, 1994), and Hendrik Hartog, Public Property and Private Power: The Corporation of the City of New York in American Law, 1730–1870 (Ithaca, 1983). 46. Among the leading scholars to foster just such a dialogue have been political historian Julian E. Zelizer and political scientist Ira Katznelson. See, for example, Zelizer, “History and Political Science: Together Again?” Journal of Policy History 16, no. 2 (2004): 126–36; and Katznelson, “Rewriting the Epic of America,” in Katznelson and Shefter, Shaped by War and Trade, 3–23.

ROBIN L. EINHORN

Institutional Reality in the Age of Slavery: Taxation and Democracy in the States On August 13, 1782, Alexander Hamilton complained to Robert Morris about the deplorable condition of politics in the state of New York, and especially the condition of taxation. Morris had appointed Hamilton as receiver of continental taxes for New York, meaning that Hamilton was in charge of collecting New York’s share of the “requisitions” of Congress. Under Article 8 of the Articles of Confederation, Congress could raise the tax revenue it needed for the ongoing Revolutionary War only by making “requisitions” on the states—that is, by asking each state to raise a specified sum. Like other states, New York was falling short; four years later, an aggressive tax levy in Massachusetts (to pay requisitions and fund the state debt) would provoke the armed insurrection known as Shays’s Rebellion.1 The decentralized regime that Congress had established under the Articles of Confederation made the national treasury depend on the productivity of the state tax systems. Ironically, this very decentralization invited national officials like Hamilton to tackle the problem of tax reform within the states. Hamilton’s August 13 letter to Morris is most famous for its jaundiced portraits of New York politicians. The popular governor George Clinton—later Hamilton’s nemesis in the struggle over the ratification of the U.S. Constitution—was “a man of integrity and passes with his particular friends for a statesman,” though “his passions are much warmer, than his judgment is enlightened.” Hamilton was more critical of John Lansing and Abraham Yates Jr., who later would join him as delegates to the Philadelphia convention in 1787 and then join Clinton as leading Antifederalists. Hamilton’s main grievance against Lansing and Yates was that they had exacerbated the tax problem. Lansing was a “good young fellow and a good practitioner of the law; but his friends mistook his talents when they made him a statesman”: “He thinks two pence an ounce upon plate a monstrous tax.” Yates, meanwhile, was a man whose

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“ignorance and perverseness are only surpassed by his pertinacity and conceit.” With a demagoguery so damaging to the revolutionary cause that he “deserves to be pensioned by the British Ministry,” Yates “assures [the people] they are too poor to pay taxes.” Hamilton’s letter also contained a famously elitist analysis of the problem of government in New York. “Here we find the general disease which infects all our constitutions, an excess of popularity,” he complained. “The inquiry constantly is what will please not what will benefit the people. In such a government there can be nothing but temporary expedient, fickleness and folly.”2 Hamilton applied the same critique of excessive democracy to the New York tax system. This system, Hamilton thought, was constantly undermined by its inappropriate reliance on democratic politics. The problem began with the fixing of county tax quotas by the elected state legislature: “The members cabal and intrigue to throw the burthen off their respective constituents.” It continued with the fixing of local tax quotas by the elected county supervisors, who “play over the same game, which was played in the Legislature.” Matters deteriorated further at the local level. Elected local assessors allowed their “personal friendships, or dislikes” to determine the burdens they imposed on individual taxpayers and also granted “some popular characters [the opportunity] of skreening themselves by intriguing with the assessors.” Then, there was the collection process, managed lackadaisically by county supervisors who had “little disposition to risk the displeasure of those who elect” by demanding payment. Hamilton deplored this endless political jockeying as an invitation to favoritism, incompetence, and corruption. A month earlier, he had gone even further, arguing in a newspaper essay that New York could levy equitable taxes only by abolishing local assessments altogether: Wherever a discretionary power is lodged in any set of men over the property of their neighbours, they will abuse it. Their passions, prejudices, partialities, dislikes, will have the principal lead in measuring the abilities of those over whom their power extends; and assessors will ever be a set of petty tyrants, too unskillful, if honest, to be possessed of so delicate a trust, and too seldom honest to give them the excuse of want of skill. The genius of liberty reprobates everything arbitrary or discretionary in taxation. It exacts that every man by a definite and general rule should know what proportion of his property the state demands. Whatever liberty we may boast in theory, it cannot exist in fact, while assessments continue.

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The only way to make taxation less “iniquitous and ineffectual” in New York, in short, was to take the politics—and particularly the democratic politics—out of the process.3 These comments would appear to be vintage Hamiltonian elitism. Indeed, careful historians such as Edward Countryman and Roger H. Brown have read them in exactly this way.4 Like many of Hamilton’s statements, moreover, they anticipate with precision the elitist arguments that late nineteenth-century conservatives would deploy to block democratic challenges to property rights. For example, almost a century after Hamilton condemned the tax regime of revolutionary New York, Michigan jurist Thomas M. Cooley used almost exactly the same language to justify an aggressive judicial supervision over the taxing power of state legislatures and local governments. Elected officials, Cooley warned in the impassioned introduction to his Treatise on the Law of Taxation (1876)—a handbook for lawyers and judges intent on minimizing the tax bills of corporations and rich individuals—were highly likely to use taxation as an instrument of “confiscation.” In Cooley’s view, judges had an obligation to police the activities of these officials, since they not only were likely to be dishonest and incompetent, but were predisposed to impose the “whole burden of government” on the “few who exhibit the most energy, enterprise, and thrift.” Cooley’s solution was to subject every aspect of the tax process to judicial oversight, from the initial drafting of legislation to its eventual implementation by local officials. “[W]hen one considers how vast is this power, how readily it yields to passion, excitement, prejudice or private schemes, and into what incompetent hands its execution is usually committed,” Cooley argued, “it seems unreasonable [for the courts] to treat as unimportant, any stretch of power—even the slightest—whether it be on the part of the legislature which orders the tax, or of any of the officers who [administer it].”5 It is tempting to conclude that Hamilton’s critique of the New York tax system in 1782 was a precursor to Cooley’s in 1876. Indeed, in the hoary Jeffersonian tradition of American political history, it is customary to draw just such a line. In this interpretation, the most obstinate opponents of democracy in the early United States were northern merchants and lawyers, while its most determined champions were the slaveholders enrolled in the North-South populist coalition that Martin Van Buren would famously describe as the “planters of the South and the plain Republicans of the north.”6 It may well be true, as historian Ron Chernow recently has suggested, that Hamilton’s most notoriously elitist statements reflected his talent for impetuous and often self-defeating exaggeration. Yet the crucial issue is the context in which we read them.

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Although the Jeffersonian tradition has many defenders—it has been championed by generations of historians, from Charles Beard to the recent explicators of “republican ideology”—it has fostered a radical misreading of American political history.7 The core of this misreading is the mistaken presumption that antidemocratic elitism was a fundamentally northern phenomenon that was associated more with freedom than with slavery. In reality, the problem that Edmund S. Morgan famously identified as the “American paradox”—the idea that the slaveholding elites of the revolutionary era and early republic (particularly the Virginians) could “afford” to champion democracy because they were not, like their northern counterparts, “threatened by a dangerous free laboring class”— is a paradox only if we accept its Jeffersonian premise: that the elites who refused to tolerate democratic decision-making in this period actually were the northern elites, with Hamilton as Exhibit A.8 It might seem to be obvious that we could test this thesis by asking where and when democratic decision-making happened in the early United States. Until recently, however, historians have avoided asking anything of the kind.9 Many have pinpointed the antidemocratic lapses of the fabled town meetings of colonial New England, but these lapses look rather less damning once we recognize that southern local officials often were not elected at all until the mid-nineteenth century. In Virginia, for example, open positions in the county courts—the central institutions of local government—were filled by men appointed for life on the recommendation of the incumbents. This practice persisted not only through the colonial period and revolutionary era, but even through the first half of the nineteenth century. Historians have long idealized the herrenvolk democracy that supposedly bridged the social divide in the South between slaveholding planters and yeoman farmers. The fact, however, is that white men in Virginia did not elect their own local officials until 1851. Throughout the South, a similar pattern prevailed. North Carolina introduced elections for local constables in 1838 and sheriffs in 1848, but the decision-making officials continued to be appointed until 1868. In Maryland, elections for sheriff dated from 1776, but the county boards were appointed until 1851. Louisiana democratized its local governments in 1845, Kentucky in 1850, and South Carolina in 1868.10 Although there was good deal of variation—some southern states introduced local-office elections earlier and some northern cities had appointed officials—the critical point is that, in the North, most local officials had been elected rather than appointed since the seventeenth century. To demonstrate, as generations of historians have, that few southern elites of the early republic sounded like Hamilton, therefore, hardly counts as evidence that they had

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a greater tolerance for democratic decision-making. In the South, there was much less democratic decision-making to tolerate. The absence of democratic decision-making in the South had a major influence on the attitudes of southern elites toward their tax systems. The southern tax systems were simply less threatening to southern elites than the northern tax systems were to northern elites. It was not just that local governments in the South were administered by officials who had been appointed by elites—rather than, as in the North, by officials who had been elected by a broad suffrage. It was that the southern tax systems did not even include the assessments that Hamilton found so troubling. Beginning in the seventeenth century and continuing through the nineteenth, the northern tax systems usually were organized around the regular assessment of various kinds of property by elected local officials. Several southern states, in contrast, did not assess any property until the late-1840s and, even then, southern legislators imposed flat-rate tax schedules to minimize the discretion of local officials (particularly over the taxation of slaves and commercial wealth).11 Flat-rate schedules limited the relationship between a taxpayer’s burden and his “ability to pay” (the standard index of tax justice) because flat rates were not directly related to the value of the property being taxed.12 But, on the other hand, flat rates did provide the “definite and general rule[s]” that Hamilton demanded in New York. A southern taxpayer knew, in Hamilton’s words, “what proportion of his property the state demands,” since southern tax laws specified the sums to be collected on each form of property. The contrasting tax systems of northern and southern states offer a benchmark for evaluating the character of democracy in early America. When we step behind the rhetorical professions of Jeffersonian democracy and examine the institutional reality of everyday politics, it becomes clear that, in the critical realm of taxation, democratic decision-making was an everyday practice in the North—and only in the North. It would be too much to say that Cooley’s mistrust of democratic decision-making had southern roots (Cooley certainly would not have said that), but it is clear that the tax policy that Hamilton urged the New York legislature to adopt— a flat-rate policy that would eliminate democratic decision-making at the local level—had long been and would long remain the norm in the South.13 In Hamilton’s defense, the tax system he was criticizing in 1782 was peculiar. It was not only political, but purely political. Most northern tax systems instructed local assessors to value individual holdings of various forms of property. This New York system, however, vested them with much more discretion. They were to determine “the estate and other circumstances, and ability to pay taxes, of each respective person

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collectively considered.” Incredibly, they were to come up with this total figure for each taxpayer without enumerating any of the taxpayer’s actual assets. Hamilton was right to criticize such a system. “The ostensible reason for adopting this vague basis,” he told Morris, “was a desire of equality: It was pretended, that this could not be obtained so well by any fixed tariff of taxable property [that is, by a flat-rate schedule], as by leaving it to the discretion of persons chosen by the people themselves, to determine the ability of each citizen.” In reality, however, the legislature had adopted this tax system for the political purpose of encouraging the local assessors to discriminate “between the whigs and tories.” In order to reward patriots and punish loyalists, New York had decoupled the assessment of individual tax liabilities from the actual value of property, vesting the elected local assessors with tremendous power.14 Hamilton did not object to the patriotic goal of this tax regime (heavy taxes on loyalists). There was a war going on after all. Rather, Hamilton objected to its absurdity as a strategy in a state rent by deep political divisions. Other states simply doubled the taxes of loyalists. In New York, however, while elected assessors in patriot strongholds were indeed punishing loyalists, elected assessors in loyalist strongholds were also punishing patriots. “[T]his narrow disposition to overburthen a particular class of citizens,” according to Hamilton, “has been retorted upon the contrivers or their friends, wherever that class [loyalists] has been numerous enough to preponderate in the election of the officers who were to execute the law.” Even when the assessors did not use overtly political criteria, assessments based on the “circumstances and ability” of each taxpayer “collectively considered”—rather than on actual valuations of property—forced the assessors to rely on each taxpayer’s reputation and “exterior” appearance (“decency or meaness of his manner of living”) instead of “the proportion of property” that he owned. This mode of assessment also meant that the quotas fixed by the legislature and county supervisors were inherently arbitrary. Politicians could be expected to “cabal and intrigue to throw the burthen off their respective constituents” even when they were working from actual valuation data that measured the relative wealth of various districts. The apportionment of tax quotas to local communities was inevitably political. In the system Hamilton was criticizing, however, the politicians were fixing quotas without any data to restrain them—since local assessors were not valuing holdings of property. The crux of the tax problem in revolutionary New York was not corruption, incompetence, or even democracy. Rather, it was legislation that required the distribution of tax burdens to be arbitrary. Hamilton wanted to replace this system with a flat-rate

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schedule of tax rates because he thought New York could raise more money if a less capricious set of arbitrary rules “put the people in better humour.”15 The New York legislature rejected Hamilton’s flat-rate tax proposal in favor of a system based on the actual valuation of property. Yet the crucial point is that the flat-rate policy Hamilton proposed for New York actually was a southern policy. This fact seems surprising only because historians know so little about the history of American taxation. We are all familiar with the tax revolts of the early republic: Shays’s Rebellion (1786), the Whiskey Rebellion (1794), and now even the more obscure Fries Rebellion (1799), which broke out in response to the equally obscure federal direct tax of 1798.16 We are similarly (if not excessively) familiar with the anti-tax rhetoric that pervaded the “republican ideology” of the period. Yet despite the persistence of a Beardian tradition of interpretation that invested the politics of taxation with great significance—implying, for example, that the tariff was somehow a cause of the Civil War—most historians know remarkably little about the basic structure of American taxation before the twentieth century. Part of the problem is the absence of data. We do not have reasonable estimates even of the size of the tax burden before the 1880s at any level of government, much less the data we would need to describe the economic incidence of that burden—that is, the progressivity or regressivity of its distribution among the taxpayers.17 We have the tariff receipts, but these figures include only the revenue raised from the taxes on imported goods, omitting the notoriously controversial burdens the tariff imposed in the form of subsidies for domestic producers. Economic historians have compiled reasonably complete revenue data for the states and big cities. Yet, in an era when the United States was overwhelmingly rural (as late as 1860, 80 percent of Americans lived in places with populations under 2,500), a high percentage of the total tax burden plainly came from the levies of rural counties, towns, townships, school districts, and road districts. Any effort to assemble this data would require a massive national research program that would send trained investigators into the basements of county courthouses and town halls throughout the country.18 The core of the problem, however, is methodological rather than evidentiary. For decades, American political history has been dominated by behavioral and ideological approaches with an anti-institutional bias. The critical recent development—the “new institutionalist” or “policy history” approach—is finally making it possible to produce a political history that steps behind the strategic rhetoric of politicians and the constrained decisions that the electorate registered in voting returns to recover the

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institutional contexts within which the politicians spoke and the electorate voted.19 For the era before the Civil War, this approach is producing a broad reinterpretation even of familiar topics. In particular, it is moving slavery from the margin to the center of U.S. political history. At the national level, Don E. Fehrenbacher’s exploration of foreign policy, Leonard L. Richards’s analysis of the mechanics of party governance, and Richard R. John’s study of public administration all emphasize the antidemocratic effects of the institution of slavery. At the state and local levels, Sally E. Hadden’s investigation of slave patrols suggests a compelling new narrative about the origin of American police forces, challenging an earlier tradition that traced it to northern cities, while John Majewski’s micro-level study of transportation investment in Virginia and Pennsylvania explains the less ambitious internal improvement programs of the slave states as a function, at least in part, of the unequal distribution of wealth in a slave society—which reduced the potential number of small-time investors.20 The key issue in this scholarship is not the immorality of slavery. Nor is it either the complicity or the direct participation of Northerners as slaveholders, slave traders, economic beneficiaries, or ideologists of white supremacy in everything from law to popular culture. It certainly is not the discursive hoops through which guilt-ridden slaveholders famously jumped in the early republic, and it is not even the constant resistance of slaves and free people of color: sometimes dramatic, often quotidian, always significant. Rather, the key issue in this scholarship is that slavery, because it was a foundational institution in the American political economy, conditioned every aspect of public policy and political debate, even when it was not overtly the problem at hand. Slavery made the political institutions of the South less democratic than the political institutions of the North and, at the national level, led Southerners to demand antidemocratic institutional devices such as the infamous three-fifths rule of the federal Constitution, which granted southern whites extra power to perpetuate slavery by “representing” three-fifths of the slaves.21 Slavery is not an “exception” or “unresolved problem” that sometimes interrupts the master narrative of U.S. political history—such as by causing the Civil War. Slavery is at the very heart of that narrative. Like the rest of this institutionally oriented scholarship, my research on taxation demonstrates the centrality of slavery to American political history. A central theme in the history of American taxation before the Civil War was the refusal of slaveholders to accept democratic decisionmaking at any level of government.22 Slaveholders would not permit nonslaveholding majorities to decide how to tax, even if these “majorities”

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actually were majorities of white men, majorities of white men who owned land, or even majorities of white men who owned land in southern states. It is not that slaveholders always refused to pay taxes. As J. Mills Thornton has shown, planter elites sometimes did favor lavish spending financed by hefty taxes on their human “property.”23 To be sure, taxes generally were higher in free states than slave states. In the case of local-government school taxes, for example, Northerners paid 31 cents per person in 1850, while Southerners paid 5 cents per person—or 8 cents per free or white person.24 Yet my argument is ultimately not about the size or distribution of tax burdens, but about the structure of the tax system and the power to decide how to tax. It is about when, where, and how the fear of everyday democratic decision-making that Hamilton articulated in the 1780s and Cooley reiterated in the 1870s found institutional expression. The tax systems of the North were designed to encourage day-to-day political jockeying, especially within local communities. The tax systems of the South were designed to minimize this jockeying and, when it could not be avoided altogether, to hedge it with constitutionalized “guarantees” for planter elites. The problem was not how much the slaveholders paid. It was who decided how much they paid.25 This contrast between the northern and the southern tax systems was starkest in the colonial era. Except for commercial assets in South Carolina, no southern colony assessed the value of any form of property before the Revolution. Southern colonies taxed slaves at flat rates per head (“by the poll”). When they taxed land, they taxed it at flat rates per acre. Their other taxes were also set at flat rates: so much per wheel on a carriage, so much per hogshead of tobacco exported, and so on. Northern colonies, in contrast, usually based their taxes on local assessments of the value of various forms of property. In Massachusetts, annually elected town assessors valued taxpayers’ holdings of land, buildings, wharves, ships, commercial inventories (“merchandizes”), financial assets, the income of artisans, merchants, and professionals, and the colony’s small population of slaves (“to be estimated as other personal estate”). They did fix the valuations for livestock, a convention that freed assessors from having to value every animal on every farm, but the essence of this tax system was the ongoing, everyday political negotiation between taxpayers and elected local officials. Apportionments of colony-wide taxes to individual towns were thoroughly political, as town representatives in the General Court jockeyed to protect their constituents. Yet this jockeying was not purely political—as it would be in Hamilton’s New York. Rather, it proceeded from the valuation data that town assessors compiled

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periodically.26 Pennsylvania and, on occasion, even New York also assessed various kinds of property at the local level. Connecticut was the exception that proved the rule. In the 1710s, it stopped valuing property, but replaced assessments with a uniquely sophisticated schedule of legislated valuations, which was framed to create tax incentives to promote family farming on small holdings of land by penalizing grazing and favoring intensive cultivation.27 The contrast between the North and South persisted after independence. During the Revolutionary War, the three largest southern states— Virginia, North Carolina, and Maryland—tried to replace their flat-rate tax regimes with assessments. North Carolina failed completely, emerging from the war with the most primitive tax system in the nation, but Maryland and Virginia instituted limited assessments on land that survived into the nineteenth century. Northern states, meanwhile, built on their prewar experience with assessments. They met the financial demands of the war with incremental reforms: increasing the range of taxable assets, attempting to curb war profiteering by taxing war-related profits at high rates, and exempting soldiers from poll taxes. The contrast between North and South was striking. In 1796, when Treasury Secretary Oliver Wolcott Jr. surveyed the state tax systems in the hope of devising a national property tax based on them, he found the task impossible. The various state tax systems, he declared, were “utterly discordant and irreconcileable, in their original principles.” Wolcott listed many variations in detail, but the major difference was the greater sophistication of the northern tax systems. Wolcott thought this difference was the result, in turn, of the more democratic character of northern local governments. In particular, he thought their reliance on elected rather than appointed officials permitted northern states to tax a wider variety of property in more sophisticated ways, and especially through a more comprehensive use of assessments.28 By the mid-nineteenth century, almost all the northern tax systems looked like the one that New York adopted in 1823, and would continue to use into the twentieth century: “All lands and all personal estate within this state, whether owned by individuals or by corporations, shall be liable to taxation, subject to the exemptions hereinafter specified.” Land consisted of all real estate: the land itself, buildings, improvements, trees, mines, minerals, quarries, and fossils (presumably coal). “Personal estate” consisted of “all household furniture; moneys, goods; chattels, debts due from solvent debtors, whether on account, contract, note, bond or mortgage; public stocks; and stocks of monied corporations.” New York exempted the holdings of governments, churches, schools, libraries,

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agricultural societies, $1,500 of the property of ministers and priests, and property on reservations of the Seneca Nation. The state also protected a basic standard of living. In a provision that resembled the personal exemption in our modern income tax, it exempted the assets it sheltered from liability for private debts: food, clothing, bedding, housewares, stoves and fuel, minimal holdings of tools and livestock, family bibles and pictures, church pews, schoolbooks, and $50 of other books. Local assessors were directed to value all the taxable property “at its full and true value, as they would appraise the same in payment of a just debt due from a solvent debtor,” county boards equalized local assessments by raising or lowering them to make them comparable across jurisdictions, and then various government bodies—the state, counties, towns, highway commissions, and so on—levied ad valorem rates on the result.29 Known as a “general property tax,” this type of tax was intended to distribute burdens to taxpayers in accordance with estimates of their total wealth, much as the modern income tax is intended to distribute burdens in accordance with estimates of total income. From Massachusetts and Pennsylvania in the Northeast to Ohio and Wisconsin in the Northwest, state and local governments in the nineteenth-century North relied heavily on this kind of tax—a tax that was ostensibly based on the “full and true value” of “all” property, but that actually was based on the local politics of local assessments. The exemptions in these taxes (for the clergymen, agricultural societies, and so on in New York) were analogous to the exemptions, deductions, and credits in our own income taxes. New York’s version of the general property tax had an unusual loophole, much like the loopholes familiar to us today. Any taxpayer who thought an assessor had overvalued his “personal property” (primarily his financial assets) could “swear” to a lower figure—even a ridiculously lower figure. By comparing the tax valuations of New York City elites against independent estimates of their wealth, one historian has found that in the 1840s and 1850s this loophole encouraged large-scale abuse by the very rich. This abuse would persist. “It is still the annual practice in New York City,” a tax scholar would note in 1914, “for millionaires to appear before the proper authorities and have their personal property assessment reduced to a figure named by themselves, under threat to become nonresidents of the state.”30 Nevertheless, the fact that assessors treated nonelite taxpayers with a similarly notorious leniency offers compelling evidence that the essence of the general property tax lay in the local political jockeying that determined the actual distribution of tax burdens. In the Northeast, the general property tax emerged gradually, as legislators abolished discriminatory rates and particularistic tax breaks,

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devised procedures for assessing corporations, and expanded the types of intangible wealth that were subject to assessment—in New York, the corporation stock, “monies,” and “debts due from solvent debtors.” In Massachusetts in the 1820s, the legislature abolished a tax break for the textile industry that dated from 1817 (exempting the machinery in cotton and woolen factories) and a tax break for owners of unimproved land that dated from 1782 (assessing it at a lower fraction of its actual value than other property). After 1829, Massachusetts assessed all real and personal property, including property owned by corporations, at “the just and true value thereof.” Pennsylvania, Connecticut, and the other states of the Northeast instituted similar changes in this era. In the Northwest, meanwhile, states adopted general property taxes by adapting—sometimes simply by copying—laws that were already on the books in the Northeast. Only Michigan adopted New York’s “swearing” loophole for personal property, but many states borrowed its description of taxable assets as well as its configuration of administrative arrangements.31 Southern states did not levy general property taxes before the Civil War, even after they introduced ad valorem taxes based on the assessment of certain kinds of property. Louisiana did not even assess the value of land until 1846, Alabama until 1847, Mississippi until 1850, and South Carolina until 1865. Instead, these states categorized land by region and quality and then levied flat per-acre taxes on the land that fell into each category. Upper South states introduced land assessments earlier. Maryland assessed land and some other assets starting in 1776 (primarily for local tax purposes), and Virginia made a statewide land assessment in 1782. North Carolina and Kentucky began to assess real estate—land, buildings, and other improvements—in the 1810s. Tennessee, for its part, levied a single flat per-acre rate on all land in the state until 1834. This primitive practice had been mandated in its state constitution of 1796, and would not be supplanted until 1834, when a new constitution mandated an ad valorem tax on land and several other forms of property.32 Southern historians have recognized the introduction of the ad valorem principle in the first half of the nineteenth century as a major tax reform. They have disagreed about its political implications—that is, who benefited from it—but it is important to recognize that its adoption did not make the southern tax systems resemble those of the North.33 In many southern states, the ad valorem principle applied only to specific items rather than to a taxpayer’s total assessed valuation. It also often included separate tax rates for different kinds of property instead of one ad valorem rate for “all” property. In Mississippi, for example, it meant that taxpayers were charged 16 cents per $100 on the value of real estate;

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20 cents per $100 on money-at-interest, the goods of out-of-state merchants, currency from out-of-state banks, and sales of “slaves, horses, and mules” by professional traders; 25 cents per $100 on pianos and the receipts from ferries, toll bridges, and turnpikes; 30 cents per $100 on bank stock; 50 cents per $100 on carriages, clocks, watches, and gold and silver plate (exempting the first $50); 75 cents per $100 on race, saddle, and carriage horses; $1 per $100 on liquor sales; and $3 per $100 on sales by auctioneers and transient peddlers. Mississippi also levied flat taxes, including a slave tax (40 cents per slave under age 60) and a series of business taxes.34 This tax system had a major ad valorem component, but it was nothing like the general property taxes of the North.35 The mixture of property and sales taxes in the Mississippi rate list suggests another major feature of the tax systems of the South. Even when southern states levied a single (“uniform”) tax on total property valuation, as opposed to the array of particularistic tax rates in Mississippi, they supplemented this tax with elaborate and often flat-rate taxes on businesses. Northern states also supplemented their general property taxes with taxes on banks and certain other corporations; in the extreme case of Massachusetts, a bank tax raised 82 percent of state-level tax revenue from 1836 to 1840.36 Southern states, however, used these taxes far more comprehensively, and often to finance both state and local government. Consider the case of Tennessee. The Tennessee constitution of 1834 mandated a uniform, single-rate property tax on valuations of land, slaves (ages 12 to 50), bank stock, “and such other property as the legislature may . . . deem expedient.” The legislature added carriages and then levied 5 cents per $100 on these four forms of property. It supplemented this narrow property tax with a long list of flat-rate business taxes. Auctioneers, wholesalers, and agents of out-of-state insurance companies paid $200, commission merchants paid $150, brokers paid $75. Retailers with stores, grocers, jewelers, and druggists paid $150 or less, depending on their assets. Transient retailers paid $25 in each county for each of their vehicles, retailers from boats paid $50. It went on and on like this: turnpike keepers $25 unless exempted by charter or if on a M’Adamised turnpike, toll bridge keepers $10 ($2.50 if they charged only in high water), confectioners $20, taverns $5 and another $25 if they sold liquor, magicians and other exhibitors $50 in each county where they worked, racetrack owners $25, owners of stud horses the fees they charged to service one mare for one season. Anyone who imported playing cards into Tennessee paid 50 cents per deck, and anyone who bought bills, notes, or other negotiable instruments at discounts over 6 percent paid

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the ad valorem tax of 5 cents per $100. There was also a poll tax on white men aged 21 to 50 (12.5 cents) and an additional tax on real estate (10 cents per 100 acres of land and 20 cents per city lot).37 Although several of its details were unique, this Tennessee law was generally typical of the southern tax codes of the first half of the nineteenth century. Local officials valued some forms of property. They valued land and—in a practice that clearly warrants more detailed research—they valued enslaved human beings.38 At the same time, however, two of the most obvious features of this Tennessee system distinguished it from the general property tax systems of the North. One was its cherry-picking list of taxable assets (land, slaves, bank stock, carriages). The other was its long list of flat-rate business taxes, some intended to be shifted to consumers and some reflecting obvious social policy agendas: that it would be better to import fewer decks of playing cards into Tennessee and that in-state insurance companies should be protected against out-of-state competition. The general property taxes of the North (levied on “all” property) did not discriminate explicitly among groups of taxpayers in this manner. Northern states often found other ways to protect their own insurance companies or pursue other social policy objectives. The general property tax, however, was not a vehicle for state-level social and economic policymaking. Instead of manipulating the relative burdens on agriculture and commerce or favored and stigmatized occupations, the general property tax in the North reflected the political principle that tax burdens would be distributed through the day-to-day negotiations of taxpayers and elected local assessors. The key to the tax system in Tennessee, however, lay in the constitutional mandates. It is not just that the legislature made the decisions that northern states delegated to local communities. In addition, the state constitution constrained the choices that the legislature could make. The 1796 mandate was very specific. “All lands liable to taxation . . . shall be taxed equal and uniform so that no one hundred acres shall be taxed higher than another.” Town lots were pegged to the tax rate for 200 acres, while the poll tax on free men and the slave tax were pegged to the land tax: the poll tax to the tax on 100 acres, the slave tax to the tax on 200 acres.39 The 1834 mandate was more permissive, allowing as it did the valuation of land, slaves, and bank stock, and granting the legislature broad powers to tax commerce, which it defined to include “merchants, pedlars, and privileges.” But the property tax remained inflexible: “No one species of property from which a tax may be collected shall be taxed higher than any other species of property of equal value.”40

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The tax clauses in both the 1796 and 1834 Tennessee constitutions emerged from elaborate political compromises between planters and yeomen that included apportionment rules for the legislature and property qualifications for voting and officeholding. The details of these compromises need not detain us here. Generally, they protected planter elites from democratizing reforms by limiting the power of the legislature to decide how to tax. The 1834 deal protected slaveholders through a mandate known as a “uniformity clause.” By defining slaves as taxable property and obliging the legislature to levy the same tax rate on all forms of taxed property, this clause limited the taxes that the legislature could levy on slaves. Other southern states struck similar deals, particularly in those parts of the South where slavery faced the most internal opposition: Maryland in 1776, Missouri in 1820, North Carolina in 1835, and Virginia in 1851, as well as in Louisiana in 1845 and in Arkansas, Florida, and Texas at statehood. These tax deals were often accompanied by more direct guarantees for slaveholders: outright prohibitions on emancipation and apportionments of legislatures in ways that favored plantation districts (especially by counting slave populations in allocating the legislative seats).41 No northeastern state inserted a uniformity clause into its constitution before the Civil War. Northeastern states rarely constrained tax decisions with any constitutional mandates—a striking contrast with the South, where this practice was common.42 In the Northwest, however, most states in the 1840s and 1850s did add uniformity clauses to their constitutions. The framers of the northwestern constitutions did not adopt the clauses to strike political deals between segments of the electorate, but in the mistaken belief that they were emulating the tax systems that had long been the norm in the Northeast—the general property taxes levied at single rates on “all” property assessed at its “full and true value.”43 The constitution-writers of the Northwest did not realize that, by including uniformity clauses in their constitutions, they were draining their tax systems of their democratic core. Yet that is precisely what they did. By constitutionalizing specific tax mandates, they invited corporations and rich individuals to sue state and local governments on the grounds that particular tax laws or assessments violated the state constitutions. And, in so doing, they invited judges to usurp the power to decide how to tax. In the late nineteenth century, activist judges like Thomas M. Cooley—anxious to quash taxes that reflected “any stretch of power—even the slightest”—cited the uniformity clauses to justify aggressive judicial supervision over state and local taxation in a deliberate

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campaign to undermine the democratic decision-making that previously had been a hallmark of taxation in the North. The political logic that Cooley relied on was not altogether novel. Indeed, in myriad ways—implicit and explicit—it drew on precedents that had long been familiar in the South. Northern elites in Hamilton’s era tolerated a good deal of democratic decision-making, even if Hamilton himself disapproved. Southern elites tolerated nothing of the kind. To be sure, northern elites sometimes won significant victories in the local political struggles over taxation—as in the case of the New York elites who “swore” to ridiculously low valuations of their personal property. The elites of Cooley’s era, however, were not willing to risk the chance of losing. In the decades following the Civil War, corporations and rich individuals demanded exceptions from democratic decision-making to a degree that only slaveholders had in the past. In particular, they demanded fail-safe guarantees to ensure that democratic majorities could not deprive them of the fruits of what Cooley hailed as their “energy, enterprise, and thrift”—and others derided as their monopoly privileges and antisocial behavior (from watered stock schemes to the evasion of responsibility for industrial accidents and the recruitment of private armies to disrupt union meetings and strikes). In the era of slavery, a comparable mistrust of everyday politics—rooted in the conviction that it was intolerable for elites to risk the chance of losing a political battle—had made democratic decision-making difficult in the South. In the industrial era, it also would come to constrain democratic decision-making in the North. The slaveholders’ insistence on fail-safe guarantees extended beyond the structure of state tax systems to the structure of the federal Constitution. Slaveholders were responsible not only for the blatantly antidemocratic three-fifths clause in the U.S. Constitution that increased their representation by counting a slave as three-fifths of a free person, but also for the “direct tax” clauses that later would be cited by the U.S. Supreme Court in Pollock v. Farmers’ Loan and Trust Company (1895) to quash a federal income tax.44 The direct tax clauses of the U. S. Constitution were subtler than the uniformity clauses of the state constitutions. When the direct tax clauses were initially debated at the Philadelphia convention in 1787 and in the ratification struggle in 1788, no one understood precisely what they would turn out to mean.45 But their intention was plain. Southerners who feared that Congress might be dominated by a northern majority demanded a constitutional guarantee against the possibility that this majority would decide to levy a national slave tax. The direct tax clauses prevented Congress from levying a modest slave tax—say, $1 per slave—that would impose a disproportionate

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burden on southern states. More important, it prevented Congress from levying a confiscatory slave tax—say, $100 per slave—in an attempt to tax slavery out of existence. “No capitation, or other direct tax,” the Constitution decreed, could be levied except in proportion to the population of each state (until 1868, the population as defined in the threefifths clause). The Sixteenth Amendment (1913) finally voided the Supreme Court’s ruling in the Pollock case that the income tax was an unconstitutional “direct tax” by exempting the income tax from the constitutional ban. The adoption of the income tax amendment followed a long struggle by Westerners and Southerners to force the industrial elites of the Northeast to bear more equitable shares of the federal tax burden. Like the state-level uniformity doctrine that Cooley formalized in his Treatise, the Pollock decision exploited what was originally intended as a protection for slaveholders to grant the elites of the industrial era a fail-safe protection against democratic decision-making—like the ones that only the southern slaveholding elite had enjoyed previously. By demanding this kind of antidemocratic protection, the industrial elites essentially admitted that their despotism required the same safeguard as that of their slaveholding predecessors—who had lived in fear not only that their African American victims would slit their throats but also that their white fellow citizens might refuse to protect them. Democratic politics does not mean a system in which “the people” always win struggles against elites. Democratic politics is a system that permits these struggles to unfold through the ordinary process of everyday majoritarian political action. If northern elites complained more vociferously about democracy than southern elites did in the early republic, it was because the political arrangements of the North included more democratic arrangements to complain about. In the everyday politics of the early republic, northern elites won some battles and lost others. The crucial point, however, is that they could lose without fearing an impending armageddon. Southern elites could not lose. In 1860, when a northern majority finally won an election without southern support, the South’s refusal to tolerate its defeat brought the system down. It precipitated the bloodiest war of the nineteenth century and, in the end, the abolition of slavery in the United States. There was no “American paradox” locking democracy and slavery in a fatal embrace in American history. On the contrary, there was more democracy where there was more liberty: in the places where most people were free. In the age of slavery, state and local governments in the North were more democratic than state and local governments in the South.

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They included more democratic decision-making and more everyday politics on the ground. This is not to suggest that the North was some kind of egalitarian paradise. It is to suggest that when we compare the actual structure of the political institutions of the North and South, both Hamiltonian elitism and Jeffersonian egalitarianism come to look like rhetorical sideshows to the real story of democracy in the United States. Marx, characteristically, made the critical analytical point in a single sentence: “Whilst in ordinary life every shopkeeper is very well able to distinguish between what somebody professes to be and what he really is, our historiography has not yet won this trivial insight.”46 By directing our attention behind the rhetorical professions to the institutional realities, the “policy history” approach to U.S. political history is hastening a revision that is long overdue. University of California, Berkeley

Acknowledgments An earlier version of this essay was presented at the Policy History Conference of the Institute for Policy History, Clayton, Missouri, May 2002. I am grateful to Richard R. John, Margo Anderson, and Louis Gerteis for helpful commentary on that occasion. Many thanks also to Richard R. John for the intrepid editing that improved this essay tremendously. Notes 1. Alexander Hamilton to Robert Morris, 13 August 1782, in The Papers of Alexander Hamilton, ed. Harold C. Syrett, 27 vols. (New York, 1961–87), 3:132–43. On the requisition system, see E. James Ferguson, The Power of the Purse: A History of American Public Finance, 1776–1790 (Chapel Hill, 1962), and Roger H. Brown, Redeeming the Republic: Federalists, Taxation, and the Origins of the Constitution (Baltimore, 1993). The best treatment of the financial dimension of Shays’s Rebellion can be found in Van Beck Hall, Politics Without Parties: Massachusetts, 1780–1791 (Pittsburgh, 1972), and Leonard L. Richards, Shays’s Rebellion: The American Revolution’s Final Battle (Philadelphia, 2002). See also Max Edling, A Revolution in Favor of Government: Origins of the U.S. Constitution and the Making of the American State (New York, 2003). For more detail about many of the issues in this essay, see Robin L. Einhorn, American Taxation, American Slavery (Chicago, forthcoming, 2006). 2. Hamilton to Morris, 13 August 1782, Hamilton Papers, 3:135, 137–40. 3. Ibid., 3:135–37; Alexander Hamilton, “The Continentalist No. VI,” ibid., 3:104.

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4. Edward Countryman, A People in Revolution: The American Revolution and Political Society in New York, 1760–1790 (New York, 1981), 255–57; Brown, Redeeming the Republic, 134–37. 5. Thomas M. Cooley, A Treatise on the Law of Taxation (Chicago, 1876), iv. Cooley’s Treatise is a catalogue of the legislative and administrative lapses that lawyers could exploit to help wealthy litigants (including corporations) challenge tax laws and tax levies that state legislatures and local governments had imposed. Whether or not Cooley was an elitist has been debated. For his egalitarian credentials, see Alan Jones, “Thomas M. Cooley and ‘Laissez-Faire Constitutionalism’: A Reconsideration,” Journal of American History 53 (March 1967): 751–71, and Paul D. Carrington, “The Constitutional Law Scholarship of Thomas McIntyre Cooley,” American Journal of Legal History 41 (July 1997): 368–99. Less laudatory is Philip S. Paludan, “Law and the Failure of Reconstruction: The Case of Thomas Cooley,” Journal of the History of Ideas 33 (October 1972): 597–614. Most Cooley scholarship concentrates on his Treatise on the Constitutional Limitations Which Rest Upon the Legislatures of the States of the American Union (Boston, 1868). The scholar who takes his Taxation most seriously is very critical: Clyde E. Jacobs, Law Writers and the Courts: The Influence of Thomas M. Cooley, Christopher G. Tiedeman, and John F. Dillon upon American Constitutional Law (Berkeley, 1954). Jacobs stresses Cooley’s elaboration of the “public purpose doctrine,” which empowered judges to declare a tax unconstitutional if it had not been levied for what the judges regarded as a “public purpose.” Eric Monkkonen, The Local State: Public Money and American Cities (Stanford, 1995), presents evidence that tends to cast Cooley’s “public purpose doctrine” in a more favorable light. Monkkonen explores situations in which such judicial interventions could have promoted majoritarian goals. Even so, the “public purpose doctrine” was only part of the antidemocratic agenda that Cooley set forth in his Treatise on the Law of Taxation. For a suggestive discussion, see Morton J. Horwitz, The Transformation of American Law, 1870–1940: The Crisis of Legal Orthodoxy (New York, 1992), 20–27. 6. Richard H. Brown, “The Missouri Crisis, Slavery, and the Politics of Jacksonianism,” South Atlantic Quarterly 65 (Winter 1966): 69. 7. Ron Chernow, Alexander Hamilton (New York, 2004); Staughton Lynd, Class Conflict, Slavery, and the United States Constitution: Ten Essays (Indianapolis, 1967), esp. chap. 10; Daniel T. Rodgers, “Republicanism: The Career of a Concept,” Journal of American History 79 (June 1992): 11–38. 8. Edmund S. Morgan, “Slavery and Freedom: The American Paradox,” Journal of American History 59 (June 1972): 28. Morgan compared the Virginians primarily with British elites, leaving the comparison with northern elites mostly implicit. Joseph J. Ellis, Founding Brothers: The Revolutionary Generation (New York, 2000), 14–15, is absolutely right to contend that “historians have essentially been fighting the same battles, over and over again, that the members of the revolutionary generation fought originally among themselves.” The stunning part is that the Jeffersonian bias in political history has barely been dented by what has been a massive reorientation of American historical writing to emphasize the social, cultural, and economic realities of slavery. As Ellis’s comment suggests, one problem is a historiographical logic that poses a false choice: historians too often assume that a criticism of Jefferson requires an embrace of Hamilton—or John Adams. The solution for historians is not to pick the right founder to admire, but to reject this cult of personality altogether. For Jefferson’s protean legacy in politics and popular culture, see Merrill D. Peterson, The Jefferson Image in the American Mind (New York, 1960). For evidence that the Virginia elites actually felt quite threatened in the revolutionary era, see Woody Holton, Forced Founders: Indians, Debtors, Slaves, and the Making of the American Revolution in Virginia (Chapel Hill, 1999). 9. A partial exception to this generalization is recent scholarship on the history of the suffrage. See, in particular, Alexander Keyssar, The Right to Vote: The Contested History of Democracy in the United States (New York, 2000).

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10. On local government in the South, see especially Ralph A. Wooster, The People in Power: Courthouse and Statehouse in the Lower South, 1850–1860 (Knoxville, 1969); Ralph A. Wooster, Politicians, Planters, and Plain Folk: Courthouse and Statehouse in the Upper South, 1850–1860 (Knoxville, 1975). Changes in the structure of local government can also be traced in the state constitutions, which are available in Ben. Perley Poore, ed., The Federal and State Constitutions, 2d ed., 2 vols. (Washington, D.C., 1878); Francis Newton Thorpe, ed., The Federal and State Constitutions, 7 vols. (Washington, D.C., 1909); and John Wallis, ed., The NBER/Maryland State Constitutions Project, accessible via http://www.nber.org/data/ (“State Constitutions Project”). 11. The term “flat-rate tax” in this essay is unrelated to current proposals for a “flat” federal income tax. Flat-rate taxes were taxes that were enumerated regardless of the value of the item being taxed—for example, $1 per acre of land, $2 per gold watch, $10 per bowling alley. Taxes on slaves usually were flat-rate taxes, typically described as being levied “by the poll” and described in the federal Constitution as “capitations.” Current proposals for a “flat tax” envision a federal income tax with only one tax bracket and without any targeted credits or deductions—for mortgage interest, charitable contributions, and the rest. 12. Although the idea that tax burdens should be based on each taxpayer’s “ability to pay” is very old—it was Adam Smith’s canon of tax equity—it has always been difficult to operationalize in practice. Wealth and income are the traditional proxies for “ability to pay.” For an influential discussion, see Walter J. Blum and Harry Kalven Jr., The Uneasy Case for Progressive Taxation (Chicago, 1963 [1953]). 13. Although the legal doctrines elaborated to protect slaveholders were problematic precedents for a free society, Cooley mixed pre–Civil War legal precedents from slave states and free states without noticing the radically different political contexts out of which they emerged. Cooley’s refusal to recognize context is exemplified by his gloss on O’Byrne v. Savannah, 41 Ga. 331 (1870). Referring to a Georgia tax levied during the Civil War, this decision blocked an effort to collect a tax “after the government by which it was imposed has ceased to exist.” Cooley raised euphemism to high art: “So held of a government set up in an attempted revolution which failed.” Cooley, Taxation, 5n. Cooley’s reliance on prewar southern case law was emphasized by legal historian Morton Horwitz, who noted Cooley’s reliance on a pre–Civil War Kentucky case, Lexington v. McQuillan’s Heirs, 39 Ky. 513 (1839), to support the argument that judges could enforce “implied” constitutional restraints on the taxing power even in states that had either failed or refused to adopt explicit ones. Horwitz, Transformation, 22. 14. New York, Laws of the State of New York Passed at the Sessions of the Legislature Held in the Years [from 1777 through 1801], 5 vols. (Albany, 1886–87), 1:223 (quotation), 227–28; Hamilton to Morris, 13 August 1782, Hamilton Papers, 3:135. 15. Ibid., 3:135, 142. 16. On the Fries Rebellion, see Paul Douglas Newman, Fries’s Rebellion: The Enduring Struggle for the American Revolution (Philadelphia, 2004); Stanley Elkins and Eric McKitrick, The Age of Federalism: The Early Republic, 1788–1800 (New York, 1993), 696–700. See also Terry N. Bouton, “A Road Closed: Rural Insurgency in Post-Independence Pennsylvania,” Journal of American History 87 (December 2000): 867–76. On the direct tax that provoked it, see Robin L. Einhorn, “Slavery and the Politics of Taxation in the Early United States,” Studies in American Political Development 14 (October 2000): 177–82. 17. A tax is “progressive” when it imposes a higher rate on—takes a larger fraction of— higher incomes than lower incomes. A tax is “regressive” when it imposes a higher rate on lower incomes than higher incomes. A tax is “proportional” when it imposes the same rate regardless of income. Current “flat tax” proposals aim at proportionality, and draw popular support from the mistaken suspicion that our current income tax structure—progressive rates plus credits and deductions that favor the wealthy—is more regressive than a flat, or proportional, tax would be. On this point, see especially Dennis J. Ventry, “Equity versus Efficiency and the U.S. Tax System in Historical Perspective,” in Tax Justice: The Ongoing Debate, ed. Joseph J. Thorndike and Dennis J. Ventry (Washington, D.C., 2002), 56–58.

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18. For a survey of the existing data on nineteenth-century tax revenue, see Richard Sylla, “Long-Term Trends in State and Local Finance: Sources and Uses of Funds in North Carolina, 1800–1977,” in Long-Term Factors in American Economic Growth, ed. Stanley L. Engerman and Robert E. Gallman (Chicago, 1986), 819–62; Richard Sylla, John B. Legler, and John J. Wallis, “Banks and State Public Finance in the New Republic: The United States, 1790–1860,” Journal of Economic History 47 (June 1987): 391–403; John B. Legler, Richard Sylla, and John J. Wallis, “U.S. City Finances and the Growth of Government, 1850–1902,” Journal of Economic History 48 (June 1988): 347–56; Richard Sylla and John Joseph Wallis, “The Anatomy of Sovereign Debt Crises: Lessons from the American State Defaults of the 1840s,” Japan and the World Economy 10 (July 1998): 267–93; and Richard E. Sylla, John B. Legler, John Wallis, “State and Local Government Sources and Uses of Funds, City and County Data, Nineteenth Century,” data set 6305 (1985–), Inter-University Consortium for Political and Social Research, University of Michigan, accessible via http://www.icpsr.umich.edu/access/index.html. 19. The clarion call to apply this approach to the early United States was issued in Richard R. John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic,” Studies in American Political Development 11 (Fall 1997): 347–80. 20. Don E. Fehrenbacher, The Slaveholding Republic: An Account of the United States Government’s Relations with Slavery (New York, 2001), chaps. 4–5; Leonard L. Richards, The Slave Power: The Free North and Southern Domination, 1780–1860 (Amherst, 2000); Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, 1995); Richard R. John, “Affairs of Office: The Executive Departments, the Election of 1828, and the Making of the Democratic Party,” in The Democratic Experiment: New Directions in American Political History, ed. Meg Jacobs, William J. Novak, and Julian E. Zelizer (Princeton, 2003), 50–84; Sally E. Hadden, Slave Patrols: Law and Violence in Virginia and the Carolinas (Cambridge, 2001); John Majewski, A House Dividing: Economic Development in Pennsylvania and Virginia before the Civil War (New York, 2000). Taken together, this scholarship has raised our understanding of the political impact of slavery to a whole new level, superseding such long-standard works as Donald L. Robinson’s Slavery in the Structure of American Politics, 1765–1820 (New York, 1971). 21. The three-fifths clause of the federal Constitution is commonly misunderstood to have insulted enslaved African Americans by granting them the representation of “threefifths of a person.” In reality, its effects were far more pernicious, since it denied enslaved African Americans any representation at all. Intended to injure rather than merely to insult, the three-fifths clause increased the power of slaveholders in order to guarantee that the slaves’ interests—in the abolition of slavery—would never prevail. The electoral college compounded its antidemocratic effects by basing each state’s vote for president on the sum of its Senators (two per state) and number of seats in the House of Representatives (allocated by the threefifths rule). This antidemocratic arrangement gave the slave states disproportionate political power, and led directly to the election of Thomas Jefferson in 1800. On this issue, see especially Richards, Slave Power; see also Garry Wills, “Negro President”: Thomas Jefferson and the Slave Power (Boston, 2003). The 1800 election was not a triumph of American democracy. After two hundred years, one might think we could stop repeating the partisan claim that it was. 22. For the story at the national level, see Einhorn, “Slavery and the Politics of Taxation”; Robin L. Einhorn, “Patrick Henry’s Case Against the Constitution: The Structural Problem with Slavery,” Journal of the Early Republic 22 (Winter 2002): 549–73. 23. J. Mills Thornton III, Power and Politics in a Slave Society: Alabama, 1800–1860 (Baton Rouge, 1978), chap. 5. See also Thornton, “Fiscal Policy and the Failure of Radical Reconstruction in the Lower South,” in Region, Race, and Reconstruction: Essays in Honor of C. Vann Woodward, ed. J. Morgan Kousser and James M. McPherson (New York, 1982), 349–94. Local taxes seem to have been much higher than state-level taxes in the North, but not in the South. Several southern states capped their local tax rates at or below state tax rates. Einhorn, American Taxation, chap. 6.

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24. J. D. B. DeBow, Statistical View of the United States (Washington, D.C., 1854), 142–43, is the most complete local-level data set for the period. 25. In political science, the antidemocratic power I am describing is often called “agenda-setting.” It is the power to prevent a political debate, as opposed to the power to win one. The classic works are Peter Bachrach and Morton S. Baratz, “Two Faces of Power,” American Political Science Review 56 (December 1962): 947–52; Matthew A. Crenson, The Un-politics of Air Pollution: A Study of Non-decisionmaking in the Cities (Baltimore, 1971); and Stephen Lukes, Power: A Radical View, 2d ed. (London, 2005 [1974]). On the debate from which this concept emerged, see Nelson W. Polsby, Community Power and Political Theory: A Further Look at Problems of Evidence and Inference, 2d ed. (New Haven, 1980). See also Deborah Stone, Policy Paradox: The Art of Political Decision Making, rev. ed. (New York, 2002 [1988]). 26. See Einhorn, American Taxation, chaps. 1–3. 27. Charles J. Hoadley, ed., The Public Records of the Colony of Connecticut, 15 vols. (Hartford, 1850–90), 4:334–35, 8:131–33. 28. Einhorn, American Taxation, chap. 3; Oliver Wolcott Jr., “Direct Taxes,” 14 December 1796, in American State Papers: Documents, Legislative and Executive of the United States, ed. Walter Lowrie and Matthew St. Clair Clark, 10 vols. (Washington, D.C., 1832–61), 3d ser., Finance, 1:414–65 (quotation on 437). On state taxes during the Revolution, see also Brown, Redeeming the Republic; Robert A. Becker, Revolution, Reform, and the Politics of American Taxation, 1763–1783 (Baton Rouge, 1980). 29. New York, Revised Statutes, 3 vols. (Parker, Wolford, Wade 1859), 1:905–15, 2:646; New York, Laws, 1823, 390–97. An “ad valorem” tax is a tax that is levied at a percentage of the taxed item’s value. In the case of a property tax, it is a tax levied at a percentage of the assessed valuation of the property—which is almost always a lower figure and usually a much lower figure. The tax rate is expressed in cents per $100 or mills per dollar of value (valuation). 30. Edward Pessen, Riches, Class, and Power: America Before the Civil War (New Brunswick, N.J., 1990 [1973]), chaps. 2–3; Don C. Sowers, “The Financial History of New York State: From 1789 to 1912” (Ph.D. diss., Columbia, 1914), 118. 31. Einhorn, American Taxation, chap. 6. 32. On the tax provisions in the Tennessee constitution, see Robin L. Einhorn, “Species of Property: The American Property-Tax Uniformity Clauses Reconsidered,” Journal of Economic History 61 (December 2001): 981, 993, 997–98. 33. Thornton, “Fiscal Policy”; Peter Wallenstein, “‘More Unequally Taxed than any People in the Civilized World’: The Origins of Georgia’s Ad Valorem Tax System,” Georgia Historical Quarterly 64 (1985): 459–87. 34. Mississippi, Revised Code (Sharkey et al. 1857), 71–78. See also ibid., 87–89. The flat 40-cent slave tax was much lower than the ad valorem rates on other assets. For example, if one assumes the average slave price to have been $774, this tax was equivalent in 1860 to an ad valorem tax of only 5 cents per $100 (actually slightly less because of the exemption of elderly slaves). Although the legislature almost doubled the rate to 75 cents in 1860, this tax remained, at 9.7 cents per $100, lower than any of the state’s ad valorem rates. The slave price is based on an estimate in Roger Ransom and Richard Sutch, “Capitalists Without Capital: The Burden of Slavery and the Impact of Emancipation,” in Quantitative Studies in Agrarian History, ed. Morton Rothstein and Daniel Field (Ames, 1993), 148. 35. In Mississippi, most plantation wealth was, in practice, exempted from the ad valorem tax system since slaves were taxed at a flat rate, while real estate was handled in a peculiar way. Although assessors had the authority to verify the taxpayers’ estimates of most assets, they were forbidden to challenge taxpayers’ estimates of the value of their real estate. Mississippi, Revised Code (Sharkey et al. 1857), 74–77. For a similar self-assessment rule in Georgia, see Thornton, “Fiscal Policy,” 358. 36. Sylla, Legler, and Wallis, “Banks and State Public Finance,” 401.

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37. Tennessee, Public Acts (1836), 58–66. Note that the Tennessee Constitution of 1834 (art. 2., sec. 28) required the exemption from taxation of all slaves under 12 and over 50. Although most southern states set similar age limits—Mississippi, for example, exempted slaves over 60—the age limit mandated in the Tennessee constitution was unusually generous to slaveholders. 38. State law instituted the valuation of slaves in Kentucky, Arkansas, and Missouri throughout the pre–Civil War period, and in Louisiana from 1846 to 1856. Tennessee, Code (Meigs, Cooper 1858), 172, 179–80; Kentucky, Statute Law, 5 vols. (Littell 1809–19), 5:110; Kentucky, Revised Statutes (Wickliffe, Turner, Nicholas 1852), 558–59; Arkansas, Revised Statutes (Ball, Roane 1838), 673, 675; Arkansas, Digest of the Statutes (Gould 1858), 930; Missouri, Laws, 2 vols. (Charless 1825), 2: 663–64; Missouri, Revised Statutes, 2 vols. (Hardin 1856), 2:1322, 1334; Louisiana, Revised Statutes (Phillips 1856), 464; Louisiana, Acts, 1856, 180. 39. Tennessee Constitution (1796), art. 1, sec. 26. 40. Tennessee Constitution (1834), art. 2, sec. 28. 41. For details, see Einhorn, “Species of Property,” and Einhorn, American Taxation, chap. 6. The inclusion in southern constitutions of emancipation bans and slave representation provisions challenges the traditional view that early nineteenth-century constitutional reforms in the North and the South were comparably democratizing. For this traditional view, see Fletcher M. Green, The Constitutional Development of the South Atlantic States, 1776–1860: A Study in the Evolution of Democracy (Chapel Hill, 1930), and Don E. Fehrenbacher, Sectional Crisis and Southern Constitutionalism (Baton Rouge, 1995). 42. Einhorn, “Species of Property,” 980. Although no northeastern state constitution included a uniformity clause in the pre–Civil War period, the Massachusetts constitution of 1780 and the New Hampshire constitution of 1794 contained the vague requirement that taxes be “proportional and reasonable.” In the late nineteenth century, the courts would redefine these clauses as uniformity clauses. Wade J. Newhouse, Constitutional Uniformity and Equality in State Taxation, 2d ed., 2 vols. (Buffalo, 1984). 43. Einhorn, “Species of Property,” 999–1003. For a more extensive discussion of the sometimes poorly thought-out appropriation by western constitutionalists of eastern constitutional provisions, see Christian G. Fritz, “The American Constitutional Tradition Revisited: Preliminary Observations on State Constitution-Making in the NineteenthCentury West,” Rutgers Law Journal 25 (Summer 1994): 945–98. 44. For the late-nineteenth century political struggles over the income tax, see especially Robert W. Stanley, Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861 to 1913 (New York, 1993). See also W. Elliot Brownlee, Federal Taxation in America: A Short History (Cambridge, 1996). For a journalistic account that suggests a revival of popular interest in this topic, see Steven R. Weisman, The Great Tax Wars: Lincoln to Wilson—The Fierce Battles over Money and Power That Transformed the Nation (New York, 2002). 45. Pollock v. Farmers’ Loan and Trust Company, 157 U.S. 429 (1895); 158 U.S. 601 (1895); Calvin H. Johnson, “Apportionment of Direct Taxes: The Foul-Up in the Core of the Constitution,” William and Mary Bill of Rights Journal 7 (December 1998): 1–103; Bruce Ackerman, “Taxation and the Constitution,” Columbia Law Review 99 (January 1999): 1–58; Charlotte Crane, “Reclaiming the Meaning of ‘Direct Tax,” unpublished manuscript, 2003; Einhorn, American Taxation, chap. 5. 46. Karl Marx, The German Ideology (Amherst, N.Y, 1998 [written in 1845–46]), 70–71.

MARK R. WILSON

The Politics of Procurement: Military Origins of Bureaucratic Autonomy No U.S. history textbook mentions Robert Allen, George H. Crosman, John H. Dickerson, Thomas Swords, or Stewart Van Vliet. Yet in certain respects they were five of the most important government officials in the nineteenth-century United States. Each was a high-ranking officer in the Quartermaster’s Department, a bureau of the U.S. army entrusted with military procurement. During the Civil War, the supply depots in which they worked—in Philadelphia, New York, Cincinnati, and St. Louis—were indispensable adjuncts to the Union war effort. The magnitude of the procurement project was unprecedented: in four years, these five officers alone paid contractors and civilian employees $350 million. This sum amounted to nearly one-third of the total of over $1 billion that the Quartermaster’s Department as a whole spent to equip the Union army. No other single project, in either government or business, involved the expenditure of such an enormous sum. In an age in which few Americans made $2 a day, $350 million was equivalent to the total wartime income of one hundred thousand households. Adjusted for inflation, this was roughly equal to the entire federal budget during the administration of President James Buchanan (1857–61). This essay surveys the role of the Quartermaster’s Department in equipping the Union army during the Civil War. It contends that the army officers who coordinated this project—men such as Robert Allen, George H. Crosman, John H. Dickerson, Thomas Swords, and Stewart Van Vliet—were powerful economic actors who exercised considerable independence during a critical juncture in American history. This interpretation runs counter to what has long been the scholarly consensus. According to this consensus, the federal government in the nineteenth century was a state of “courts and parties” dominated not by government administrators but by party leaders, and in which political parties were sustained by the disbursement of patronage in the forms of

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contracts and jobs that were often referred to as “spoils.” In this view, the apogee of the “spoils system” occurred during the Civil War, when party leaders took advantage of the war emergency to reward party supporters with reckless abandon. Since the Republican party controlled both Congress and the White House, Republican party leaders were assumed to dominate military procurement. In short, the economic mobilization of the Union to defeat the Confederacy—by far the largest government spending project in the United States during the nineteenth century—was nothing more than an outsized pork-barrel project for a party machine.1 This consensus is shared not only by historians but also by an influential group of political scientists known as the “new” institutionalists. The new institutionalists have considerably refined our understanding of American state-building in areas as diverse as civil-service reform and public finance. Unfortunately, when they turned their attention to military procurement, they relied on scholarship that was more than fifty years old. The “great northern war machine,” according to one new institutionalist, was “first and foremost a new party machine.” The Union government, in the view of another, was essentially a “Republican party-state.”2 This essay challenges this consensus. Although Republican party leaders had some influence over the shaping of the Union’s war economy, their power was surprisingly limited. Far more important was the small yet highly effective cadre of career army officers that ran the Quartermaster Department’s supply depots during the Civil War. In making procurement decisions, these officers followed their own agendas, which were in many instances only tangentially related to those of party leaders in Congress and the White House. In so doing, they exercised what political scientists call “bureaucratic autonomy”—that is, the power to make decisions relatively unconstrained by outside pressure. In peacetime, the bureaucratic autonomy of procurement officers remained latent; in wartime, it became manifest.3 In the very heyday of what is often called the “party period,” there existed in the Quartermasters’ Department a resilient, and potentially powerful, reservoir of bureaucratic autonomy that was distinct from, though never entirely unrelated to, the partisan imperative long assumed to have been the dominant political force of the age. By ignoring the independent influence of military officers as policy actors, historians and political scientists alike have misunderstood one of the most important events in American history. By shifting the focus from party leaders to military officers—and, in particular, by peering into large and sprawling organizations such as the Quartermaster’s Department—it becomes possible to discern a “mezzo”

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level of the nineteenth-century state in which government administrators enjoyed a substantial degree of bureaucratic autonomy that in certain circumstances enabled them to wield a great deal of power.4 The power of top officers in the Quartermaster’s Department rested ultimately in the relatively nonpartisan bureaucratic organization over which they presided. In times of national crisis—such as the Civil War—this organization rivaled even the party machine as an agent of change. The centrality of army officers to the Union’s war economy raises questions about the relationship of the military to civilian authority in the American past. The subordination of the military to civilian authority has long been a defining feature of the liberal state.5 To “bring the military in”—elaborating on the call of historical sociologist Theda Skocpol to “bring the state back in”—invites an empirical investigation of the degree to which the nineteenth-century state was in fact liberal, as well as the extent to which it remained under civilian control.6 The nineteenth-century military harbored a reservoir of power that remained dormant in peacetime, yet that had the capacity in wartime to spill over into virtually every corner of the political economy. Such a reservoir was tapped during the Civil War, when the small cadre of army officers responsible for equipping the U.S. army coordinated a truly massive procurement project that, during the four years of its existence, was far larger than any single enterprise to have been previously attempted in the United States. Its headwaters were to be found neither in courts nor parties. They were not democratic, not capitalistic, and not progressive. And they were not even necessarily liberal. Rather, they were martial and bureaucratic, and their wellspring was the military. To “bring the military in,” in short, challenges rather than confirms long-standing assumptions about nineteenth-century American political development. Indeed, it calls for a new kind of historical narrative, one in which political parties share the stage with the military; warfare and the administration of a sprawling continental empire are a central concern; and the military is a catalyst for organizational innovation in business as well as in government. The origins of the Union’s military procurement project, like the origins of the American state, lay in the military. Although the magnitude of this project was unprecedented, it was not improvised. Rather, it grew out of the administrative experience of the career army officers who staffed the regional supply depots of the Quartermaster’s Department. Its incubators were the U.S. military academy at West Point, where aspiring army officers received a rigorous technical education unique in its day, and the

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army posts on the frontier, where most West Point graduates served for at least a few years following their graduation. The Quartermaster’s Department during the Civil War was overseen by Montgomery Meigs, a talented army engineer and a master logistician who became quartermaster general in 1861, just after the war began. Meigs would remain in office for the duration of the war.7 Although Meigs’s power was by no means inconsiderable, it was far from absolute. Like so many features of the nineteenth-century American state, military procurement was highly decentralized, and a great deal of responsibility devolved upon senior quartermasters in the regionally based supply depots, of which the most important were in New York, Philadelphia, Cincinnati, and St. Louis. The government officials mentioned in the opening paragraph of this essay—Allen, Crosman, Dickerson, Swords, and Van Vliet—all belonged to this group.8 No army officer in nineteenth-century America could be altogether oblivious of partisan politics. Entry into the officer corps was typically contingent on graduation from the military academy at West Point, and admission to West Point was ordinarily dependent on the applicants’ ability to secure from high-ranking government officials favorable letters of recommendation. Political influence remained important even after graduation: a hostile congressman could block the career advancement of even a capable officer. Yet the relationship between army officers and politicians was often oblique. While prudent army officers took pains to maintain good personal relations with influential congressmen, few regarded themselves as the clients of party leaders. And in no sense were they supine party hacks. Highly motivated and self-disciplined, the career officers were rather, in the language of social psychology, inner-directed— a mind-set honed at West Point and refined during long periods of geographical isolation in remote army posts in the South and West. The influence of partisan politics on the early military careers of two Civil War quartermasters is illustrated by the West Point application files of Thomas Swords and Robert Allen. Future Cincinnati depot chief Thomas Swords unquestionably relied on the political connections of his father, a successful New York City book publisher, to secure the favorable letters of recommendation that he needed to secure admission to West Point. Yet Swords had already compiled a solid academic record in two years of preparatory study at Columbia College, where he had demonstrated a gift for technical drawing—a skill highly valued in the nineteenthcentury army. Future St. Louis depot chief Robert Allen did not seem to have cultivated any political connections at all prior to his admission at West Point, relying instead on enthusiastic letters of recommendation

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from teachers and ministers, who proclaimed his “progress in learning” to be “truly astonishing.” The son of a widow too poor to send him to a college that was not, like West Point, free of charge, Allen was “just the sort of youth the institution of West Point was intended to benefit.”9 The education that cadets received at West Point instilled in them habits of mind that set them apart not only from party politicians but also from business leaders—two groups with whom quartermasters would interact intensively during the Civil War. The West Point curriculum differed considerably from that of other colleges of the day in its emphasis on mathematics and engineering rather than classics and theology; by demonstrating mastery of such highly technical, yet eminently practical, subjects, cadets became self-conscious members of a small yet highly distinctive elite.10 Upon graduation, cadets received a permanent commission. This was a highly unusual privilege in an age in which almost no one other than military officers and certain members of the clergy had the benefits of lifetime employment, and in which the military was one of the few institutions that had established a formal organizational hierarchy with well-defined occupational ranks that offered ambitious young men the kind of opportunities for personal advancement in their field of specialization that would eventually come to be a defining feature of a professional career. For this reason, army officers were predisposed to adopt an outlook toward their work that has been aptly characterized by historian Samuel J. Watson as “careerist.”11 Career stability did not, however, necessarily translate into much in the way of material comfort. Like most army officers, future quartermasters typically spent long intervals early in their careers in difficult and often dangerous assignments on the frontier. Robert Allen, George H. Crosman, John H. Dickerson, and Stewart Van Vliet all served in Florida, where they discovered that disease posed an even greater threat than the Seminole Indians that they had been sent out to subdue. Many future quartermasters served in one capacity or another in the U.S.Mexico War of 1846–48; and, in the 1850s, in the trans-Mississippi West, where they coordinated the logistics of a continental empire, and, in several instances, took part in the Utah Expeditions of 1857–58—the army’s largest military operation in the decade before the Civil War.12 Quartermasters sometimes found themselves coordinating logistical projects that put them at considerable personal risk. This fact is worth underscoring since, in comparison with the rigors of combat, the day-to-day routine of a quartermaster might well be assumed to have been relatively safe and predictable. To be sure, a few sometimes landed temporary plum assignments in urban centers. Yet in the fifteen-year period between the

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beginning of the U.S.-Mexico War in 1846 and the start of the Civil War in 1861, most worked in frontier regions distant from major cities. The career of quartermaster Thomas Swords is a case in point. Following his graduation from West Point in 1829, Swords enjoyed a relatively uneventful stint as a quartermaster in Kansas territory, where he coordinated the building and provisioning of several military forts. Accompanied by his wife Charlotte, Swords spent many quiet hours in the 1830s and 1840s reading newspapers, histories of Mexico, and the novels of Charles Dickens. Yet when the U.S.-Mexico War broke out in 1846, Swords suddenly sprang into action. Now the chief quartermaster of the Army of the West, Swords was entrusted with the formidable task of equipping a military contingent headed up by General Stephen W. Kearney that numbered more than three thousand men. As his first assignment, Swords coordinated logistics for a major troop movement from Fort Leavenworth, Kansas, to New Mexico that involved not only three thousand soldiers, but also four thousand horses and mules, almost fifteen hundred oxen, and fifteen hundred wagons. After Kearney’s army took New Mexico, Swords accompanied Kearney with a smaller contingent of soldiers to San Diego—where Swords discovered, to his surprise, that it was impossible to secure adequate supplies for Kearney’s troops. To solve the problem, Swords found himself compelled to sail several thousand miles to the Sandwich Islands (known today as Hawaii), where he found what he needed. Following his return to San Diego, Swords accompanied Kearney with a small group of soldiers on a grueling fast march back to Kansas: Kearney’s party covered two thousand miles in a mere eighty-three days, at a punishing pace of twenty-four miles per day. En route to Kansas, Swords supervised the burial of the cannibalized corpses of an unfortunate group of Illinois emigrants known as the Donner Party, which had become trapped in the Sierra Nevada mountains the previous winter.13 Swords was soon transferred from Kansas back to California, where he spent much of the 1850s in relative quiet at supply depots in the vicinity of San Francisco. Although his influence during these years was confined to the regional level, Swords was destined to become a major economic actor on the national stage, when his large potential powers as a senior military supply officer became manifest in his work as army depot chief in Louisville and Cincinnati during the Civil War. Swords’s posting in the 1850s was unusual for the army officers who would become quartermasters during the Civil War. More typical was the experience of Stewart Van Vliet. After graduating from West Point in 1840, Van Vliet served as quartermaster first in the Mexican War and then in the Far West, where he coordinated construction projects and

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outfitted several army expeditions against the Sioux. In 1857, Van Vliet was ordered to go from Kansas to Utah to inform the Utah territorial governor that the army expected him to provision the detachment of troops recently dispatched for Utah from Kansas. It was not an assignment that the forty-two-year-old relished. Weary of frontier service, Van Vliet knew well that the one-thousand-mile horseback ride from Kansas to Salt Lake City would be not only exhausting but very likely dangerous—since the Utah governor was a potential military foe. “I have considered the orders for me to repair to Utah as exceedingly hard,” Van Vliet complained to his official superior back in Washington, “as I have already served seven years on these plains.”14 Van Vliet survived his trip to Utah. (In the late 1850s, Van Vliet worked as supply depot chief at Fort Leavenworth; he would spend most of the Civil War as a top procurement officer at the New York supply depot.) His colleague, John Dickerson, very nearly did not. Before the Utah conflict, Dickerson had been based in Nebraska territory, where he had spent a relatively uneventful few years supervising the surveying and construction of military roads. When the Utah conflict began, however, Dickerson suddenly found himself chief quartermaster for an expedition of thirteen hundred men. When this expedition departed Kansas for Utah in the summer of 1857, Dickerson accompanied it. As the expedition approached Utah, it lost dozens of wagons and hundreds of animals to severe weather and Mormon raiding parties. Conditions became even worse in November, when the expedition was still more than one hundred miles northeast of Salt Lake City. Here, with winter approaching in mountainous terrain, Dickerson and his fellow soldiers found themselves bogged down in blizzards and subzero temperatures, struggling simply to survive.15 Fortunately for Dickerson, the troops persevered long enough to set up camp for the winter, where they remained until reinforcements arrived the following spring. Dickerson’s travails, much like Swords’s and Van Vliet’s, underscored the extent to which the pre–Civil War experience of the army officers who would coordinate military procurement during the Civil War set them apart from the party leaders and contractors with whom in the 1860s they would so frequently interact.16 During the Civil War, the top-ranking quartermasters in the regional army supply depots, including Swords, Van Vliet, and Dickerson, would emerge as some of the most powerful administrators in the country’s history. Once again, the latent power that these army officers possessed by virtue of the bureaucratic autonomy of the Quartermaster’s Department would become manifest. To a surprising extent, senior quartermasters operated independently of party leaders. And in no sense were they mere

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cogs in a patronage machine. To be sure, the gargantuan military procurement project of 1861–65 neither transcended partisan priorities altogether nor completely overturned the existing political order. Rather, it had a dual character: the organizational capabilities of the Quartermaster’s Department expanded dramatically during the war emergency without altogether supplanting the patronage-based Republican party machine. Career army officers by no means monopolized high-ranking positions in the Quartermaster’s Department. Of the two hundred officers in the department in 1862 to hold a rank of captain or above, three-quarters were volunteers, of whom many were political appointees with close ties to the Republican party.17 High-ranking volunteers with strong Republican ties included Charles W. Moulton, the brother-in-law of Ohio Republican senator John Sherman; James Ekin, a politically prominent Republican from Pittsburgh; and Samuel L. Brown, the son of President Lincoln’s wealthy Chicago friend William H. Brown. By the end of the war, each of these Republican appointees managed millions of dollars a year in military expenditures: Moulton as a top contracting officer at Cincinnati, Ekin as Cincinnati depot chief and then as chief buyer of horses and mules in Washington, D.C., and Brown as a major purchaser of animal feed.18 Yet career officers did tend to receive the very highest positions not only at the depot in Washington but also in the regional supply depots in major urban centers. For example, Thomas Swords became depot chief in Cincinnati, Robert Allen in St. Louis, and George H. Crosman in Philadelphia. While Republican-appointed volunteers became increasingly influential over the course of the war, they never displaced career army officers as the principal managers of the Union’s procurement project.19 This was true even though the volunteers included many staunch Republicans, while the career officers tended toward nonpartisanship, with more than a few harboring a partiality for Democrats. The split in party allegiance between the career officers and the volunteers made the politics of the war economy especially complex.20 Most officers had maintained contacts during the pre–Civil War decades with congressmen, whom they relied on to help them secure promotions, yet few had strong ties to the new Republican party. This was perhaps not surprising, since the Republican party had not been established until the 1850s, long after most of the most senior procurement officers had graduated from West Point and begun their careers. To the extent that the career officers who dominated the top positions in the main Union supply depots could be identified as a group with a political party, it would have been the Democrats. Many, including Quartermaster General Meigs himself, had leaned Democratic

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during the pre–Civil War years, without regarding this allegiance as compromising their identification as nonpartisan public servants.21 For the second Utah Expedition in 1858, for example, Stewart Van Vliet had taken part in an unusual arrangement with the Virginia Democrat John Floyd to purchase horses and mules. Floyd was Secretary of War, an office often headed up by administrators who prized nonpartisanship. Yet Floyd saw nothing improper about treating military contracts as political spoils, and Van Vliet obliged.22 Robert Allen, the wartime depot chief in St. Louis, was the son-in-law of a prominent Maine Democrat, who—or so Allen reminded President James K. Polk shortly before Allen joined the Quartermaster’s Department in 1846—had been one of Polk’s “first and finest friends” in the state. George H. Crosman, the Philadelphia depot chief for most of the Civil War, appears to have told a friend privately in 1858 that his top choice for president in the next election was the Democratic senator Jefferson Davis, a logical preference in many ways, since Crosman had served under Davis when Davis had been Secretary of War.23 Once the Civil War began, Crosman may well have regretted his earlier enthusiasm for Davis, who was now the president of the Confederacy. Yet he was hardly the only career officer to have favored the Democrats before the war. The mismatch between the political predilections of senior procurement officers and the party in power was a constant source of tension. Yet in these conflicts party leaders did not invariably prevail. Consider, for example, the wartime career of John Dickerson. For most of the war, Dickerson served as a top procurement officer in Cincinnati, where he was repeatedly attacked by prominent Democrats as insufficiently loyal to the administration. Part of the problem was Dickerson’s wife Julia—who was widely assumed to sympathize with the Confederacy. Dickerson’s position grew so precarious that, in 1863, General Ambrose Burnside found it necessary to defend Dickerson before the Secretary of War as an “honest, capable, and loyal officer” who suffered from the “misfortune” of having a “rebel wife.”24 Even more troubling for Republican partisans was Dickerson’s refusal to lavish government patronage on Republican contractors. Although Dickerson had the unstinting support of Quartermaster General Meigs, his behavior outraged the Republican newspaper editor and assistant quartermaster Frank Hurtt—who lobbied steadily to ensure Dickerson’s dismissal. “I sought,” Hurtt admitted—after he himself had been court-martialed in 1863 for improperly taking advantage of insider knowledge about impending military contracts—“to have the legitimate and proper influence of the Government patronage at one of its largest depots in the hands of unquestionable friends of the administration.”25

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Dickerson resigned in 1864 for reasons that are not entirely clear: he seems to have concluded that it would be more rewarding to work in the business of military supply as a private contractor. Yet he outlasted Hurtt. Thanks to the support of Dickerson by Quartermaster General Meigs, one of the Union’s main supply depots was run for much of the war by an officer who had plainly run afoul of the local Republican political establishment. Republican party favorites by no means went unrewarded. Among the recipients of lucrative wartime contacts was the politically well-connected William Calder. Calder was not only one of the Union’s largest suppliers of horses and mules but also the business partner of the son of Secretary of War Simon Cameron—a stalwart Republican who was forced out of office after less than a year amid allegations of mismanagement and corruption. Other favored contractors included William Anspach and M. Hall Stanton, Philadelphia businessmen who received over $2 million worth of contracts for army uniforms—awards that may or may not have been related to the nearly $5,700 they contributed in “election expenses” for the Republican cause. Thomas Carhart, a leading clothing contractor, had been a silent partner of George Opdyke, a man who did have considerable experience in the clothing business but who was better known at the time as New York’s Republican mayor.26 Calder, Anspach, Stanton, and Carhart were by no means the only well-connected Republicans to secure valuable military contracts during the Civil War. Yet, on balance, the vast majority of the largest contracts went not to political operatives new to military procurement who were capitalizing on their political connections with Republican party leaders, but rather to wellestablished firms that had distinctive organizational capabilities in the manufacturing or marketing of particular supplies. Often these firms had a long-standing relationship with the Quartermaster’s Department—which meant that they had worked primarily under Democratic administrations, since before the Republican victory in 1860 the Democrats had controlled the White House for all but eight of the past thirty-two years. The preference of procurement officers for proven suppliers becomes particularly evident if one surveys military procurement in its entirely, rather than focusing on the most notorious instances of partisan influence, such as those involving Secretary Cameron. Of the several thousand major wartime contracts that the Quartermaster’s Department entered into during the Civil War, relatively few went to Republican party stalwarts.27 In the case of wagons, for instance, all the top three suppliers were firms with unusually large, mechanized manufacturing facilities that had previously filled orders for the 1857–58 Utah Expeditions. Several of the leading textile contractors—upon whom the army lavished millions of dollars—had also landed contracts with

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the military before the war. So too had the handful of foundries that provided the Union with its heavy artillery. The single largest contractor in dollar terms, New York wholesale clothier John T. Martin, had made a fortune before the war and was celebrated for his refusal to align himself with any political party. That Martin felt confident to remain nonpartisan was surely due in part to the continuing leadership in the procurement project of career army officers who admired nonpartisanship, regarded themselves as nonpartisan, and lacked close ties to the party in power. While military procurement remained distinct from the Republican party machine, it would be a mistake to characterize it as apolitical. Depot chiefs had political priorities; they were just not necessarily those of Republican party leaders. Indeed, in certain instances, they displayed a remarkable gift for what one might call political entrepreneurship. To only a limited extent did their bureaucratic autonomy stem from the reputation of specific quartermasters for administrative expertise.28 Far more important was the formal authority they enjoyed as high-level government administrators, in combination with the sheer magnitude of the task that had been assigned, and the inability of a Congress that was itself overwhelmed by the national crisis to monitor their performance. Nowhere was the bureaucratic autonomy of the Quartermaster’s Department more evident in the establishment by several depot chiefs— including Thomas Swords in Cincinnati and George H. Crosman in Philadelphia—of government-owned-and-operated arsenals to manufacture supplies that they could otherwise have from contractors in the open market. By 1864, the Quartermaster’s Department employed more than one hundred thousand civilians—including teamsters, blacksmiths, and seamstresses—making it far and away the largest single employer of civilian labor in the United States.29 Had depot chiefs harbored deep-seated antistatist, pro-market proclivities, it seems improbable that they would have supported such a massive expansion in the size of the federal workforce. Yet they did. To be sure, the army had relied on public enterprise before the Civil War: rifles, for example, had long been manufactured in government owned-and-operated arsenals. Yet the wartime expansion in civilian hiring went well beyond any prewar precedent: far more than merely the unintended consequence of an unplanned, ad hoc improvisation that would have been more or less inevitable in a time of national crisis, it was the deliberate result of a political calculus to expand the organizational capabilities of the state. Among the largest of these government facilities were the clothing halls that John Dickinson coordinated in Cincinnati. By the end of 1861,

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Dickinson’s halls bustled with the activity of over two thousand government employees, most of them women and girls. In four years, they turned out nearly three hundred thousand tents and more than 2.8 million garments.30 Far from regarding public enterprise as an unfortunate expedient called forth by military exigency, Dickerson regarded it as an “experiment” in cost-savings. Public enterprise, Dickerson boasted to a congressional committee in early 1862, could manufacture finished garments and tents for between 10 percent and 25 percent less than what contractors charged.31 Dickerson may have exaggerated the savings he attained by relying on public enterprise. Yet the political calculus that led him to establish the clothing halls extended well beyond mere considerations of economic efficiency. Public enterprise, Dickerson assumed, was also good politics. Procurement officers fully shared the widening popular revulsion at the unsettling spectacle of contractors growing rich on the home front while common soldiers fought and died on the battlefield. To mitigate this perplexing problem, they combined contracting with government manufacturing. In so doing, they coordinated a hybrid military economy that relied not only on thousands of outside suppliers but also on tens of thousands of civilian employees.32 Public enterprise assisted the procurement project in several ways. In addition to curtailing war profiteering, it increased the ability of procurement officers to monitor product quality, and, perhaps most important of all, created thousands of jobs paying decent wages that would help sustain the many northerners, including the families of soldiers who had been hard hit by the war crisis. The superiority of public to private enterprise was underscored by Cincinnati depot chief Thomas Swords in a report filed in the autumn of 1863. “Clothing should, as far as practicable,” Swords recommended, be manufactured by the Quartermaster’s Department, “by which means a better article can be secured, and employment given to the families of soldiers in the field at more remunerative prices than now paid by contractors.”33 The establishment by army officers of huge public enterprises enabled them to institute their own distinct version of patronage politics. Like party leaders, army officers became adept at distributing the spoils. Yet their objective was less partisan than paternalistic. Intent on bolstering public support for the war effort, they established a patronage machine to reward the families of Union soldiers. The clothing industry had been particularly hard hit by the war—markets were disrupted when trade with the South had been suspended—and depot chiefs came to regard government-run clothing halls as an antipoverty

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measure. From the standpoint of economic efficiency, observed St. Louis depot chief Robert Allen in 1862, the St. Louis clothing halls should be shuttered: indeed, this was a goal that he himself had initially favored. Yet Allen recognized that the war-induced recession had rendered their shutdown politically impossible. “Such a step,” Allen informed Meigs, would occasion “much more distress than I had imagined”: “The appeals of starving women are entitled to consideration and sympathy, and I am myself, fully impressed with it.”34 The St. Louis clothing halls stayed open. Many procurement officers went so far as to reserve the jobs they created for the relatives of soldiers in the field. Philadelphia supply depot chief George H. Crosman promulgated such a policy in 1863. Crosman oversaw the army’s largest clothing and equipage arsenal, which employed roughly 650 men and women within its walls and an additional 5,000 women who worked out of their homes as seamstresses. The men and women Crosman employed recognized that Crosman’s policy was not simply a public welfare measure, but a deliberate attempt to deploy government patronage to boost the war effort.35 During the Civil War, the bureaucratic autonomy of the Quartermaster’s Department became manifest. Military procurement had been always more bureaucratic than partisan: the Civil War put the department’s bureaucratic administration to its severest test and it survived. The bureaucratic character of Civil War military procurement is evident in the partisan affiliation of high-ranking procurement officers, the disbursement of contracts, and the reliance of procurement officers on public enterprise. Although the procurement project was never altogether detached from partisan politics, it did remain remarkably independent of the Republican party. In no sense was it a jerry-built expedient of wartime volunteers that was easily co-opted by party leaders and that left no legacy after the crisis had passed. On the contrary, it built upon prewar precedent, was coordinated by career army officers, and popularized a then-novel organizational form—bureaucratic administration—that would be widely emulated by American government and business in the years to come. In 1859, Quartermaster General Thomas Jesup pondered the notorious logistical nightmares that had haunted Europe’s great powers during the Crimean War of 1854–56. Had the United States military taken part in that conflict, Jesup predicted, it would have performed better than the English or the French. “We are as far ahead of France [and] England in military administration,” Jesup boasted to a subordinate, “as we are in our

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political institutions.”36 It would be tempting to discount Jesup’s prediction as the empty boast of an aging general. Jesup was seventy-one at the time and in declining health; he would die the following year. And in no sense was Jesup an impartial observer. For the past forty-one years, he himself had been in charge of military logistics for the U.S. army. In addition, it is worth recalling that Jesup’s own administrative record was hardly unblemished: just two years earlier, during the first Utah Expedition, his own bureau had come close to presiding over a logistical disaster. Even so, Jesup’s claim was by no means implausible. After all, the supply bureaus that Jesup had built up during his long military career would be largely responsible for the provisioning of the Union army during the Civil War. The Quartermaster’s Department over which Jesup presided would emerge, by the 1850s, as one of the largest organizations in the United States. Few organizations of any kind could match the size of its budget, the complexity of its administration, or the geographical range of its operations. In addition, as many historians have begun only recently to acknowledge, it was a cornerstone of the early national state. The importance of the military in the nineteenth-century United States was far greater than is often supposed. Had the United States not possessed an effective military, it is hard to believe that it could have conquered so much territory in such a short period of time.37 It was here, in the recently conquered lands of the West and South, that the limitations of the “courts and parties” paradigm of the early American political development are most conspicuous. On the far-flung frontier, the most important representatives of the federal government were neither judges nor politicians. Rather, they were army officers.38 Indeed, the ubiquity of the army in this region is a major reason that specialists in the history of the West have dubbed it the “kindergarten of the American state.”39 The indispensability of the military in the territorial expansion of the United States extended well beyond the subjugation of Indian tribes and the defeat of foreign foes. In addition, it played a major role in many realms not directly related to warfare and coercion, including manufacturing, exploration, engineering, transportation, and diplomacy.40 One additional realm in which the military proved influential was in administration. To an extent that is often overlooked, the army was one of the most important single incubators of bureaucratic methods in the nineteenth-century United States. Few other institutions had the resources to develop a comparable cadre of administrators with the necessary capabilities to oversee large organizations. The army officer corps was a self-conscious elite whose members, by virtue of their common education at the U.S. military academy at West Point, had been steeped in

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the meritocratic ethos so often fostered by institutions of higher education. Unlike party leaders—yet, in certain respects, like judges—army officers presumed their special authority to derive ultimately from their commitment to a nonpartisan ideal of public service. In this way, they internalized several of the core values that are commonly associated with professionalism.41 And within the officer corps, few groups were more cohesive, or more committed to professional norms, than the staff of the Quartermaster’s Department.42 Education and professional identity set army officers apart from politicians, businessmen, and other elite Americans. So too did the leadership skills they acquired as career army officers. Most had spent at least part of their career on the western frontier policing the country’s growing continental empire. These tours of duty in the trans-Mississippi West— which often entailed extended periods of physical isolation, far from the direct oversight of elected officials—honed the career officers’ already well-developed sense of psychological independence.43 It was, thus, perhaps not surprising that, during the Civil War, the senior procurement officers Thomas Swords and John Dickerson saw nothing unusual about relying on public enterprise. Both were ambivalent not only about party politics but also about private enterprise—and, above all, by military contractors easily characterized as rapacious war profiteers. Although army officers regarded themselves as professionals, the organizations in which they served were at their core not professional but bureaucratic. That the army was a bureaucratic institution should not occasion much surprise: had it been organized in any other way, it is hard to imagine how the West could have been won. The origins of the bureau system—the incubator of bureaucracy in the U.S. army, and, to an extent that is often overlooked, in the United States as well—dated back to the years immediately following the War of 1812, when Secretary of War John C. Calhoun instituted it in the War Department.44 Of the various bureaus that Calhoun established, the Quartermaster’s Department was one of the most important. Once established, it would remain substantially unchanged until the twentieth century. The Quartermaster’s Department was headed up by General Thomas Jesup from the moment of its establishment in 1818 until Jesup’s death in 1860. Jesup was perhaps the most influential champion of bureaucratic management of his generation. A stickler for rules and regulations, Jesup drew selectively upon European models in a determined effort to build an organization that was capable of coordinating logistics on a large scale over an extended territory for an extended period of time.45 By the 1850s, the annual budget of the Quartermaster’s

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Department was well over $5 million a year; in size, scale, and administrative complexity, it was one of the most economically powerful organizations in the country. The administrative complexity of the prewar Quartermaster’s Department underscored the precocity of the military as an incubator of bureaucratic autonomy. Not until the final decades of the nineteenth century would its organizational capabilities be outpaced by the industrial corporation. And in no sense was it subordinate to Congress—even though individual congressmen did remain influential in the disbursement of contracts and jobs.46 To be sure, party leaders retained influence over the military throughout the nineteenth century, not only in Congress (which controlled the army’s budget) but also in the White House.47 Yet neither the Congress nor the White House had much influence over the decisions made by the quartermaster general and his farflung staff. In peacetime, the power of the Quartermaster’s Department remained largely latent, with the important exception of the frontier, where it was often manifest. Yet it had the potential to become manifest whenever the country went to war—as, of course, it would in 1861. Interestingly, though army depot chiefs might, as avatars of bureaucratic modernity, have been expected to favor a highly centralized command economy, in practice they did not. Rather, they promoted a decentralized network of supply depots that accorded with the aversion to the centralization of power that was such a central theme of the American political tradition.48 Any characterization about the relationship between the army and the civil government is a matter of perspective. From what one might call the macro level of national politics, military administration could be plausibly characterized as fully compatible with civilian control, just as the founders of the republic had intended. Yet if one shifted to the mezzo level of individual supply depot chiefs, the picture became more complex. At the mezzo level, the army, including the supply depots, resembled a force that was autonomous or even oppositional.49 And, finally, at the micro level, individual army officers were rarely wholeheartedly enthusiastic—or, for that matter, altogether hostile—about either the political jockeying that their contemporaries called democracy or the market competition traditionally associated with capitalism. All in all, as military historian Samuel J. Watson has argued, the army officer corps in the early nineteenth century was more paternalistic and conservative than it was liberal, in the nineteenth-century sense of opposing big government and championing private enterprise.50 The ambivalence toward democracy and capitalism became evident during the Civil War, when many army

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officers proved willing to challenge, either directly or indirectly, the prerogatives of elected public officials and the logic of the marketplace. The political scientist Ira Katznelson has recently published a bold essay in which he criticized political scientists and historians alike for characterizing the early American state as a mere state of “courts and parties.” Katznelson was by no means the first to mount such a critique, yet his stature in the field gave his admonition a special force. In addition, and no less importantly, Katznelson faulted his peers for failing to integrate the military into their models of American political development.51 In no sense, Katznelson emphasized, has the military come to loom large only in only the relatively recent past. On the contrary, it has been a major force throughout the entire sweep of American history. In the early nineteenth century, Katznelson observed, military outlays accounted for nearly three-quarters of all federal government expenditures.52 What was needed, Katznelson concluded, was nothing less than a new research program that put the military at the center of the “liberal state.” Such a research program, he predicted, would take as a major premise the presumption that, in the pre–Civil War period, the military had been “guided primarily by Congress.” In addition, it would develop the insight that, by creating a state of “light mobilization” effective in protecting commerce and guarding sovereignty, the United States had established the “archetype for a new, post-absolutist pattern of state formation.”53 Katznelson’s research program has the potential to significantly expand our understanding of the early American state. After all, the military has long been marginalized in general accounts of the American past.54 Yet there is good reason to question his presumption that, in the nineteenth-century United States, the military was, in fact, subordinate to Congress. That a liberal democracy and a strong military can coexist has been an article of faith for champions of what one might call AngloAmerican military exceptionalism.55 For Katznelson, as for the eminent British historian John Brewer, the existence of a powerful military establishment need not entail the creation of nondemocratic governmental institutions to oversee its administration.56 Military exceptionalism is by no means without foundation: military-civilian relations in the United States and Great Britain have followed a trajectory different from military-civilian relations in nineteenth-century Prussia or twentieth-century Brazil. Still, it would be a mistake to presume that, even in the nineteenth century, the U.S. army had in fact remained altogether subordinate to Congress. The army was not simply an instrument of the liberal state, as Katznelson at certain points seemed to imply. Rather, through the military, liberalism and

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illiberalism were, as Katznelson himself recognized in another passage, “intertwined” as “in a braid.”57 Just as the long-standing neglect of the military has led historians to overlook certain key features of American political development in the pre–Civil War period, so too it has prevented them from recognizing the extent to which, in the post–Civil War period, the military served as an incubator of bureaucratic administration in both government and business. To be sure, few of the military officers who played key roles in Civil War military procurement would themselves emerge as key innovators in the burgeoning matrix of bureaucratic organizations that would so decisively reshape American government and business in the final decades of the nineteenth century. “The time was rapidly approaching,” as former Civil War procurement officer Stewart Van Vliet wistfully reflected in 1891, “when our photos will be our sole representation.”58 Van Vliet was correct to recognize that the quartermasters themselves had faded into obscurity. Even so, the organization in which they had served, both before and during the Civil War, would exert a subtle yet pervasive influence on American institutions for decades to come. The history of the United States is often contrasted with the history of Europe as being distinctive—or “exceptional”—to the extent that the primary bearers of organizational modernity were not government administrators but business leaders. In the United States and in the United States alone, or so organizational exceptionalists contend, big business preceded big government—a sequence presumed to have enormous significance for the future course of American government and business. Organizational exceptionalism is open to challenge on various counts. In particular, as the preceding discussion suggests, it neglected the extent to which the most important single organizational innovation in nineteenth-century America—namely, the emergence of modern bureaucratic administration—originated neither in business nor even in such civilian government bureaucracies as the Post Office Department, but rather in the military. Historians often characterize the final two decades of the nineteenth century as a defining moment in the emergence of the modern United States. It was in these decades and not before—or so these historians presume—that bureaucratic administration first emerged in both government and business. An entire interpretative tradition, known as the “organizational synthesis,” has been built around the significance of this transformation. In this view, the principal architects of modern America were the managers of the newly established industrial corporations, who, in conjunction with middle-class professionals, introduced to business and government the bureaucratic methods devised in previous decades by the

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managers of the nation’s leading railroads.59 Although this transformation occurred over a relatively short period of time, the bureaucratization of business is presumed to have preceded the bureaucratization of government.60 Only after the industrial corporation had emerged would government administrators emulate business managers, in an attempt to meet the novel challenges that the ascendancy of the industrial corporation had posed.61 The final chapter in this drama of bureaucratic challenge and response is said to have occurred during the opening decades of the twentieth century, when business managers and middle-class professionals introduced bureaucratic administration to the military, awakening it from the lethargy into which it had fallen immediately after the Civil War.62 The exceptionalist rendering of American modernity had long been associated with business historian Alfred D. Chandler Jr. More than anyone else, Chandler popularized the idea that the railroad was the seedbed of organizational innovation in both business and government. For Chandler, as for so many of the historians who have followed his lead, big business preceded big government, and the American state was, in the nineteenth-century, at best a bit player in the national stage. “In the United States,” Chandler explained, and only in the United States, “the railroad, not government or the military, provided training in modern large-scale administration.” To support his claim, Chandler observed that, in 1891, a single corporation—the Pennsylvania Railroad—employed some 110,000 people, nearly three times as many people as the army and navy combined.63 Chandler’s thesis has been widely influential: a few years ago, for example, it was explicitly endorsed by the eminent cultural historian Michael Kammen.64 One problem with the exceptionalist rendering of American modernity is that it relies upon a highly selective chronological frame. By choosing 1891 as his baseline, Chandler ensured that the balance between government and business would be tilted heavily toward the latter. After all, this was an era in which the United States confronted few foreign foes and the army had relatively little to do. Had Chandler instead chosen a year during the Civil War—an event that he mostly ignored—the military would have loomed far larger. The “great operation of war” in 1861–65, observed railroad promoter and soon-to-be railroad regulator Charles Francis Adams Jr. in 1871, taught “lessons” in finance and logistics that were “not likely to be lost” on postwar business leaders, including the leaders of the burgeoning industrial corporations.65 Adams’s insight was one that champions of the “organizational synthesis” have mostly ignored. Organizational innovations spurred by the military shaped the emergence of bureaucratic methods in government as well as in business.

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Although the first major piece of civil service reform legislation would not be enacted until 1883, the origins of the civil service reform movement dated back to the immediate post–Civil War period, when reformers hailed the organizational achievement of the union army in the Civil War as a template for both government and business.66 The significance of this achievement has been obscured by the reluctance of historians to treat the post–Civil War, Civil War, and pre–Civil War periods together. If they did so, it would become easier to highlight continuities between the postwar transformation of government and business and the prewar transformation of the army. Long before 1861, the army officer corps had embraced not only bureaucratic methods but also an unmistakable ambivalence toward both capitalism and democracy. The marginalization of the military as an agent of change not only obscured the lineage of bureaucratic administration but also has promoted a troubling myth of national innocence. Historical narratives that stress the “exceptional” character of the American experience have long been appealing, as the cultural historian Daniel T. Rodgers has suggested, since they explain why the historical trajectory of the United States has been so different from that of Europe—a region that, especially after the two world wars of the twentieth century, could plausibly be characterized as perpetually plagued by militarism, war, and revolution.67 Against such a backdrop, the United States appeared singularly fortunate. In addition to have been relatively peace-abiding, it was blessed with a heritage of democratic institutions that antedated the emergence of bureaucratic organizations of any kind. Its rendezvous with bureaucracy was recent, distinctive, and benign: schooled by business leaders rather than government officials in the techniques of modern management, the United States would find itself almost accidentally elevated to superpower status by the incompetence of the rest of the world.68 Each of the major tenets of the exceptionalist creed has been challenged by historians of American imperialism; yet their critique has been easily deflected, since the phenomenon they typically highlight occurred on the nation’s geographical periphery.69 Recent scholarship on the nineteenth-century American military poses a different, and in some ways, more fundamental, challenge, since it demonstrates how military institutions not only managed a vast empire on the periphery but also hastened organizational innovation in both government and business at the nation’s core. In the end, this essay cannot settle once and for all the question of whether the United States in the nineteenth century was, in comparison with Europe, nonmilitarized not only in the sense that its military institutions were small and uniquely nonmilitaristic but also in the extent to

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which its political leaders discounted martial ideals.70 Either way, the history of military procurement during the Civil War demonstrates that, even in the nineteenth-century United States, military institutions did in fact exert a great deal of bureaucratic autonomy. In peacetime, the power of the military was latent; in wartime, it quickly became manifest. At no time, however, was it was altogether absent. Too often overlooked in the past, military institutions are fast emerging in the uncertain world of today as a key to our future. It is high time that historians accord them the attention they have always deserved. University of North Carolina at Charlotte

Acknowledgments An early draft of this essay was presented at the 2004 Policy History Conference. It was revised in 2004–5 during a postdoctoral fellowship at the Olin Institute for Security Studies at Harvard University. For comments and suggestions, I owe special thanks to Dirk Bönker, James L. Huston, Richard R. John, Ira Katznelson, Bartholomew Sparrow, Steven W. Usselman, and Samuel J. Watson. Notes 1. The characterization of Union military procurement as a pork-barrel project for Republican party leaders is based primarily on scholarship published before 1945—for example, Carl Russell Fish, The Civil Service and the Patronage (New York, 1905), 158–72, and Harry J. Carman and Reinhard H. Luthin, Lincoln and the Patronage (New York, 1943). Echoes of this work reverberated in later scholarship—for example, Paul P. Van Riper, History of the United States Civil Service (Evanston, 1958), 43; Patricia Wallace Ingraham, The Foundation of Merit: Public Service in American Democracy (Baltimore, 1995), 21–22; and Adam I. P. Smith, “Beyond Politics: Patriotism and Partisanship on the Northern Home Front,” in An Uncommon Time: The Civil War and the Northern Home Front, ed. Paul A. Cimbala and Randall M. Miller (New York, 2002), 169. Even thoughtful and perceptive recent calls to expand our understanding of nineteenth-century politics tend to reinforce the traditional consensus about party and patronage. See, for example, Ronald P. Formisano, “The ‘Party Period’ Revisited,” Journal of American History 86 (June 1999): 96–97. For a critical survey of the party-period paradigm that calls for a renewed emphasis on political economy, see Richard R. John, “Farewell to the ‘Party Period’: Political Economy in Nineteenth-Century America,” Journal of Policy History 16:2 (2004): 117–25. See also Mark E. Neely Jr., The Union Divided: Party Conflict in the Civil War North (Cambridge, Mass., 2002). Even in the New York Custom House, Neely observed—the very cynosure of the spoils system during the Civil War—Republican party leaders left dozens of Democratic employees undisturbed (21–27). On the adoption of the party-period paradigm by social scientists, see Michael F. Holt, “Change and Continuity in the Party Period:

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The Substance and Structure of American Politics, 1835–1885,” in Contesting Democracy: Substance and Structure in American Political History, 1775–2000, ed. Byron E. Shafer and Anthony J. Badger (Lawrence, Kans., 2001), 93–115. The persistence of outdated stereotypes regarding Civil War military procurement had been impeded by the simple fact that several leading students of nineteenth-century government administration skipped over the Civil War. This is true, for example, of both Leonard D. White and Mark W. Summers. For example, White’s four-volume administrative history of the United States jumped from 1861 in The Jacksonians: A Study in Administrative History, 1829–1861 (New York, 1954) to 1869 in The Republicans: A Study in Administrative History, 1869–1901 (New York, 1956). Similarly, Summers’s overview of political corruption took the story up to the Civil War in The Plundering Generation: Corruption and the Crisis of the Union, 1848–1861 (New York, 1987), and then picked up in Reconstruction in The Era of Good Stealings (New York, 1993). 2. Stephen Skowronek, Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (New York, 1982), 30; Richard Franklin Bensel, Yankee Leviathan: The Origins of Central State Authority in America, 1859–1877 (Cambridge, 1990), 236. The presumption that Civil War military procurement was coordinated by Republican party leaders has been widely accepted by social scientists. See, for example, Charles Bright, “The State in the United States during the Nineteenth Century,” in Statemaking and Social Movements: Essays in History and Theory, ed. Bright and Susan Harding (Ann Arbor, 1984); Theda Skocpol, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States (Cambridge, Mass., 1992), 86–87; Bernard S. Silberman, Cages of Reason: The Rise of the Rational State in France, Japan, the United States, and Great Britain (Chicago, 1993), 250; and Matthew G. Hannah, Governmentality and the Mastery of Territory in Nineteenth-Century America (New York, 2000), 34. 3. The concept of bureaucratic autonomy is developed in Daniel P. Carpenter, The Forging of Bureaucratic Autonomy: Reputations, Networks, and Policy Innovation in Executive Agencies, 1862–1928 (Princeton, 2001). Autonomy, Carpenter stressed, was never absolute: unrestrained autonomy was the “stuff of deities, not political actors” (18). Yet even the limited autonomy attained by certain late nineteenth-century middle-level administrators in the Post Office Department and the Department of Agriculture gave them the power to outmaneuver elected officials—even in a government that was ostensibly democratic, and thus under tight congressional control. 4. For a more extended discussion of the “mezzo” level of government administration, see Carpenter, Forging of Bureaucratic Autonomy, 18–25. 5. Ira Katznelson, “Flexible Capacity: The Military and Early American Statebuilding,” in Shaped by War and Trade: International Influences on American Political Development, ed. Katznelson and Martin Shefter (Princeton, 2002), 82–110. According to one leading historically oriented political scientist, Katznelson’s essay “confirmed” the presumption that party leaders dominated the military in nineteenth-century America. Daniel P. Carpenter, “The Multiple and Material Legacies of Stephen Skowronek,” Social Science History 27 (Fall 2003): 469–70. Carpenter’s conclusion, however, is belied by Katznelson himself, who conceived of his essay as exploratory and an invitation to new empirical research rather than a summary of an existing consensus. 6. To bring the military “back” in would be, in the context of U.S. historical writing, anachronistic, since few historians have ever regarded the military as an agent of change. 7. Russell F. Weigley, Quartermaster General of the Union Army: A Biography of M. C. Meigs (New York, 1959). 8. For basic biographical information on Allen, Crosman, Dickerson, Swords, and Van Vliet, see George W. Cullum, Biographical Register of the Officers and Graduates of the U.S. Military Academy, 3d ed. (Boston, 1891), 1:345–46, 436–37, 651–53; 2:30–31, 313. 9. File 351, reel 34 (Swords), and file 49, reel 67 (Allen), U.S. Military Academy Cadet Application Papers, 1805–66, National Archives Microfilm Publication M688.

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10. James L. Morrison Jr., “The Best School in the World”: West Point, the Pre–Civil War Years, 1833–1866 (Kent, Ohio, 1986). 11. Samuel J. Watson, “Manifest Destiny and Military Professionalism: Junior U.S. Army Officers’ Attitudes towards War with Mexico, 1844–1846,” Southwestern Historical Quarterly 99 (April 1996): 466–98. 12. The nineteenth-century army and its officer corps is the subject of two excellent books: Edward M. Coffman, The Old Army: A Portrait of the American Army in Peacetime, 1784–1898 (New York, 1988), and William B. Skelton, An American Profession of Arms: The Army Officer Corps, 1784–1861 (Lawrence, Kans., 1992). 13. Harry C. Myers, ed., “From ‘The Crack Post of the Frontier’: Letters of Thomas and Charlotte Swords,” Kansas History 5 (Winter 1982): 184–213; Erna Risch, Quartermaster Support of the Army: A History of the Corps, 1775–1939 (Washington, D.C., 1962), 278–80; Neal Harlow, California Conquered: War and Peace on the Pacific, 1846–1850 (Berkeley and Los Angeles, 1982), 201, 274–75. 14. Van Vliet to Jesup, 9 August 1857, box 1174, e. 225, Record Group 92 (Records of the Office of the Quartermaster General), National Archives, Washington, D.C. [cited hereafter as RG 92, NA]. The standard history of the Utah expeditions remains Norman F. Furniss, The Mormon Conflict, 1850–1859 (New Haven, 1960). 15. W. Turrentine Jackson, Wagon Roads West: A Study of Federal Road Surveys and Construction in the Trans-Mississippi West, 1846–1869 (Berkeley, 1952), 132–34. 16. Utah Expedition, 35th Cong. 1st sess., 1858, H. Exec. Doc. 71, serial 956; Dickerson to Jesup, 20 November 1857; Dickerson, “Abstract of Quartermaster’s Property in Possession of the Army of Utah,” 31 December 1857; both in box 1174, e. 225, RG 92, NA. 17. On the Quartermaster’s Department during the Civil War, see Weigley, Quartermaster General, and Risch, Quartermaster Support. 18. On Ekin, see Biographical History of Eminent and Self-Made Men of the State of Indiana (Cincinnati, 1880), 1:13–16. On the Moulton-Sherman relationship, see J. K. Butterfield to John Sherman, 12 April 1864, reel 1, John Sherman Papers, Library of Congress (microfilm edition). On Samuel L. Brown and his father, see William H. Brown to Lincoln, 19 October 1861, in 2215 ACP 1882, RG 94 (Records of the Adjutant General’s Office), National Archives; Roger D. Hunt and Jack R. Brown, Brevet Brigadier Generals in Blue (Gaithersburg, Md., 1990), 83; and Frederic Cople Jaher, The Urban Establishment: Upper Strata in Boston, New York, Charleston, Chicago, and Los Angeles (Urbana, 1982), 461–62. 19. Recent research suggests there is still some disagreement about the relative importance of partisanship in the appointment of field officers. In Andrew J. Polsky, “‘Mr. Lincoln’s Army’ Revisited: Partisanship, Institutional Position, and Union Army Command, 1861–1865,” Studies in American Political Development 16 (Fall 2002): 176–207, the importance of partisanship was downplayed. In Thomas J. Goss, The War within the Union High Command: Politics and Generalship during the Civil War (Lawrence, Kans., 2003), on the other hand, partisan politics loomed larger. 20. The long-accepted view that party competition helped the Union win the war has recently been challenged by Mark E. Neely Jr. See, for example, Neely, Union Divided, esp. 1–6, 173–201. The political division between officers and volunteers within the supply depots lends support to Neely’s conclusion. Still, it is possible that the refusal of depot chiefs to purge Democrats may have bolstered the Union’s war effort by increasing the legitimacy of the procurement project among the many northerners who remained less than enthusiastic about Republican control. 21. Weigley, Quartermaster General, 75, 131; William B. Skelton, “Officers and Politicians: The Origins of Army Politics in the United States before the Civil War,” Armed Forces and Society 6 (Fall 1979): 22–48; Watson, “Manifest Destiny and Military Professionalism.”

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22. The details of Van Vliet’s purchasing activities were subsequently published: David D. Mitchell, 37th Cong. 2d sess., 1862, H. Rpt. C.C. 281, serial 1146. 23. Allen to Polk, 22 January 1846; Allen to Jesup, 6 March 1846 and 13 April 1846; all in box 27, e. 225, RG 92, NA; Crosman to [no first name] Eaton, 4 November 1858, box 13, Eldridge Collection, Huntington Library, San Marino, California. 24. Burnside to Stanton, 27 April 1863, box 504, e. 225, RG 92, NA. For more on Dickerson and wartime Cincinnati, see Clinton W. Terry, “‘The Most Commercial of People’: Cincinnati, the Civil War, and Industrial Capitalism, 1861–1865” (Ph.D. diss., University of Cincinnati, 2002). 25. Hurtt Court-Martial, 43d Cong. 1st sess., 1874, H. Exec. Doc. 255, serial 1614, 289. 26. Government Contracts, Part II, 37th Cong. 2d sess., 1862, H. Rpt. 2, serial 1143, 155–59, 1372–97; M. Hall Stanton to Cameron, 22 March 1865, reel 9, Cameron Papers, Library of Congress (microfilm); “Mr. M. Hall Stanton,” Harper’s Weekly 20 (12 February 1876): 127; Carman and Luthin, Lincoln and the Patronage, 290–92; The Great Libel Case: Opdyke vs. Weed (New York, 1865). 27. For more detail, see Mark R. Wilson, “The Business of Civil War: Military Enterprise, the State, and Political Economy in the United States, 1850–1880” (Ph.D. diss., University of Chicago, 2002). 28. The importance of reputation is a central theme of Carpenter, Forging of Bureaucratic Autonomy. 29. Although no one doubts that the Quartermaster’s Department employed an enormous number of civilians during the Civil War, the precise size of this workforce remains uncertain. Van Riper and Sutherland put the total in 1865 at 130,000; Paul P. Van Riper and Keith A. Sutherland, “The Northern Civil Service, 1861–1865,” Civil War History 11 (December 1965), 351–69. One contemporary put the total in 1863–64 at 93,700. J. J. Dana to A. B. Eaton, 6 October 1864, vol. 80, p. 216, reel 48, National Archives Microfilm Publication M745 (Letters Sent from the Office of the Quartermaster General, Main Series). 30. “Observations in the Quartermaster’s Department,” Cincinnati Daily Commercial, 2 December 1861; Report of Capt. C. E. Bliven, 30 September 1865, box 316, e. 225, RG 92, NA. See also Mark R. Wilson, “The Extensive Side of Nineteenth-Century Military Economy: The Tent Industry in the Northern United States during the Civil War,” Enterprise and Society 2 (June 2001): 297–337. 31. For Dickerson’s testimony, see Government Contracts, part II, 741–43, 934–39. 32. Wilson, “Business of Civil War,” esp. chaps. 4–5. 33. For Swords’s annual report for 1863, see vol. 5, e. 1127, RG 92, NA. 34. Allen to Meigs, 3 February 1862, in Records of Quartermaster William Myers, vol. 1, e. 381, RG 92, NA. 35. Crosman payrolls, e. 238, second subseries (oversize), 1864, RG 92, NA; Crosman to Quartermaster General’s Office, 30 July 1864, vol. 23, e. 999, RG 92, NA; North American & U.S. Gazette, 27 July 1863, 24 August 1863; “Philadelphia Seamstresses— Meeting of Women Employed in the U.S. Arsenal,” Fincher’s Trades Review, 8 August 1863. See also J. Matthew Gallman, Mastering Wartime: A Social History of Philadelphia during the Civil War (New York, 1990), 243, and Rachel Filene Seidman, “Beyond Sacrifice: Women and Politics on the Pennsylvania Homefront during the Civil War” (Ph.D. diss., Yale University, 1995), 144–46. 36. Jesup to Justus McKinstry, 6 September 1859, vol. 53, p. 406, reel 34, M745. 37. For a related discussion, see Fred Anderson and Andrew Cayton, The Dominion of War: Empire and Liberty in North America, 1500–2000 (New York, 2005). 38. For an overview of the combat operations of the U.S. military in the West during the nineteenth century, see Francis Paul Prucha, The Sword of the Republic: The United States Army on the Frontier, 1783–1846 (New York, 1969); Robert M. Utley, Frontiersmen in Blue: The United States Army and the Indian, 1848–1865 (New York, 1967); and Utley, Frontier Regulars: The United States Army and the Indian, 1866–1891 (New York, 1973).

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39. Richard White, “It’s Your Misfortune and None of My Own”: A History of the American West (Norman, Okla., 1991), esp. 57–59. See also Stephen J. Rockwell, “Building the Old American State: Indian Affairs, Politics, and Administration from the Early Republic to the New Deal” (Ph.D. diss., Brandeis University, 2001), 63–64, 88; and Katznelson, “Flexible Capacity,” 98–99. The pivotal role of the military in the making of the West—from exploration and road-building to military contracting and the administration of national parks—has long been emphasized by historians of the region. Jackson, Wagon Roads West; Francis Paul Prucha, Broadax and Bayonet: The Role of the United States Army in the Development of the Northwest, 1815–1860 (Madison, 1953); Forest G. Hill, Roads, Rails, and Waterways: The Army Engineers and Early Transportation (Norman, Okla., 1957); William H. Goetzmann, Army Exploration in the American West, 1803–1863 (New Haven, 1959); John D. Unruh Jr., The Plains Across: The Overland Emigrants and the Trans-Mississippi West, 1840–1860 (Urbana, 1979), chap. 6; Robert W. Frazer, Forts and Supplies: The Role of the Army in the Economy of the Southwest, 1846–1861 (Albuquerque, 1983); Darlis A. Miller, Soldiers and Settlers: Military Supply in the Southwest, 1861–1885 (Albuquerque, 1989); William A. Dobak, Fort Riley and Its Neighbors: Military Money and Economic Growth, 1853–1895 (Norman, Okla., 1998); Thomas T. Smith, The U.S. Army and the Texas Frontier Economy, 1845–1900 (College Station, Tex., 1999); Michael L. Tate, The Frontier Army in the Settlement of the West (Norman, Okla., 1999); and Christopher McGrory Klyza, “The United States Army, Natural Resources, and Political Development in the Nineteenth Century,” Polity 35 (Fall 2002): 1–28. 40. Key works on the contributions of the army to nineteenth-century economic development include Hill, Roads, Rails, and Waterways; Merritt Roe Smith, Harpers Ferry Armory and the New Technology: The Challenge of Change (Ithaca, 1977); Todd Shallat, Structures in the Stream: Water, Science, and the Rise of the U.S. Army Corps of Engineers (Austin, 1994); Colleen A. Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (Princeton, 1994); Robert Paul Wettemann Jr., “‘To the Public Prosperity’: The U.S. Army and the Market Revolution, 1815–1844” (Ph.D. diss., Texas A&M University, 2001); and Robert G. Angevine, The Railroad and the State: War, Politics, and Technology in Nineteenth-Century America (Stanford, 2004). The influence of mid-level army officers in the shaping of early American foreign policy is imaginatively explored in Watson, “Manifest Destiny and Military Professionalism,” and Watson, “United States Army Officers Fight the ‘Patriot War’: Responses to Filibustering on the Canadian Border, 1837–1839,” Journal of the Early Republic 18 (Fall 1998): 485–519. 41. Samuel J. Watson, “Professionalism, Social Attitudes, and Civil-Military Accountability in the United States Army Officer Corps, 1815–1846” (Ph.D. diss., Rice University, 1996); Skelton, American Profession of Arms. In the first half of the nineteenth century, as Watson demonstrated, the navy lagged behind the army in establishing a service academy and instituting a formal administrative organization. On navy officers, see Peter Karsten, The Naval Aristocracy: The Golden Age of Annapolis and the Emergence of Modern American Navalism (New York, 1972); Christopher McKee, A Gentlemanly and Honorable Profession: The Creation of the U.S. Naval Officer Corps, 1794–1815 (Annapolis, 1991); and Donald Chisholm, Waiting for Dead Men’s Shoes: Origins and Development of the U.S. Navy’s Officer Personnel System, 1793–1941 (Stanford, 2001). 42. Watson, “Professionalism, Social Attitudes, and Civil-Military Accountability,” 728. For a similar conclusion, see Charles F. O’Connell Jr., “The Corps of Engineers and the Rise of Modern Management, 1827–1856,” in Military Enterprise and Technological Change: Perspectives on the American Experience, ed. Merritt Roe Smith (Cambridge, Mass., 1985), 89–90; Keith W. Hoskin and Richard H. Macve, “The Genesis of Accountability: The West Point Connections,” Accounting, Organizations and Society 13:1 (1988), 37–73; and Robert G. Angevine, “Individuals, Organizations, and Engineering: U.S. Army Officers and the American Railroads, 1827–1838,” Technology and Culture 42 (April 2001): 299. Although Angevine underscored the limited professionalism of the army engineers

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enlisted to help build railroads in the 1830s, he concluded that the army officer corps had become professionalized by 1846. Angevine, Railroad and the State, 109. 43. The physical isolation of army officers may have been at its peak in the 1850s, just after the seizure of huge new territories from Mexico. Before the U.S.-Mexico War, many officers had been posted east of the Mississippi, where contact with civilians was more common. On this point, see Watson, “Professionalism, Social Attitudes, and CivilMilitary Accountability.” The physical isolation of army officers in the post–Civil War period is much debated: John M. Gates, “The Alleged Isolation of U.S. Army Officers in the Late Nineteenth Century,” Parameters 10 (September 1980): 32–36, and Terrence J. Gough, “Isolation and Professionalism of the Army Officer Corps: A Post-Revisionist View of The Soldier and the State,” Social Science Quarterly 73:2 (1992): 420–36. 44. James E. Hewes Jr., From Root to McNamara: Army Organization and Administration, 1900–1963 (Washington, D.C., 1975), 1–6; William B. Skelton, “The Army in the Age of the Common Man, 1815–1845,” in Against All Enemies: Interpretations of American Military History from Colonial Times to the Present, ed. Kenneth J. Hogan and William R. Roberts (New York, 1986), 91–112; O’Connell, “Corps of Engineers and the Rise of Modern Management.” A good introduction to Calhoun’s tenure in the War Department remains Charles M. Wiltse, John C. Calhoun, Nationalist, 1782–1828 (New York, 1944). 45. Chester L. Kiefer, Maligned General: The Biography of Thomas Sidney Jesup (San Rafael, Calif., 1979), 67–118; Watson, “Professionalism, Social Attitudes, and CivilMilitary Accountability,” 617–31; Wilson, “Business of Civil War,” chap. 1. 46. Again, this claim runs counter to the consensus among historians and political scientists. In addition to the sources listed in notes 1 and 2 above, see James Q. Wilson, Bureaucracy: What Government Agencies Do and Why They Do It (New York, 1989), 240–41; Martin Shefter, “War, Trade, and U.S. Party Politics,” in Katznelson and Shefter, Shaped by War and Trade, 117–18. For a more nuanced discussion of army administration that highlights the bureaucratic autonomy of the military bureaus in Washington, see White, Jacksonians. For an important recent study that generally endorsed the “courts and parties” paradigm of the early state while acknowledging that certain “pockets” of the early state did not fit the paradigm, see Carpenter, Forging of Bureaucratic Autonomy, 11, 42, 366. The Quartermaster’s Department was one such “pocket”—before, during, and after the Civil War. 47. The influence on the pre–Civil War military of civilian control and partisan politics is a theme of Marcus Cunliffe, Soldiers and Civilians: The Martial Spirit in America, 1775–1865 (Boston, 1968); Theodore J. Crackel, Mr. Jefferson’s Army: Political and Social Reform of the Military Establishment, 1801–1809 (New York, 1987); and Richard Bruce Winders, Mr. Polk’s Army: The American Military Experience in the Mexican War (College Station, Tex., 1997). See also Edward M. Coffman, “The Duality of the American Military Tradition: A Commentary,” Journal of Military History 64 (October 2000): 967–80. 48. Wilson, “Business of Civil War,” esp. chaps. 3, 6. 49. For a salutary call for more scholarly investigation of the mezzo level of government administration, see Carpenter, Forging of Bureaucratic Autonomy, 18–25. 50. On gentlemanly conservatism and paternalism in the early army officer corps, see Watson, “Professionalism, Social Attitudes, and Civil-Military Accountability,” 610, 850, 1512. On the illiberal dimension of the late eighteenth-century policies that created the U.S. military, see Richard H. Kohn, Eagle and Sword: The Federalists and the Creation of the Military Establishment in America, 1783–1802 (New York, 1975); Max Ebling, A Revolution in Favor of Government: Origins of the U.S. Constitution and the Making of the American State (New York, 2003); and Susan M. Browne, “War-Making and U.S. State Formation: Mobilization, Demobilization, and the Inherent Ambiguities of Federalism,” in Irregular Armed Forces and Their Role in Politics and State Formation, ed. Diane E. Davis and Anthony W. Pereira (Cambridge, 2003), 232–52. 51. Katznelson, “Flexible Capacity,” 83–84, 86–89. For a broader critique of the “courts and parties” paradigm, see Richard R. John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic,

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1787–1835,” Studies in American Political Development 11 (Fall 1997): 347–80, and John, “Farewell to the ‘Party Period.’” 52. Katznelson, “Flexible Capacity,” 91–93. To be sure, several European countries spent more on military outlays, especially in peacetime. The ratio of military to civil expenditures, however, varied from country to country. For comparative statistics on military spending, see Karen A. Rasler and William R. Thompson, War and State Making: The Shaping of the Global Powers (Boston, 1989); Michael Mann, The Sources of Social Power, Volume II: The Rise of Classes and Nation States, 1760–1914 (Cambridge, 1993); and Bruce D. Porter, War and the Rise of the State: The Military Foundations of Modern Politics (New York, 1994). 53. Katznelson, “Flexible Capacity,” 104. 54. The extent to which historians have marginalized the military is part of a more general problem. In virtually every period in American history, the military has been neglected even by those historians who regard state-building as a major focus of their research. On this point, see Gregory Hooks, Forging the Military-Industrial Complex: World War II’s Battle of the Potomac (Urbana, 1991), 4. This neglect is evident in an important recent collection that featured the work of a rising generation of leading political historians. Meg Jacobs, William J. Novak, and Julian E. Zelizer, eds., The Democratic Experiment: New Directions in American Political History (Princeton, 2003). One reason for this neglect is the failure of military historians to highlight broad interpretative themes that go beyond the doggedly chronological recapitulation of key events. Examples of the latter include Russell F. Weigley, History of the United States Army (New York, 1967); Warren W. Hassler Jr., With Shield and Sword: American Military Affairs, Colonial Times to the Present (Ames, Iowa, 1982); Kenneth J. Hagan, This People’s Navy: The Making of American Sea Power (New York, 1991); and Allan R. Millett and Peter Maslowski, For the Common Defense: A Military History of the United States of America (New York, rev. ed., 1994). 55. The persistence of this exceptionalist strain in U.S. historiography distinguishes it from the dominant recent trend in European historiography, which is typically either anti-exceptionalist or post-exceptionalist. See, for example, David Blackbourn and Geoff Eley, The Peculiarities of German History: Bourgeois Society and Politics in Nineteenth-Century Germany (Oxford, 1984); Eley, ed., Society, Culture, and the State in Germany, 1870–1930 (Ann Arbor, 1996); and Dirk Bönker, “Militarizing the Western World: Navalism, Empire, and State-Building in the United States before World War I” (Ph.D. diss., Johns Hopkins University, 2002). This recent work differed markedly from such classic exceptionalist accounts as Gordon A. Craig, The Politics of the Prussian Army, 1640–1945 (New York, 1956). Craig’s history of the Prussian army was clearly shaped by his interest in explaining the origins of a German “problem” that hastened World War II. 56. Katznelson, “Flexible Capacity,” 85–86; John Brewer, The Sinews of Power: War, Money, and the English State, 1688–1783 (Cambridge, Mass., 1988). 57. Katznelson, “Flexible Capacity,” 104. 58. Van Vliet to Thomas W. Sweeny, 30 September 1891, Sweeny Papers, SW 714, Huntington Library; Ezra J. Warner, Generals in Blue: Lives of the Union Commanders (Baton Rouge, 1964), 524. 59. For an overview of state-society relations in many countries that echoed this characterization, see Mann, Sources of Social Power, 2:395, 424, 459. 60. For a classic statement of the centrality of big business to the restructuring of the federal civil service, see Robert Wiebe, The Search for Order, 1877–1920 (New York, 1965). The primacy of big business in shaping the rise of the modern state is also a theme of two influential essays by Louis Galambos: “The Emerging Organizational Synthesis in Modern American History,” Business History Review 44 (Autumn 1970): 279–90, and “Technology, Political Economy, and Professionalization: Central Themes of the Organizational Synthesis,” Business History Review 57 (Winter 1983): 471–93. 61. The primacy of big business in the shaping of the modern administrative state is emphasized even by the several sophisticated accounts of American political development

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that are sensitive to the role of the political economy in the making of the modern United States. See, for example, Skowronek, Building a New American State, 13, and Richard Franklin Bensel, The Political Economy of American Industrialization, 1877–1900 (Cambridge, 2000), 289–91. For a rare dissenting view, see Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, Mass., 1995), and John, “Public Enterprise, Public Good? Communications Deregulation as a National Political Issue, 1839–1851,” in Beyond the Founders: New Approaches to the Political History of the Early American Republic, ed. Jeffrey L. Pasley, Andrew W. Robertson, and David Waldstreicher (Chapel Hill, 2004), 328–54, esp. 332–33. For a recent suggestion that political historians pay more attention to “organizational cultures” and “organizational repertories,” see Paula Baker, “The Midlife Crisis of the New Political History,” Journal of American History 86 (June 1999): 160–61. 62. For an influential characterization of the post–Civil War army as organizationally backward and politically subservient, see Skowronek, Building a New American State, 86–97. Little changed, Skowronek posited, until the early twentieth century, when a number of outsiders—including the New York lawyers Elihu Root and Henry Stimson—recast the army by introducing the efficient methods pioneered by the nation’s leading industrial corporations (212–47). See also Hewes Jr., From Root to McNamara, 6–15, and Ronald J. Barr, The Progressive Army: U.S. Army Command and Administration, 1870–1914 (New York, 1998). One of the few accounts of military reorganization that permitted military officers a modicum of agency is Peter Karsten, “Armed Progressives: The Military Reorganizes for the American Century,” in Building the Organizational Society: Essays on Associational Activities in Modern America, ed. Jerry Israel (New York, 1972), 197–232. Yet even Karsten concluded that the reorganization of the military—like that of many other organizations—followed a corporate template. Breaking ranks with this consensus is a recent dissertation by Terrence Gough, which contended that Root, as secretary of war, had a good deal of guidance from military officers, and embraced business rhetoric for reasons that were tactical rather than substantive, and that grew out of a long-running power struggle within the military itself. Terrence James Gough, “The Battle of Washington: Soldiers and Businessmen in World War I” (Ph.D. diss., University of Virginia, 1997), chap. 1; Gough, “Isolation and Professionalism,” 421–28. 63. Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), 204–5. 64. Michael Kammen, “The Problem of American Exceptionalism: A Reconsideration,” American Quarterly 45 (March 1993): 23. Although many business historians have challenged Chandler’s magisterial account of the rise of big business by underscoring the continuing vitality of small enterprises, few have questioned his related claim that big business pioneered modern managerial techniques. For a rare dissent, see John, Spreading the News; for a succinct restatement of John’s claim that big government preceded big business, even in the United States, see John, “Private Enterprise, Public Good?” 332. Among the many interesting recent books to focus on business enterprises other than the large corporation, see, in particular, Gerald Berk, Alternative Tracks: The Constitution of the American Industrial Order, 1865–1917 (Baltimore, 1994); Philip Scranton, Endless Novelty: Specialty Production and American Industrialization, 1865–1925 (Princeton, 1997); and Andrew Wender Cohen, The Racketeer’s Progress: Chicago and the Struggle for the Modern American Economy, 1900–1940 (Cambridge, 2004). 65. Charles F. Adams Jr., “An Erie Raid,” North American Review 112 (April 1871): 241–42. For a related discussion, see James A. Ward, “Image and Reality: The Railway Corporate-State Metaphor,” Business History Review 55 (Winter 1981): 491–516. For a recent call to revive the thesis floated a half-century ago by Allan Nevins that the Civil War accelerated in the United States the rise of Weberian rationality and bureaucratic organizational forms, see George M. Fredrickson, “Nineteenth-Century American History,” in Imagined Histories: American Historians Interpret the Past, ed. Anthony Molho

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and Gordon S. Wood (Princeton, 1998), 177–79. Fredrickson also touched on this idea in his first book, The Inner Civil War: Northern Intellectuals and the Crisis of the Union (New York, 1965), 209. For Nevins’s thesis, see Allan Nevins, “A Major Result of the Civil War,” Civil War History 5 (September 1959): 237–50. 66. See, for example, Fredrickson, Inner Civil War, 209. For a brief amplification, see Mark R. Wilson, The Business of Civil War: The Politics of U.S. Military Economy in the Era of the Civil War (Baltimore, forthcoming), chap. 6. The standard history of civil service reform remains Ari A. Hoogenboom, Outlawing the Spoils: A History of the Civil Service Reform Movement, 1865–1883 (Urbana, 1961). On the role of the military in providing an organizational template for late nineteenth-century government administration, see Carpenter, Forging of Bureaucratic Autonomy, 76–102, and Carpenter, “The Corporate Metaphor and Executive Department Centralization in the United States, 1888–1928,” Studies in American Political Development 12 (Spring 1998): 162–203. 67. Daniel T. Rodgers, “Exceptionalism,” in Imagined Histories: American Historians Interpret the Past, ed. Anthony Molho and Gordon S. Wood (Princeton, 1998), 21–40. For a discussion of how the exceptionalist impulse has discouraged post–World War II social scientists from exploring the postwar American state, see David Ciepley, “Why the State Was Dropped in the First Place: A Prequel to Skocpol’s ‘Bringing the State Back In,’” Critical Review 14 (2000): 157–213. For a good discussion of the long-standing distinction between German “authoritarian militarism” and American “democracy,” see Irmgard Steinisch, “Different Path to War: A Comparative Study of Militarism and Imperialism in the United States and Imperial Germany, 1871–1914,” in Anticipating Total War: The German and American Experiences, 1871–1914, ed. Manfred F. Boemke, Roger Chickering, and Stig Förster (Cambridge, 1999), 29–53. 68. For a thoughtful discussion of how the tragedy of U.S. military involvement in Vietnam has encouraged the nostalgic presumption that, in the period before 1900, the military remained contented to defer unconditionally to civilian rule, see Richard D. Challener, Admirals, Generals, and American Foreign Policy, 1898–1914 (Princeton, 1973), 401–10. 69. See, for example, Walter LaFeber, The New Empire: An Interpretation of American Expansion, 1860–1898 (Ithaca, 1963); Reginald Horsman, Race and Manifest Destiny: The Origins of American Racial Anglo-Saxonism (Cambridge, Mass., 1981); and Eric T. L. Love, Race over Empire: Racism and U.S. Imperialism, 1865–1900 (Chapel Hill, 2004). 70. On the distinction between militarization and militarism, see John R. Gillis, “Introduction,” in The Militarization of the Western World, ed. Gillis (New Brunswick, 1989). Prior to World War II, as noted above, the U.S. peacetime army remained significantly smaller than its counterparts in Great Britain, France, and Germany. So too did the size of its military budget. Still, a small army could be very effective, while, by the end of the nineteenth century the U.S. navy had emerged as a world-class fighting force with considerable ambition. On the latter, see Bönker, “Militarizing the Western World.” The army also figured prominently—in conjunction with state militias and the national guard—in the endemic management-labor clashes of the late nineteenth century—which contemporaries often termed a “war.” See, for example, Robert Reinders, “Militia and Public Order in Nineteenth-Century America,” Journal of American Studies 11 (April 1977): 81–101; Jerry M. Cooper, The Army and Civil Disorder: Federal Military Intervention in Labor Disputes, 1877–1900 (Westport, Conn., 1980); Robert M. Fogelson, America’s Armories: Architecture, Society, and Public Order (Cambridge, Mass., 1989); David Montgomery, Citizen Worker: The Experience of Workers in the United States with Democracy and the Free Market during the Nineteenth Century (Cambridge, 1993); Cooper, The Rise of the National Guard: The Evolution of the American Militia, 1865–1920 (Lincoln, Neb., 1997); Eleanor L. Hannah, “Manhood, Citizenship, and the Formation of the National Guards, Illinois, 1870–1917” (Ph.D. diss., University of Chicago, 1997); Jason Kaufman, “‘Americans and Their Guns’: Civilian Military Organizations and the Destabilization of American National Security,” Studies in

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American Political Development 15 (Spring 2001), 88–102; Robin Archer, “Does Repression Help to Create Labor Parties? The Effect of Police and Military Intervention on Unions in the United States and Australia,” Studies in American Political Development 15 (Fall 2001): 188–219; Francis M. Coan, “The Connecticut National Guard, 1865–1919” (Ph.D. diss., University of Connecticut, 2002).

SEAN PATRICK ADAMS

Promotion, Competition, Captivity: The Political Economy of Coal “Coal is, perhaps, the most indispensable article used by man. Without it, in time, we should return to a state of barbarism.” So proclaimed the president of Pennsylvania’s Pequa Railroad and Improvement Company in 1849. The importance of coal, the official explained, lay in its utility as an energy source, for which he hailed it as unsurpassed: coal was “’hoarded labor’”—a “treasure reserved by nature to promote and perfect our civilization.” The railroad official’s florid tribute to the mineral fuel was hardly disinterested: the Pequa Railroad had ambitious plans to ship a great deal of coal. Yet it effectively underscored the enormous role of coal in nineteenth-century America. It was an age in which, as countless industry boosters proclaimed, coal was king.1 It had not always been so. Coal did not emerge as a major energy source until the early republic, when the inhabitants of several large seaboard cities—Boston, Philadelphia, and New York—began to substitute it for wood as a heating fuel. The coal these urbanites burned was bituminous; by the 1830s, a second kind of coal—anthracite—would also find a market. By mid-century, both bituminous and anthracite would be widely used not only as a heating fuel but also as motive power for machinery of all kinds—from railroad engines to textile equipment. In 1850, coal accounted for around 10 percent of the fuel that Americans purchased (wood accounted for most of the rest). During the second half of the nineteenth century, coal consumption would skyrocket. By the 1890s, miners raised over two tons of coal for every man, woman, and child in the country; by 1900, coal purchases accounted for fully twothirds of the nation’s fuel bill (with wood, gas, and illuminating oil making up most of the rest).2 Coal supplemented, without ever entirely supplanting, older, renewable forms of energy such as wind, water, and animal power. Human labor, too, remained a potent energy source, as the historian of technology

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Dolores Greenberg has perceptively observed. Yet the significance of coal would be hard to exaggerate. By shifting from wood to coal as an energy source, the United States capitalized on the immense coal deposits that lay within its boundaries. Coal was not only abundant but powerful. By harnessing it as a source of motive power, industrialists increased enormously the speed with which machinery could process raw materials and move about people and goods. These “economies of speed,” as business historian Alfred D. Chandler Jr. has termed them, were a key factor in the emergence by 1900 of the United States as one of the world’s leading industrial nations. The shift from wood to coal in the processing of raw materials was especially critical to the emergence of a new kind of economic organization—the modern business enterprise. The opening of the Pennsylvania anthracite fields, as Chandler observed over three decades ago, “greatly influenced the timing and the process of the coming of the large, subdivided business enterprise in American manufacturing and mining.”3 Coal was equally important in hastening the rise of America’s cities. Had urbanites had no alternative to wood, heating costs might well have spiked upward as wood stocks declined, slowing the epochal migration from the countryside, where wood remained plentiful, to the city, where it was not. The abundance of cheap coal hastened a parallel migration of the factory. No longer were manufacturers obliged to build their factories in often-isolated locations to take advantage of the energy released by swiftly flowing rivers. Once coal had proven itself as a motive power, factories, too, could migrate from country to the city. The United States in the nineteenth century did not have a single, coherent energy policy. Rather, each state had its own energy policy—which, taken together, created a highly fragmented and somewhat chaotic regulatory regime that encouraged the production and consumption of vast quantities of coal. Nature made coal abundant; public policy made it cheap. The fragmentation of American energy policy had the largely unintended effect of ensuring that the coal industry remained highly decentralized: conditions varied, often dramatically, from state to state and even from coalfield to coalfield. The unplanned decentralization of the American coal industry was, in large measure, a legacy of the planned decentralization that was a cornerstone of the distinctive institutional configuration known as federalism. In the nineteenth-century coal industry, no one—not government officials, not mine owners, and certainly not miners—could circumvent this political logic and establish nationwide organizations to bring the industry under effective control. Three themes dominated the political economy of coal in nineteenth-century America: promotion, competition, and captivity. In the

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early republic, state governments designed public policies to promote coal production by encouraging competition between producers within individual states; taken together, these policies had the unintended effect of stimulating competition throughout the country. One index of their success was the shifting geographical locus of coal production. Although the earliest coal producing states were Virginia and Pennsylvania, by mid-century large-scale coal production had expanded to Ohio and Illinois in the Midwest, Alabama, Tennessee, and North Carolina in the South, and Colorado in the Far West. The coming of the railroad diminished significantly the autonomy of the states, without fundamentally altering the basic pattern. By midcentury, several large coal-carrying railroads—including the Pennsylvania, the Philadelphia & Reading, and the Baltimore & Ohio—had established state-spanning transportation empires. In the following years, railroad leaders capitalized on their market power by crafting favorable legislation and, in certain instances, operating coal mines. So, too, did large-scale consumers of coal, such as Carnegie Steel. In certain instances, railroad leaders and industrialists used their market power to gain control of—or capture—legislatures and mines. Significantly, however, neither found it possible to shift the basic structure of the industry from competition to cooperation. No more successful in their search for order were the budding trade unions. At the century’s close, the coal industry defied control. The principal beneficiaries of this chaotic situation were the consumers of coal, since coal remained abundant and cheap. Less fortunate was the coal industry itself, which found itself racked by endemic price instability, ruinous competition, and tumultuous labor relations. To understand the political economy of coal in the nineteenth century, it is important to understand how the industry began. The potential strategic and commercial potential of America’s coal reserves was taken-for-granted by early American statesmen, who regarded the still somewhat exotic mineral fuel as a vital foundation for economic independence. Students of political economy were familiar with the indispensability of coal to manufacturers in Britain; why, they wondered, could not the United States follow Britain’s example? That coal would one day become a vital asset was self-evident to Treasury Secretary Alexander Hamilton as early as 1790. Four years later, industrial booster Tench Coxe predicted that domestic coal reserves might one day reduce the dependency of Atlantic seaboard cities on British coal imports, and hailed the coastwise trade—which coal shipments did much to promote— as a “valuable nursery” for American seamen. The increasing price of wood in the country’s seaboard cities, as Treasury Secretary Albert

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Gallatin predicted in his famous 1808 report on roads and canals, must soon create a “dependence” on coal for both manufacturing and heating—making the improvement of inland transportation a pressing national need, since it was sure in the future to “command an immense carriage” in which a “minute saving” in the cost of conveyance would be of the “utmost consequence.”4 These bold predictions highlighted the potential of a resource that had yet to be extensively exploited. In the revolutionary era, the only coalfields ship large amounts of mineral fuel within the United States were the bituminous mines in the environs of Richmond, Virginia. Coal mined in Virginia was consumed in Boston, New York, and Philadelphia, where it was supplemented with modest imports from Great Britain. As a first step in the political campaign to encourage a domestic coal industry, Congress enacted legislation to protect American miners from foreign competition. Coal is extremely bulky, making it expensive to transport. In the colonial era, British merchants had transported coal to American ports free-of-charge as ballast for ships; even a modest tariff would go far toward eliminating this source of supply. Tariff protection was important—one Virginia miner explained in 1798—to prevent a “little speculation of foreigners” from stymieing a “great undertaking at home.” The first federal tariff on imported coal dated from 1789; it consisted of a mere two cents per bushel. In the ensuring years, the level gradually increased until it reached ten cents a bushel in 1812—or about 15 percent the wholesale price of British coal. After the War of 1812, the rate dropped to five cents a bushel; here it more or less remained until 1842. Although the price of coal fluctuated during this period, the tariff remained at least 10 percent the price of foreign coal—more than enough to give domestic producers a major cost advantage. Foreign imports accounted in 1800 for about 8.8 percent of American coal consumption; by 1850, they had dropped to 2.4 percent; by 1860, to 1.3 percent. In the decades after the Civil War, the federal government eliminated the tariff on anthracite altogether and dropped the rate on bituminous from one dollar to forty cents a ton. Although American miners constantly griped about foreign competition, in fact even the modest tariff on bituminous coal guaranteed that U. S. producers dominated the domestic market. In the 1870s, the United States became a net exporter of coal, clear proof that the threat of foreign competition had passed.5 As late as 1820, American coal production remained centered in Virginia. Miners worked the small bituminous field in a haphazard fashion, relying on a combination of slave and free labor. Labor shortages were common, as local slave owners disliked leasing their human

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property to work in the mines. For many residents of the Old Dominion, mining seemed out of place in an agrarian society. “The gloomy blackness of most of the galleries,” declared John Grammar of Petersburg in 1818, “and the strange dress and appearance of the black miners, would furnish sufficient data to the conception of a poet, for a description of Pluto’s kingdom.” By the 1830s, the Richmond coalfield was plainly in decline. “The land is blackened and defaced throughout,” reported agriculturalist Edmund Ruffin in 1837, “by the sites of numerous old shafts, and the heaps of slate and remains of refuse coal . . . which form naked and barren spots forever after.” Faulty workings, labor shortages, and unreliable transport all combined to limit the future prospects of Richmond bituminous as a coastwise commodity.6 Residents of eastern Pennsylvania located abundant anthracite fields as early as the 1790s, yet had trouble convincing contemporaries that it was a viable fuel. Anthracite was denser than bituminous and had a higher carbon content, making it difficult to burn in a conventional hearth. To advertise the potential of the new fuel, Wilkes-Barre anthracite dealer Jacob Cist wrote pamphlets, distributed free samples, and even resorted to bribery. Yet Cist found few takers. Undaunted, state officials exempted anthracite from taxation, provided incentives for smelters to promote its use, and publicized its advantages within and outside the state.7 The Pennsylvania government soon received a valuable boost from the U.S. Navy. Beginning in the 1830s, the Navy conducted a series of experiments to determine the relative merits of anthracite and bituminous as a motive power for steam engines. The main organizer of these experiments was Walter Johnson—a chemist and, by no means incidentally, a longtime champion of the commercial possibilities of Pennsylvania coal. Johnson’s enthusiasm for coal knew few limits: “If in any case knowledge is power,” Johnson proclaimed, “it is pre-eminently so when it relates to a subject which constitutes the greatest element of power in the physical world, and in the present age of marvelous developments.” Not surprisingly, Johnson’s report highlighted the value of anthracite as a motive power for navy vessels: its evaporative power for generating steam, he declared, was equal to that of bituminous—an important consideration for military officials intent on improving the speed of their steam-powered vessels.8 Impressed by Johnson’s coal experiments, a group of Massachusetts railroad and manufacturing leaders successfully petitioned Congress to continue its funding. In 1852, a similar experiment demonstrated not only that bituminous also worked well as a motive power for ships but

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also that anthracite burned without heavy smoke—a property that “may at times be of the utmost importance in concealing the movements of the vessel.” In the same session, a naval official reported that American-produced coal could be used not only to generate steam but also to manufacture ordnance in the Washington naval yard.9 The significance of the Navy’s coal experiments is hard to evaluate; at the very least, it gave the imprimatur of the federal government to innovations that were already under way. For coal industry insiders like James MacFarlane, they were invaluable. Thirty years later, MacFarlane still regarded the Navy’s data as an authoritative source.10 While federal support for the American coal industry was by no means incidental, the primary impetus for its rise came from within the individual states. Pennsylvania led the way. To capitalize on its virtual monopoly on anthracite, the state legislature exempted anthracite from taxation and encouraged its use in the iron industry. To keep prices low— and therefore attractive to consumers—it refused to grant specific coal carriers exclusive privileges to carry coal from a particular field. As a consequence, though the state’s anthracite coalfields were relatively compact, consumers had a choice of carriers in bringing the product to market. If one carrier charged a rate that significantly raised the price of coal, consumers could secure a lower rate from a competitor. The Schuylkill Navigation Company competed not only with the Lehigh Coal and Navigation Company but also, following the coming of the railroad, with the Philadelphia & Reading and the Pennsylvania.11 To prevent collusion between mining firms, the Pennsylvania legislature carefully regulated the granting of corporate charters. For decades, for example, it was almost impossible to secure a corporate charter to mine coal in anthracite-rich Schuylkill County. This ban ensured that control of one of the county’s most important coalfields remained highly fragmented and competition intense: there were simply too many miners for anyone to try to limit prices and output. Had the legislature permitted corporate mining, the situation might have been different: corporations, after all, had long proved adept at stabilizing markets. Yet, until the Civil War, it did not. The situation in Schuylkill County, moreover, forced large corporate combines in other coal regions—such as the Lehigh Coal and Navigation Company and the Delaware and Hudson Canal Company—to match prices or be undersold. To do so, even these combines relied on small-scale miners to keep prices low. Throughout the Pennsylvania coalfields, small proprietorships—rather than large corporations—remained in the early republic the dominant organizational form.12

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The reluctance of the Pennsylvania legislature to grant corporate mining charters in Schuylkill County was but one facet of a widespread popular suspicion of incorporation, which many regarded as a betrayal of the cherished principles of individual opportunity and equal rights. “It is the capitalists who are striving to get exclusive privileges,” complained one Pottsville coal promoter in 1833, “to the injury of the individuals who merely ask to be let alone, and that their rights and property may be protected.”13 Political opposition to incorporation prompted the Pennsylvania legislature to adopt an ingenious chartering policy. To promote corporate mining without antagonizing its critics, the legislature permitted incorporation only in coalfields in which the industry had yet to become well established. In this way, the legislature encouraged new production while meeting the common objection—voiced by the Pottstown promoter and echoed by many politicians—that incorporation would stifle competition by crushing small proprietors. The principal institutional mechanism that the legislature relied on to enforce this policy was the power it wielded over the chartering of new corporations—and, in particular, its ability to regulate the kinds of activities corporations could engage in, for example, by designating the territory in which they could operate and the amount of capital they could raise. Securing a corporate charter to mine coal was anything but routine: rather, it was the product of a deliberate and sometimes elaborate political negotiation. In certain counties where proprietary mining was well established, the legislature refused to grant corporate charters; in others, it limited the amount of capital mining corporations could raise and the land they could own, as well as their ability to exploit such state-sanctioned privileges as the building of railroads and the issuance of banknotes. In the least developed counties, in contrast, the legislature granted highly permissive charters to stimulate economic development. The resulting patchwork of small-scale proprietorships in easily accessible coalfields and larger-scale corporations in more remote districts encouraged the rapid expansion of coal production without eliminating the benefits that the legislature associated with competition.14 Pennsylvania’s charter policy greatly increased output, just as the legislature had hoped. By 1850, Pennsylvania mines produced nearly 6.5 million tons of coal, or about three-fourths of total U.S. production. Buoyed by this achievement, industry boosters shifted their sights from the state to the nation. “On what grounds can our [federal] government reasonably hesitate to put forth its best energies for the sustaining of the great Coal and Iron interest of Pennsylvania,” anthracite enthusiast C. G. Childs proclaimed in 1847—“a Pennsylvania interest indeed,

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geographically, but a national interest in all its great ultimate bearings, if such a thing as a national interest, can be known or conceived of.”15 Childs’s enthusiasm failed to persuade officials in other states that a single “national interest” in coal production did in fact exist. Indeed, Childs did not seem too certain about it himself. This was hardly surprising. With few exceptions, the general trend in the nineteenth-century coal industry was in the opposite direction: over time, states competed ever more vigorously to promote the production and consumption of coal— perpetuating a tradition of rivalistic state mercantilism that had been a pillar of state-sponsored public works programs in the early republic. State legislatures raced to outdistance their neighbors in the conviction that coal production was a zero-sum game: if one state improved its competitive position, or so it was assumed, another’s would necessarily decline. The resulting balkanization of the coal industry, a legacy of federalism, had implications for both production and consumption. In addition to encouraging the rapid development of coalfields throughout the country, it frustrated later attempts to control competition by industry leaders and labor organizers alike.16 The success of Pennsylvania’s coal policy led other states to emulate its example. By the eve of the Civil War, similar policies, tailored to fit local conditions, had been established in most of the major coal producing states, including Virginia, Pennsylvania, Maryland, Ohio, and Illinois. For states that had yet to develop a coal industry, one common— and often effective—legislative stratagem was to sponsor a geological survey. In 1823, North Carolina hired a geologist to catalog the state’s mineral resources; by 1837 fourteen states had followed North Carolina’s lead. State geological surveys were at once scientific and economic: by inventorying the state’s mineral resources, they would, or so legislatures hoped, identify rich deposits of precious metals—including coal. In Pennsylvania and Illinois, the legislature went so far as to instruct geologists to map the coalfields. In other states, the mandate was less specific. Most state-sponsored surveys were short-lived: funding tended to disappear if the economy took a downturn or geologists failed to locate minerals suitable for commercial exploitation. Yet in coal-rich states such as Pennsylvania and Illinois, published survey reports contained valuable data that substantially lowered the cost of exploration. The surveys might not be “very attractive books to the general reader,” one industry insider reflected in 1873, yet there was “no better authority on this subject.”17 The major goal of state government coal policies before the Civil War was the promotion of competition. “Competition,” as Pennsylvania state senator Samuel Packer declared in 1834, was the “grand alembrick

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in which the health of trade is purified and preserved”: if legislators permitted the coal industry to “pursue its true and legitimate objects . . . uncontrolled by injudicious legislative enactments,” it would in this realm, as in all others, produce “uniformity, regularity and certainty” and a “safe guaranty for the investment of capital and the expenditure of labor.” Packer exaggerated when he linked competition with “uniformity” and “regularity”: in the nineteenth-century coal industry, nothing of the kind prevailed. Yet competition did have the effect of stimulating existing producers to expand production levels while emboldening new entrants to tap new sources of supply, enormously increasing not only the production but also the consumption of coal. The only constant was expansion: in one ten-year interval (from 1850 to 1860), the number of mines increased from 510 to 622 and the number of miners from 15,100 to 36,500.18 The expansion of the coal industry was accompanied by a growing reliance on machinery. In established coal regions such as the anthracite fields of Pennsylvania, coal became increasingly difficult to find and transport. As coal shafts grew longer and more elaborate, miners became increasingly reliant on steam engines to lift coal to the surface, transport miners and materials from the surface to the coal seam, and pump fresh air into the mines. As mine shafts dipped beneath the water table, engineers installed elaborate pumping systems to rid the mines of water. All this required money. To establish a profitable anthracite mine, one Wall Street promoter estimated in 1855, now required one million dollars in start-up costs.19 A further burst of expansion occurred during the Civil War. Spurred by military exigency, coal prices rose swiftly, mine output increased, and new mines were opened. The price of anthracite between 1860 and 1863 (adjusted for inflation) increased by over 30 percent; by 1864 the price was 45 percent above its 1860 level. On the Philadelphia & Reading Railroad, profit margins for coal carriage increased from $0.88 per ton in 1861 to $1.72 per ton in 1865. By 1864, the Reading’s stock price had risen to 165 percent of its par value, prompting company officials to declare a 15 percent dividend.20 Although the wartime boom had been brief, it occasioned a significant increase in the scale on which mining occurred—though not, ultimately, in the balance in the industry between competition and cooperation. In addition to expanding output in existing coalfields, the boom hastened the opening of a number of coalfields in regions previously regarded as inaccessible. The bituminous coalfields in western Maryland, for example, lacked access to navigable waterways and could be

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reached only by railroad. To serve this market, railroads and their client coal mining firms expanded into a region previously regarded as too remote to be profitably mined. A further consequence of the Civil War era shake-up in the coal industry was the growing popularity of incorporation as an organizational form. Before the war, most mines had been organized as proprietorships even in established coal regions such as Pennsylvania; during the war, incorporation became increasingly common. By 1865, anthracite mines relied on 800 steam engines—a substantial investment—and one that, in many cases, could be funded only by relying on the privileges that a corporate charter secured. The possession of a corporate charter reduced the risk of entering the business: in addition to limiting liability against loss, it facilitated the raising of capital down the road.21 The shift from proprietorships to corporations was particularly rapid in Pennsylvania. In anthracite-rich Schuylkill County, it was hastened by a variety of factors: large anticipated profits, increased start-up costs, and the willingness of a legislature spurred by military exigency to relax its previous ban on incorporation. In the three-year period between 1863 and 1865, the number of incorporated coal companies in this critically important coalfield increased from 1 to 52. “The high price of coal and iron has created a furore among the capitalists amounting almost to a mania,” one correspondent in the influential Miners’ Journal noted in 1864, “and the files of both houses are filled with bills for chartering new Coal and Iron Companies.” By 1865, corporations accounted for nearly half of the region’s tonnage. In undeveloped regions, incorporation made it easier for industry promoters to purchase land and build railways linking coalfields to markets. Often these promoters came from out of state. Northern capitalists armed with corporate charters, for example, were among the first to exploit the previously undeveloped bituminous coalfields in the newly admitted state of West Virginia. West Virginia granted fifty-two coal-mining charters in 1865; of these, forty-four went to out-ofstate investors. Following the war, a similar development occurred in southwestern Virginia. In the postwar period, it would become common for outside investors to open major new coalfields after obtaining a corporate charter that gave them great leeway in deciding how best to manage the property they controlled.22 The restructuring of the coal industry was hastened by the growing role of the railroad as a source of investment capital. During the Civil War, many railroads took advantage of the willingness of state legislatures to grant special concessions to industries deemed vital to the war effort and secured the ability to buy or lease coal lands, a privilege many prewar state

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legislatures had been unwilling to grant. In 1861, for example, Pennsylvania granted railroads the ability to purchase the stocks and bonds of other corporations, a valuable concession they previously had been denied. The legislature corrected some vague wording in this grant in 1869 by clarifying the right of railroad or canals to invest explicitly in coal-mining corporations (excepting, as usual, those in Schuylkill County).23 The key figure in the drive to increase railroad control over the mining industry was Franklin Gowen, the expansion-minded president of the Philadelphia & Reading, a railroad long prominent in the carriage of coal in Pennsylvania’s anthracite region. Emboldened by the 1869 law, Gowen moved swiftly to acquire mining properties; by the early 1870s, he had established a 150,000-acre coal empire in Pennsylvania’s anthracite region. Gowen’s stratagem raised the troubling specter that the Philadelphia & Reading might soon take advantage of its monopoly power to force small-scale proprietors out of the business. Were Gowen to gain control of the market, he would be able to sell anthracite on extremely favorable terms, giving a single corporation—indeed, a single man—virtual control over a vital commodity. In a revealing letter that he wrote in 1873 to the president of a rival anthracite coal company, Gowen acknowledged that the threat of monopoly was real. “Our ownership of coal lands may, to some extent, give us the monopoly of the coal trade,” Gowen conceded. Yet, he added, so long as he remained in charge this power would “never be used” to “injure the individual coal miners who have collieries in our region.” Few found Gowen’s disclaimer reassuring, and many feared that the Philadelphia & Reading would so dominate the anthracite market that, like other cartels, it would have little trouble eliminating its competitors, limiting output, and raising prices. Notwithstanding the combined opposition of proprietary miners, state legislators, and corporate leaders, by 1876 Gowen had gained control of the anthracite market—making him, at least in theory, one of the most powerful industrialists in the land.24 Unfortunately for Gowen, his triumph proved short-lived. Although Gowen briefly controlled the anthracite market, he proved unable to prevent competitors from undercutting his prices; indeed, he would ultimately fail to keep the Philadelphia & Reading out of receivership. The root cause of Gowen’s failure lay in the highly decentralized structure of the coal industry. For decades, the Pennsylvania legislature had encouraged coal production and forestalled the elimination of small-scale miners. No matter how brilliant Gowen might have been as a corporate tactician, the legislature’s policy had doomed his bold plan to transform the anthracite market into a cartel.

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Gowen’s failure illustrated a broader theme: at no point in the nineteenth century could a single individual—or even a single corporation— gain control over even a segment of the coal industry. The kind of price leadership that John D. Rockefeller pioneered in the oil industry and that Andrew Carnegie perfected in the steel industry was simply impossible in coal. In the coal industry, not even Franklin Gowen could establish a cartel.25 Railroad leaders learned from Gowen’s failure and devised other strategies to improve their competitive position. Most preferred to establish long-term relationships with favored coal companies that were less formal—though still collusive—than those that Gowen had attempted. To gain control of western Maryland’s rich bituminous field, for example, the Baltimore and Ohio Railroad (B&O) established an interlocking directorate with several of the region’s largest coal companies. Intent on gaining control of the rich coalfields in the northern part of neighboring West Virginia, B&O leaders met with West Virginia state officials. The West Virginia officials hoped that the B&O might help them exploit their state’s mineral resources and, in addition, pay a hefty tax bill to the state. The agreement hit a snag when the B&O protested that the taxexemption clause in its Maryland corporate charter extended to West Virginia. To resolve the dispute, West Virginia state senator Henry Gassaway Davis met with B&O officials in 1868. Since Davis was on the B&O payroll, this was hardly a meeting of equals. Determined to secure for the B&O a favorable settlement, Davis lavished state legislators with free B&O railroad passes and slipped B&O officials inside information about West Virginia’s negotiating strategy. Davis’s lobbying efforts paid off, at least for the B&O, if not for his West Virginia constituents. Similar collusive agreements were a frequent occurrence in the postwar coal industry; taken together, they tilted the balance of power in the industry from the state government to the corporation.26 The B&O proved adept at capturing lucrative benefits from a state legislature; other railroads controlled captive mines. A captive mine was a mine that shielded a corporation from market competition. The Norfolk and Western Railroad cut its energy bill by fueling its steam engines with coal from the Flat Top Mountain field, which it controlled. The Chesapeake and Ohio Railroad profited handily from the carriage of coal in the rich bituminous coalfields of southern West Virginia after it had secured from the West Virginia legislature the right to purchase five million acres of coal-bearing land. Railroads were not the only large consumers of coal to control captive mines. When steel magnate Andrew Carnegie needed a highly refined kind of bituminous—known as coke—

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for his Pittsburgh steel mills, he acquired his own coalfield in the Connellsville region of southwestern Pennsylvania. Shortly thereafter, Carnegie made coke magnate Henry Clay Frick a partner in his steel business. In this way, Carnegie secured a price for coke well below the market rate. By 1885, Carnegie controlled half of Frick’s coal company, which was by far the largest producer in the Connellsville field.27 Before the Civil War, coal mining remained dominated by small proprietorships in which a few skilled miners decided whom would be hired and how the mine would be worked. In the postwar period, mines grew larger and more technically complex. Although the physical labor involved in the mining of coal would remain more or less unchanged until the introduction of coal-cutting machinery in the 1890s, the relationship between mine workers and mine managers was more rapidly transformed. Miners in this period were paid not a daily wage but, rather, a piece rate based on the amount of coal they raised to the surface. So long as the piece rate remained unchanged, miners found this a tolerable arrangement. When, however, mine owners cut miners’ piece rates to ensure that their prices remained competitive, miners objected. Compounding the miner’s grievance was the refusal of mine owners to reimburse them for the time they spent improving mine safety by reinforcing mineshafts and testing for potentially deadly cracked timbers or gas leaks. As competition intensified and the piece rate declined, miners became increasingly resentful toward their employers, a mind-set that was often exacerbated if their employer was a large, absentee-owned corporation. “The large corporations,” one miner complained in 1873, were “slowly but surely, riveting the chains of slavery around us.”28 The response of government officials to the miners’ predicament varied by state. A harbinger of things to come was the successful enlistment by Pennsylvania mine owners during the Civil War of the combined resources of the federal, state, and local governments to put down the violent resistance of anthracite miners to the Conscription Act of 1863, a compulsory draft enacted to boost the Union war effort. To quell the riots, the army imposed martial law. Mine owners took advantage of the presence of federal troops to weaken an early miner’s union, the Miners’ Benevolent Association. Following the war, mine owners demanded that the state government defend their property against both real and imagined assaults. The legislature obliged by enacting in 1866 the Coal and Iron Police Act. This law established a quasi-public enforcement agency that, though ostensibly intended to ensure the “protection of private property,” had, in fact, been designed to break strikes and repress labor organization in the state’s coalfields and industrial districts.29

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The establishment of such an elaborate repressive apparatus discouraged many miners from taking collective action to improve their pay or working conditions. Even so, by the end of the century sporadic and isolated strikes would become endemic. Most strikes were local affairs that combined community morale building with concrete demands for higher pay and better working conditions. Collective action by coal miners in the late nineteenth century, one labor historian has argued, fell somewhere between the “formalism of miners’ unions” and “spontaneous, angry outbursts” of community unionism. Although rarely coordinated, they were by no means unusual. In the Pennsylvania coalfields alone, more than eight hundred took place in the six-year period between 1881 and 1886.30 Although strikes often elicited a great deal of community support, they were typically so localized that they almost never fostered solidarity among miners in different parts of the country—or even in different mines in a coalfield. Labor organizers tried doggedly on several occasions to create a truly nationwide coal-mining organization; none altogether succeeded. The Miners’ National Association was a case in point. This miners’ organization expanded rapidly in the early 1870s and boasted, in 1875, more than thirty-five thousand members. In the following year, however, it succumbed to divisive internal forces and collapsed. No more successful was the Workingmen’s Benevolent Association, which had been founded in 1868. Like the Miners’ National Association, it too swelled with members in the early 1870s. In response, mine owners branded it an illegal conspiracy headed up by a secretive group of Irish miners known as the “Molly Maguires.” Following a failed strike in 1875, government officials executed several miners on conspiracy and murder charges—a violent denouement to the association’s recruitment drive. To be sure, the Knights of Labor in the 1880s did succeed, briefly, in organizing coal miners on a nationwide scale, yet they too were stymied by the miners’ preference for local control. Overall, then, mine workers proved even less successful than mine owners in establishing control over a diverse and sprawling industry.31 The influence of state labor legislation on union organizing was ambiguous. Some laws guaranteed unions the right to organize; others created obstacles to unionization. Given the decentralized structure of the industry, this was perhaps to have been expected. The rapid expansion of the industry into geographically isolated regions posed yet another challenge to labor organizers. Here too they ran afoul of the rivalistic state mercantilism that had done so much to shape the structure of the industry.

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Few circumstances did more to frustrate labor organizing than the almost incredible social diversity of the workforce, a legacy shaped ultimately by a highly permissive federal immigration policy. The constitutionally mandated abolition of slavery posed a still further challenge. Racial tension between white and black miners, a legacy of centuries of the legal subordination of black to white, blocked the establishment of interracial trade unions in the emerging coalfields of the South. By 1889, blacks made up nearly half of Alabama’s eight thousand miners. Although interracial solidarity was not unknown, union organizers were repeatedly frustrated by the refusal of white miners to cooperate with black miners in pursuing common goals. Ethnic antagonisms posed an analogous obstacle in the bituminous coalfields of the Midwest and West. Many miners were recent immigrants from southern and eastern Europe: the resulting cacophony of languages and cultures made it hard for organizers to unionize a single mine, let alone an entire region.32 The very dynamism of the coal industry impeded collective action. The opening of new mines created economic opportunities not only for mine owners but also for mine workers. In the late nineteenth century, thousands of miners migrated from mine to mine to take advantage of better pay and improved working conditions. The willingness of miners to relocate (a strategy that social scientists term “exit”) was, one economic historian has demonstrated, no less effective in improving miners’ lot than the better-known strategy of solidarity (a strategy known as “voice”).33 No truly national organization of coal miners emerged until the establishment in 1890 of the United Mine Workers of America (UMWA). Yet even the most skillful UMWA organizers were sometimes confounded by the industry’s highly decentralized structure. It was no easy task to organize a workforce that included the highly skilled, nativeborn, miners of Pennsylvania’s anthracite fields, first-generation African American miners in Alabama, and unmarried immigrant miners seeking opportunity in the burgeoning coalfields of the Mountain West. It was thus perhaps not surprising that, for much of the nineteenth century, America’s coal miners—who numbered 291,500 by 1889—lacked a national trade union. It would be a mistake to attribute this outcome to either complacency or quiescence.34 Rather, it was yet another legacy of the decentralized structure of the nineteenth-century coal industry. Just as labor protest was decentralized, so too were the policies regulating working conditions. Here too the states led the way. The enactment of legislation regulating working conditions in the coal industry was often stymied by the peculiar way in which state legislatures defined miners’ legal rights. In Pennsylvania, for example, legislators categorized miners

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not as employees but as contract workers, a distinction that excluded them from most labor legislation. When, for example, the legislature enacted an eight-hour-day law in 1868, it specifically excluded coal miners by defining them as independent contractors.35 The regulation of working conditions was another area in which the legislative record was mixed. In the post–Civil War decades, the inherent dangers of coal mining sparked a great deal of public discussion. In Pennsylvania, this was particularly true after the deadly 1869 Avondale fire, in which 110 Pennsylvania miners lost their lives. Following this tragedy, petitions streamed into the state capitol urging passage of a general mine safety act. The Pennsylvania legislature enacted such a law on 3 March 1870 without a single dissenting vote. Mine owners fought vigorously to narrow the scope of mine safety legislation, just as they opposed most regulatory legislation concerning working conditions. The intensity of mine owner opposition is suggested by the comments of one Ohio mine operator in reaction to a proposed Ohio mine safety law that was broadly similar to a law recently enacted in Pennsylvania. “I regard it as unnecessary and unwarranted interference with the business of mining coal,” the mine operator declared, explaining that a coal miner in Ohio was “free” to “protect himself” since he retained the right to decide whether he wished to “engage” in mining or not. The hostility of mine owners and operators notwithstanding, many leading coal-mining states in the postwar period established state agencies to regulate mine safety, staffed by professional inspectors. Regulatory bureaus for coal mining were established in 1876 in Maryland; in 1877 in Pennsylvania; and in 1881 in Colorado. Although hobbled by small staffs and budget constraints, these bureaus became an effective advocate for mine safety and may well have helped reduce the percentages of mining fatalities. Fatalities per thousand miners dropped from 5.93 in 1870 to 2.58 per thousand in 1885. Unfortunately, the fatality rate began to rise again shortly thereafter— very possibly as a result of the introduction of new kinds of mechanical equipment. In 1895, they would reach to 3.04 per thousand—fewer than in 1870, yet significantly more than in 1885.36 Federal involvement in the postwar coal industry in some ways paralleled state initiatives in the prewar era. Its principal achievement was the establishment by Congress in 1879 of the United States Geological Survey. Although the survey’s mandate was scientific and military as well as commercial, its supporters assumed that it would coordinate the geological mapping of mineral resources—including coal—in the vast transMississippi West. Congress also charged the survey with rejuvenating

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coalfields that had already been worked. The survey’s work would not be complete—or so New York congressman Abram S. Hewitt reminded his colleagues during the congressional debate over its establishment—until it had charted the precise location of the “exhaustless beds of anthracite” in Pennsylvania that lay “like the leaves of a crumpled book.” The kinds of geological information Hewitt had in mind became particularly valuable when the industry crossed the Mississippi—and, in particular, when it reached the still largely unknown region west of the Rocky Mountains. For decades, the survey collected and publicized a wealth of data of great commercial significance to mining promoters, subsidizing the cost of exploration, and nationalizing, as it were, an information-gathering activity that had been once a prerogative of the states.37 Prior to the anthracite strike of 1902, neither Congress nor the executive tackled such relatively controversial issues as the regulation of labor relations and railroad rates. In that year, President Theodore Roosevelt became the first U.S. president to mediate a labor disturbance in the coal industry—an intervention that, in certain respects, had been long overdue, since the industry had long been plagued by work stoppages that by reducing coal output threatened the health of a national economy that had become hopelessly addicted to the mineral fuel. Yet even Roosevelt’s intervention was unusual. More characteristic was the Coal Sales Act of 1864, which authorized the sale by auction of vast portions of the public domain that contained coal deposits. Significantly, the act excluded coalfields from the category of “mineral lands,” a designation that might have slowed their commercial exploitation. In this way, federal officials extended to the public lands of the West the principle—long enshrined in state law—that public policy should promote the rapid exploitation of the nation’s abundant coal reserves and ensure to Americans the benefits of cheap energy for decades to come.38 The preceding survey of the political economy of coal in the nineteenth century has highlighted the extent to which a highly fragmented mix of state and federal policies designed to promote coal output and foster competition among coal producers had the unintended effect of creating a highly decentralized industry with major consequences for labor and management. Decentralization frustrated labor organizers intent on securing miners better pay and working conditions. Mine owners proved more successful at political maneuvering. In addition to securing repressive apparatus to crush labor dissent, they became adept at lobbying—and, in some instances, capturing—state legislatures to obtain special favors. Overall, however, they had far less influence on the structure of prices and output than did their counterparts in oil or steel. There were no

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Rockefellers or Carnegies in coal: indeed, at no point did mine owners even gain enough influence over the market to establish an enduring cartel. Notwithstanding a general shift toward corporations and away from proprietorships as an organizational form, competitive pressures actually intensified as “King Coal” moved west, first into southwestern Pennsylvania, then into southern Illinois, and eventually into Colorado. The twin legacy of this highly variegated policy mix was cheap energy for consumers and chronic instability for producers. To a considerable extent, this legacy, rooted in public policy, remains to challenge and confound the makers of American energy policy today. University of Florida

Acknowledgments The author would like to thank James Huston, Richard R. John, Andrew B. Arnold, Juliana Barr, and the anonymous reader for the Journal of Policy History for their helpful comments. Notes 1. Report to the Directors of the Pequa Railroad and Improvement Company (Philadelphia, 1849), 4. 2. Sam H. Schurr and Bruce C. Netschert, Energy in the American Economy, 1850–1975: An Economic Study of Its History and Prospects (Baltimore, 1960), 36–37. 3. Alfred D. Chandler Jr., “Anthracite Coal and the Beginnings of the Industrial Revolution in the United States,” Business History Review 46 (Summer 1972): 180; Nathan Rosenberg, Technology and American Economic Growth (White Plains, N.Y., 1972), 75–86; David E. Nye, Consuming Power: A Social History of American Energies (Cambridge, Mass., 1998), 78. “Directly or indirectly,” Nye concluded, “coal and steam seemed to improve every area of life except air quality” (89). See also Vera F. Eliasburg, “Some Aspects of Development in the Coal Mining Industry, 1839–1918,” in National Bureau of Economic Research, Output, Employment, and Productivity in the United States After 1800: Studies in Income and Wealth (New York, 1966), 30, 405–39; Gavin Wright, “The Origins of American Economic Success, 1879–1940,” American Economic Review 80 (September 1990): 651–68. Dolores Greenberg denied that steam power was a leading force in nineteenth-century industrialization, contending, on the contrary, that people and animals remained the “major converters of fuel into work” and the “most important sources of power in the United States in 1850, and even as late as 1880.” Dolores Greenberg, “Reassessing the Power Patterns of the Industrial Revolution: An Anglo-American Comparison,” American Historical Review 87 (December 1982): 1248. Greenberg’s stimulating essay provides a valuable corrective to coal industry boosterism; still, coal did furnish urbanites with an affordable source of heat and was also a critically important motive power in strategic industries such as iron and steel.

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4. Alexander Hamilton, Official Report on Publick Credit (Washington, D.C., 1790), 249–50; Tench Coxe, A View of the United States (Philadelphia, 1794), 180–81; Albert Gallatin, “Report on Roads and Canals,” in American State Papers, Miscellaneous (Washington, D.C., 1834), 1:760. 5. “Duty on Coal,” 1798, in American State Papers, Documents, Legislative and Executive (Washington, D.C., 1832), 5:553. Price calculations for the early republic are based on Arthur Cole’s estimations of wholesale price of coal in New York City in 1812, which fluctuated between $27 and $28 a chaldron. See Arthur Cole, Wholesale Commodity Prices in the United States, 1700–1861 (Cambridge, Mass., 1938), 164, 178; F. W. Taussig, The Tariff History of the United States, 8th ed. (New York, 1931), 17; Howard Eavenson, The First Century and a Quarter of American Coal Industry (Pittsburgh, 1942), 433–34, 436. See also Curtis P. Nettels, The Emergence of a National Economy, 1775–1815 (New York, 1962), 324–35. 6. John Grammar, “Account of the Coal Mines in the Vicinity of Richmond, Virginia,” American Journal of Science 1 (1818): 128; Edmund Ruffin, “Notes of a Three-Days Excursion into Goochland, Chesterfield, and Powhatan,” Farmer’s Register 1 (September 1837). For more on the Richmond coalfield, see Ronald Lewis, Coal, Iron, and Slaves: Industrial Slavery in Maryland and Virginia, 1715–1865 (Westport, Conn., 1979), 55–66, and Sean Patrick Adams, Old Dominion, Industrial Commonwealth: Coal, Politics, and Economy in Antebellum America (Baltimore, 2004), 25–47. 7. Erskine Hazard, “History of the Introduction of Anthracite Coal into Philadelphia,” Memoirs of the Historical Society of Pennsylvania 2 (1827): 157–64; Frederick Binder, “Anthracite Enters the American Home,” Pennsylvania Magazine of History and Biography 82 (January 1958): 82–99; H. Benjamin Powell, Philadelphia’s First Fuel Crisis: Jacob Cist and the Developing Market for Pennsylvania Anthracite (University Park, Pa., 1980), 40–43; Adams, Old Dominion, Industrial Commonwealth, 74–80. 8. Walter Johnson, A Report to the Navy Department of the United States on American Coals, Applicable to Steam Navigation and to Other Purposes, 28th Cong., 1st sess., 1844, H. Doc. 276, serial 444, 600. Johnson played a significant role in the promotion of anthracite for both government and industry. See, for example, Walter R. Johnson, Notes on the Use of Anthracite in the Manufacture of Iron, With Some Remarks on its Evaporating Power (Boston, 1841). 9. Memorial of Citizens of Massachusetts, 31st Cong., 1st sess., 1850, Sen. Misc. Doc 117, serial 563; Report of the Committee on Naval Affairs, 32d Cong., 1st sess., 1852, Sen. Rep. 356, serial 631, 9; Niles’s National Register 67 (18 January 1845): 309. 10. James MacFarlane, The Coal-Regions of America: Their Topography, Geology, and Development (New York, 1873), 161. 11. On the transportation network that served Pennsylvania’s anthracite coalfields, see Edward Gibbons, “The Building of the Schuylkill Navigation System, 1815–1828,” Pennsylvania History 57 (January 1990): 13–43, and John Hoffman, “Anthracite in the Lehigh Valley of Pennsylvania, 1820–1845,” United States National Museum Bulletin 252 (1968): 91–141. For more detailed and institutionally oriented accounts, see Chester Lloyd Jones, The Economic History of the Anthracite-Tidewater Canals (Philadelphia, 1908), and Jules I. Bogen, The Anthracite Railroads: A Study in American Railroad Enterprise (New York, 1927). 12. For a detailed analysis of how ordinary miners met the challenge posed by the low barriers to entry, see the appendix to Anthony F. C. Wallace, St. Clair: A NineteenthCentury Coal Town’s Experience with a Disaster-Prone Industry (New York, 1987), 446–56. 13. George Taylor, Effect of Incorporated Coal Companies upon the Anthracite Coal Trade of Pennsylvania (Pottsville, Pa., 1833), 4. 14. Clifton K. Yearley, Enterprise and Anthracite: Economics and Democracy in Schuylkill County, 1820–1875 (Baltimore, 1961); Sean Patrick Adams, “Special Privilege vs. General Utility: Corporate Chartering in the Pennsylvania Coal Industry, 1849–1874,” Essays in Business and Economic History 15 (1997): 121–34. 15. C. G. Childs, Pennsylvania the Pioneer in Internal Improvements: The Coal and Iron Trade, Embracing Statistics of Pennsylvania (Philadelphia, 1847), 9.

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16. For an analysis of how federalism shaped the structure of the railroad industry in the early republic, see Colleen A. Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (Princeton, 1996). On the influence of federalism on public works, see John Lauritz Larson, Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (Chapel Hill, 2001). On the influence of federalism in communications, see Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, Mass., 1995). 17. Walter B. Hendrickson, “Nineteenth-Century State Geological Surveys: Early Government Support of Science,” Isis 52 (September 1961): 357–71; Mary C. Rabbit, Mineral Lands and Geology for the Common Defense and General Welfare, vol. 1, Before 1879 (Washington, D.C., 1979), 30–57; Anne Millbrook, “State Geological Surveys of the Nineteenth Century” (Ph.D. diss., University of Pennsylvania, 1981), 143–55; Stephen P. Turner, “The Survey in Nineteenth-Century American Geology: The Evolution of a Form of Patronage,” Minerva 25 (Autumn 1987): 282–95; MacFarlane, Coal Regions of America, iii. 18. S. J. Packer, Report of the Committee of the Senate of Pennsylvania, Upon the Subject of the Coal Trade (Harrisburg, 1834), 11; U.S. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970 (Washington, D.C., 1975), 580. 19. Louis Hunter and Lynwood Bryant, A History of Industrial Power in the United States, 1780–1930, vol. 3, The Transmission of Power (Cambridge, Mass., 1991), 418–19; “Mining in Wall Street,” Mining Magazine 4 (April 1855): 3. 20. Israel Morris Jr., Coal Price Current, Being Comparative Prices of Anthracite With American and Imported Bituminous Coal (Philadelphia, 1870). See also Stephen J. DeCanio and Joel Mokyr, “Inflation and Wage Lag During the American Civil War,” Explorations in Economic History 14 (November 1977): 315; Bogen, Anthracite Railroads, 47–49; Albro Martin, Railroads Triumphant: The Growth, Rejection, and Rebirth of a Vital American Force (New York, 1992), 143–44. 21. For a more detailed account of the adoption by a nineteenth-century firm of a corporate charter, see the case study of the Corliss Steam Engine Company in Naomi Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom in U.S. History: An Essay in Economics, Law, and Culture,” in Constructing Corporate America: History, Politics, Culture, ed. Kenneth Lipartito and David B. Sicilia (New York, 2004), 35–38. 22. Miners’ Journal (Pottsville, Pa.), 23 January, 26 March 1864; 21 January 1865; 20 January 1866. The quotation is from 26 March 1864. The data on the chartering of West Virginia coal mines is drawn from the list of charters granted in 1865. Laws of West Virginia, 1866 (Wheeling, 1866), 141–266. The rise of incorporation in coal mining was part of a broader national trend. For a variety of perspectives on the wider phenomenon, see James Willard Hurst, The Legitimacy of the Business Corporation in the Law of the United States, 1780–1970 (Charlottesville, 1970); Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977); Herbert Hovenkamp, Enterprise and American Law, 1836–1937 (Cambridge, 1991); Scott Bowman, The Modern Corporation and American Political Thought: Law, Power, and Ideology (University Park, Pa., 1996); and William G. Roy, Socializing Capital: The Rise of the Large Industrial Corporation in America (Princeton, 1997). 23. Laws of Pennsylvania, 1861 (Harrisburg, 1861), 410–11; Laws of Pennsylvania, 1869 (Harrisburg, 1869), 31–32; Bogen, Anthracite Railroads, 47–49. 24. Miners’ Journal (Pottsville, Pa.), 19 March 1864; Laws of Pennsylvania, 1861 (Harrisburg, 1861), 410–11; Laws of Pennsylvania, 1869 (Harrisburg, 1869), 31–32; The Coal Monopoly. Correspondence Between B. B. Thomas, President of the Thomas Coal Company, and F. B. Gowen, President of the Philadelphia and Reading Company (Philadelphia, 1873), 8; Wallace, St. Clair, 403–17; Dan Rottenberg, In the Kingdom of Coal: An American Family and the Rock That Changed the World (New York, 2003), 47–48. 25. Railroads played a major role in developing new coal regions, particularly in southern Appalachia. Yet even when railroads controlled vast swaths of coal-bearing land,

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they were mostly unable to manipulate the price of coal. In fact, many late nineteenth-century railroads acquired coal lands to guarantee themselves a steady supply of coal for themselves—rather than, like Franklin Gowen, to try to corner the market. On the developmental role of railroads in Appalachia, see Joseph Lambie, From Mine to Market: The History of Coal Transportation on the Norfolk and Western Railway (New York, 1954); Ron Eller, Miners, Millhands, and Mountaineers: Industrialization of the Appalachian South, 1880–1930 (Knoxville, 1982); and Kenneth Noe, Southwest Virginia’s Railroad: Modernization and the Sectional Crisis (Urbana, 1994). 26. Katherine A. Harvey, The Best Dressed Miners: Life and Labor in the Maryland Coal Region, 1835–1910 (Ithaca, 1969), 12–13; Laws of West Virginia, 1863 (Wheeling, 1863), 165; Laws of West Virginia, 1869, 113; Davis to John King, 3 August 1868; Davis to William E. Stevenson, 7 May 1869; Davis to Nathan Goff, 7 May 1869; Davis to J. W. Garrett and John King, 27 May 1869; all in Henry Gassaway Davis Papers, West Virginia Collection, West Virginia University, Morgantown. 27. Priscilla Long, Where the Sun Never Shines: A History of America’s Bloody Coal Industry (New York, 1989), 188–90; Laws of West Virginia, 1867 (Wheeling, 1868), 102–5; Lambie, Mine to Market; Ron Eller, Miners, Millhands, and Mountaineers, 48–52; Kenneth Warren, Triumphant Capitalism: Henry Clay Frick and the Industrial Transformation of America (Pittsburgh, 1996), 28–38. 28. The quotation is from Long, Where the Sun Never Shines, 55. The story of labor organization in the late nineteenth-century coalfields is too extensive a topic to treat here in detail. For an introduction, see Andrew Roy, A History of the Coal Miners of the United States (Columbus, Ohio, 1907); Edward Wieck, The American Miners’ Association: A Record of the Origin of Coal Miner’s Unions in the United States (New York, 1940); Curtis Selztzer, Fire in the Hole: Miners and Managers in the American Coal Industry (Lexington, Ky., 1985), 1–33; Perry Blatz, Democratic Miners: Work and Labor Relations in the Anthracite Coal Industry, 1875–1925 (Albany, 1994); and Daniel Letwin, The Challenge of Interracial Unionism: Alabama Coal Miners, 1878–1921 (Chapel Hill, 1998). 29. J. Walter Coleman, Labor Disturbances in Pennsylvania, 1850–1880 (Washington, D.C., 1936), 40–49; Arnold Shankman, “Draft Resistance in Civil War Pennsylvania,” Pennsylvania Magazine of History and Biography 101 (April 1977): 190–204; Grace Palladino, Another Civil War: Labor, Capital, and the State in the Anthracite Region of Pennsylvania, 1840–1868 (Urbana, 1990), 140–62; J. P. Shalloo, Private Police: With Special Reference to Pennsylvania (Philadelphia, 1933), 58–65. 30. Andrew B. Arnold, “Between the Laws: Informal Definitions of Job and Property Rights in Central Pennsylvania, 1870–1884,” Pennsylvania History 70 (Winter 2003): 47; Long, Where the Sun Never Shines, 145. 31. Harvey, Best Dressed Miners, 177–80; Seltzer, Fire in the Hole, 24–28; Long, Where the Sun Never Shines, 140–51. For more on the social and cultural dimensions of the Workingman’s Benevolent Association and the Molly Maguires, see Kevin Kenney, Making Sense of the Molly Maguires (New York, 1998). 32. Ronald Lewis, Black Coal Miners in America: Race, Class, and Community Conflict, 1780–1980 (Lexington, Ky., 1987), 39–57; Letwin, Challenge of Interracial Unionism, 1–7, 55–87. 33. Price Fishback, Soft Coal, Hard Choices: The Economic Welfare of Bituminous Coal Miners, 1890–1930 (New York, 1992), 11–59. Although Fishback focused on the period after 1890, his analysis of miners’ strategic choices held true for the pre-1890 period as well. 34. Historical Statistics, 580; Arnold, “Between the Laws,” 47. 35. Wallace, St. Clair, 296–302; Alexander Trachtenberg, The History of Legislation for the Protection of Coal Miners in Pennsylvania, 1824–1915 (New York, 1942), 19, 38–39, 48–72.

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36. Long, Where the Sun Never Shines, 47–48, 66; Historical Statistics, 607. The federal government did not create a national organization to deal with mine safety until 1910, when it established the United States Bureau of Mines. 37. Rabbitt, Minerals, Lands, and Geology, 263–88, quotation on 280; Turner, “The Survey in Nineteenth-Century American Geology,” 309–30. 38. U.S. Statutes at Large 13 (1865): 343–44; Rabbitt, Minerals, Lands, and Geology, 146; John Leshy, The Mining Law: A Study in Perpetual Motion (Washington, D.C., 1987).

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Patent Politics: Intellectual Property, the Railroad Industry, and the Problem of Monopoly As winter descended on Washington in December 1878, the Forty-fifth Congress gathered for what promised to be a hectic third and final session. Emotions ran high. In this era, Congress habitually reserved much of its business for these brief, intense “lame duck” sessions that fell between the election of legislators in November and the adjournment of Congress the following March. Compounding the usual sense of urgency was the startling result of the recent election: the Democratic party had gained control of the Senate and, when the next Congress convened, would control both the Senate and the House for the first time since before the Civil War. Senate Republicans well understood that they had but a few precious months to close ranks and enact legislation on some of the burning issues of the day: civil rights, the currency, the tariff. Yet when the session opened, none of these issues made their way to the floor. Instead, and despite howls of protest from senators eager to move on to what they plainly regarded as more urgent concerns, the Senate assembled on many afternoons for several weeks to debate a completely different matter: a proposed law concerning the rights of inventors. At this critical juncture in American politics, the Senate found itself embroiled in a long and complex discussion of the virtues and deficiencies of the patent system.1 How do we explain it? Perhaps the episode was merely a diversionary tactic orchestrated by one of the Senate’s competing factions to forestall legislation on more pressing matters. Such an explanation would fit neatly with the scholarly consensus that the nineteenth-century American government was a mere “state of courts and parties” that lacked the tools to respond effectively to the complex issues spawned by rapid economic development. It would be equally congenial to the many historical accounts that deny that the nineteenth-century United States even had a

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state, or that posit that its governmental institutions merely “responded” to changes set in motion by industrialism, a social process presumed to be largely independent of and unrelated to public policy. Both of these interpretations characterize the nineteenth-century Congress as an essentially reactive body balkanized by rival political factions and dominated by party leaders intent on protecting the personal fiefdoms that they had carved out through the judicious disbursement of government contracts and jobs (known as “spoils”). Incapable of enacting constructive legislation, party leaders did all they could to block those who tried. Public policy, as a consequence, lacked coherence, and was little more than the sum total of the particularistic decisions of legislators and judges. Parties ran election campaigns and distributed spoils; courts sorted out the mess. In all matters involving economic regulation, the courts reigned supreme. Since party leaders were preoccupied with placating their supporters, while the federal government lacked effective administrative agencies, it was left to the courts to broker the inevitable disputes that industrialism spawned.2 In certain respects, congressional debate over the regulation of the patent system fits into the “courts and parties” framework. The bill’s chief opponent was a consummate spoilsman; the bill failed; and the contest shifted to the courts. The senator who kept the issue on the floor was none other than New York’s Roscoe Conkling, the flamboyant leader of a faction of the Republican party known as the “stalwarts” in tribute to their fierce allegiance to ex-President Ulysses S. Grant. Stalwarts had long maintained their influence through the judicious disbursement of political patronage, especially in the pivotal state of New York. In 1878, however, Grant was out of office and the stalwarts’ influence was waning. Predictably, Conkling’s role in the patent debate was obstructionist: rather than seeking legislation of his own, he sought to kill a bill that someone else had proposed. Conkling’s challengers included ascendant Democrats, Republican rivals such as the anti-Grant faction headed up by presidential hopeful James G. Blaine, and—most threatening of all—an insurgent group of Republican legislators known as “liberals,” and sometimes termed by historians the “liberal reformers.” It was the liberals, led by Bainbridge Wadleigh of New Hampshire, in combination with certain like-minded Democrats, who had introduced the patent bill and shepherded it through the House and Senate committees on patents. Liberals sought not only a new patent law but also lower tariffs and civil service examinations—all measures that Conkling and the stalwarts vociferously opposed. Although the patent bill would ultimately pass the Senate,

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Conkling and his allies tied it up in debate long enough to prevent the Senate bill from being reconciled with a companion bill in the House. Frustrated at Conkling’s obstructionism, supporters of patent legislation gave up on Congress and sought redress in the courts. In two important respects, the congressional debate over patent reform diverged from the “courts-and-parties” framework in which it might otherwise seem to fit. For one thing, the debate over patent law did address a key issue in nineteenth-century political economy—namely, the appropriate role of government in shaping the course of technical change. This was precisely the kind of issue that the Senate was presumed to avoid. For another, the debate did revolve around an administrative agency—the U.S. patent office—that wielded an impressive degree of bureaucratic autonomy. Patent policy resonated with powerfully felt ideologies and tapped into strongly felt beliefs. Patents were exclusive privileges that the federal government granted to certain individuals for a limited period of time, and, like all monopoly grants, their regulation raised some of the most fundamental questions of the age. The monopoly issue confronted every branch of nineteenth-century American government as well as every jurisdiction: federal, state, and local. In essence, the issue boiled down to two interrelated questions: Did the government have the authority to regulate the monopolies it had created? And, if so, how? The liberal argument for patent reform cast an unusually bright light on the monopoly issue. This was because it tried to strike a balance between two very different kinds of government-sanctioned monopolies: the federally granted patents held by individual inventors, and the stategranted charters held by the emergent industrial corporations. The liberal argument for patent reform sought to solve a perplexing puzzle: How might the federal government best foster the widespread adoption of technological innovation in an age that was increasingly dominated by giant corporations? At a time when the potential of technological innovation seemed almost boundless, such a puzzle could not help but stimulate a wide-ranging debate not only in Congress but also in the wider society.3 The ramifications of the patent issue were practical as well as ideological. At its core, it posed a special challenge for two groups of economic actors, namely, farmers and railroads, who were often at odds not only with Congress but also with each other. Both groups felt besieged by lawsuits filed by avaricious patent agents—popularly known as “patent sharks”—who demanded, often successfully, sizable payments for the infringement of patents that patent agents controlled.

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The root cause of the predicament facing farmers and railroads lay in the new kinds of economic opportunity hastened by the recent transformation of the country’s economic institutions. Since the early republic, the center of gravity for economic activity had shifted from the Atlantic seaboard, where it had been coordinated by a relatively tight-knit community of merchants active in overseas trade, to the vast North American interior, where its protagonists included the large and sprawling mass of farmers, miners, shippers, and railroad managers who extracted and shipped agricultural and mineral wealth. This new economic order was not only much larger geographically than the economic order it supplanted; it was also far more dependent on large-scale business enterprise—including, in particular, the railroad. Its origins were political as well as economic. Among its catalysts were the U.S. victory in the U.S.-Mexico War of 1846–48, which enormously increased the size of the country, and the military mobilization of the Union army in the Civil War, which hastened the elaboration of state-spanning enterprises in transportation, manufacturing, and mining.4 The new economic order put an enormous strain on many governmental institutions, including the patent system. Farmers and miners often lived far from the federal courts that enforced patent decisions, while railroad managers and shippers coordinated enterprises much larger than those for which the patent system had been designed. The highly concentrated railroad industry, in which a few large corporations exerted a powerful influence, distorted the market mechanisms that the designers of the patent system had presumed to be integral to its operation. Patent holders and railroad managers alike complained that it was impossible to rely on the market to determine a fair price for patented inventions. To complicate matters still further, the expanding economy had generated a surge in patent activity that swamped the patent office, significantly increasing the success rate of would-be patent holders.5 To bring the patent system into alignment with these recent changes, various groups lobbied to alter what we would today call “intellectual property law.” Their principal targets were federal patent law and the federal court doctrines that defined rights of inventors. Taken together, these initiatives were known as patent reform. In a pattern that would eventually become ubiquitous—but that in the 1870s remained relatively rare—this reform movement was spearheaded by functionally specialized interest groups: for the farmers, the National Grange; for the railroads, trade groups such as the Eastern and Western Railroad Associations, which employed patent attorneys who mounted a legal defense for the

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entire railroad industry. Both groups lobbied Congress directly to secure favorable legislation on an issue that was for them of vital concern.6 To understand the congressional patent debate that engaged the Senate in December 1878, it is useful to know something about the history of the patent system. The patent system had long been a governmental institution: enshrined in the Constitution, it was older than the country itself. Before the War of Independence, the patent system had been coordinated by Great Britain; after the war, certain provisions of English law found their way into article 1, section 8 of the federal Constitution. In this section, Congress was empowered to “promote the progress of science and the useful arts” by “securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” This section became the foundation for the law of copyright and patents. In the first federal Congress, Congress defined the “limited times” for which an inventor could secure an exclusive grant to be fourteen years, and assigned responsibility for the administration of the patent system to a commission that consisted of the vice president, the chief justice, and the secretary of state, with the secretary of state as the administrator. The first secretary of state, Thomas Jefferson, took his administrative responsibility quite seriously. Jefferson reviewed each patent application personally and issued patents sparingly. The magnitude of this challenge taxed even Jefferson’s formidable intellect. Not surprisingly, his successors followed the path of least resistance: instead of evaluating each application on its merits, they merely registered it, granted it a patent, and left its interpretation to the courts. In the early republic, the courts became a forum for a series of celebrated patent disputes involving such landmark inventions as the automated flour mill, the cotton gin, the steamboat, and the telegraph. Not all inventors fared well under this system. Yet, to an extent that is often forgotten, it was the courts—and, in particular, the federal courts—that determined who would be the eponymous inventors of some of the most notable inventions of the age, including the cotton gin (Eli Whitney) and the electric telegraph (Samuel F. B. Morse).7 The registry method persisted without major revision until 1836, when Congress significantly altered the procedures involved in obtaining a patent. In that year, Congress established a new administrative agency—the patent office—and a new senior federal administrator—the commissioner of patents. Henceforth, the commissioner and his staff of examiners evaluated every patent application closely to determine if it was technically novel and sufficiently distinct from patents the patent office had already assigned. To facilitate the pre-approval process, the office required inventors to submit a

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technical drawing and a three-dimensional model. Should the review prove successful, the model would go on public display in the halls of the patent office’s stately new main building in Washington, D.C. This new procedure greatly increased the prominence of the patent system as a locus of innovation. Although the courts retained the ultimate authority to determine the precise meaning of a patent, the preapproval review erected a gate between the inventor and the legal system that significantly increased the value of those applications that squeezed through. Successful patent applications received the imprimatur of the federal government—investing them with a moral authority far greater than any pre-1836 patents enjoyed. Patents now became, as it were, not only a form of property (for they had been that before 1836), but a form of property that a federal administrative agency had certified—and that, by implication, the federal government had a special obligation to protect. The value of those patents that passed the test was further enhanced by the fact that no other major industrial country conducted such a stringent pre-approval review. The post-1836 patent system, informed observers agreed, was a distinctively American achievement, and one that deserved much credit for the celebrated inventiveness of the American people. When the eminent British scientist William Thomson—following a visit to the Centennial Exhibition in Philadelphia in 1876, at which he admired the fruits of American technical ingenuity—urged the British government to emulate the United States patent office and institute a pre-approval review, supporters of the patent system gleefully voiced their satisfaction. Thomson had confirmed their most fundamental belief.8 While the pre-approval review distinguished the U.S. patent system from its counterparts in Europe, its exclusively federal character distinguished it from most other regulatory arenas in the United States. Federalism was perhaps the single most distinctive governmental institution in nineteenth-century America. In most regulatory arenas, the mandate of the federal government remained strictly limited, with the states retaining broad decision-making powers.9 In the patent system, however, the federal government was preeminent: state governments played no role in its administration, while state courts played only a small, and, as time passed, increasingly circumscribed role in its regulation. While Congress was responsible for establishing the general principles guiding the patent system, it played little role in its routine administration. Congress did have the right to grant patent holders seven-year extensions of their rights, should they be able to demonstrate that unusual circumstances had prevented them from securing a commensurate financial reward during the fourteen-year period of their

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initial grant. Yet only rarely, and in highly unusual circumstances, did congressmen evaluate the merits of a particular patent. As a consequence, after 1836 the patent system acquired a bureaucratic momentum, and its administrators a measure of bureaucratic autonomy, that distinguished it from most other federal governmental institutions, with the notable exceptions of the postal system and the military.10 The bureaucratic momentum of the patent office was sustained not only by the patent commissioner but also by the patent examiners, a new class of federal administrators created by the 1836 law. Within a few years, patent examiners would become well versed in highly technical matters and arcane legal principles, while the patent commissioner would become something of a political entrepreneur who publicized the activities of the patent system and lobbied Congress on its behalf. The principal constraint on the bureaucratic autonomy of the patent office was the size of its budget. Each year the patent commissioner proposed a budget for Congress to consider. In the period between 1836 and the Civil War, this proposal often sparked sharp debate. Commissioners routinely urged Congress to increase the number of examiners, while Congress typically balked—approving at most a smaller increase than the commissioner had requested. The staffing debate might at first glance seem to involve little more than the inevitable give-and-take of administrative politics. Salaries, after all, were the largest item in the patent office budget. Yet the principal point of contention was not the cost to the federal government of the salaries it paid to the patent commissioner and his staff. As the patent commissioner regularly reminded Congress, the fees that patent applicants generated more than covered this cost. Rather, the crux of the matter was the relationship between the size of the patent office staff and the likelihood that a would-be patent holder could secure a patent. All things being equal, the larger the number of examiners, the more rigorous the pre-approval review process—and the more likely a given application would be denied. By keeping the number of patent examiners small, Congress could, as it were, shift the patent system back toward the registry model that had prevailed before 1836.11 A further constraint on the bureaucratic autonomy of the patent office was the congressional mandate that patent commissioners devote part of their annual surplus to an ongoing program of agricultural research. In response to this mandate, patent commissioners included a section in their annual reports on crop yields and recent improvements in agricultural practice, neither of which had anything to do with the patenting of inventions. Patent commissioners grumbled about the

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financial drain this research program posed: they would have preferred to use funds to hire more patent examiners. Yet the program endured, and even expanded over time, presumably because it mollified congressmen from farm districts who, in its absence, might have lobbied for the abolition of the patent system as a subsidy for American industry. In the timehonored tradition of American politics, the inability of one constituency to eliminate a subsidy program did not preclude it from securing another subsidy for itself.12 The agricultural research program, like the granting of patents, was predicated on the belief that intellectual endeavor would foster material benefits. Yet it differed from the patent process in one fundamental respect. Patents benefited particular individuals; the agricultural reports did not. Although the reports were intended to have commercial value, their benefits were not restricted to a particular farmer; on the contrary, they were presumed to be widely shared. Agricultural research was a collective endeavor that its advocates hailed as the very antithesis of monopoly. The granting of a patent, in contrast, invested specific individuals with exclusive property rights and legal privileges in the expectation that, by pursuing their own self-interest in a competitive market, they would make the fruits of their labors accessible to the general population. Farmers were by no means the only group of Americans to have problems with the patent system. Equally dissatisfied, though often for different reasons, were the managers of the country’s burgeoning railroad network. Railroads were prodigious users of technology. Railroad managers routinely assembled complex ensembles of equipment from disparate sources, while railroad employees often deployed devices and procedures that they themselves had designed. For the most part, railroad managers neither encouraged their employees to patent inventions nor endeavored to generate profits by controlling patented inventions. Only rarely did a railroad try to secure a competitive advantage by assembling a patent portfolio, as would, for example, the telegraph companies that strung wires along their routes. Instead, railroads competed by securing lucrative rights-of-way from state legislatures and by developing the surrounding territory. This reluctance of railroads to profit from patented inventions can be explained neither by the absence of competition in the railroad industry nor by any principled aversion to government assistance. In the nineteenth century, competition between railroads was often intense, and railroad promoters were highly adept at securing government-granted privileges: state legislatures, for example, regularly guaranteed them a monopoly over a particular right-of-way,

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and almost invariably limited their financial liability in the case of loss. Yet, with few exceptions, railroad managers chose not to secure patent rights for the myriad technical improvements that they and their employees devised. The hesitance of railroad managers to seek patent protection reveals much about the character of technical change in the industry. In the nineteenth century, the railroad industry was so dynamic that railroad managers assumed they would profit more from the open exchange of technical information than they would by securing exclusive rights to specific inventions. Railroad managers diverged from this policy only in those relatively rare instances when they believed that a particular patent would enable them to establish an ancillary business along their right-ofway. In the 1860s, for example, the managers of the Pennsylvania Railroad took advantage of their controlling interest in several lucrative steelmaking patents to build a number of large steelworks along a route that they served.13 While railroad managers displayed a limited interest in patents, suppliers of railroad technology sought them out with an avidity unmatched in most other industries. In 1852, the patent office devised a separate category for inventions designed specifically for railroading. By the end of the Civil War, the number of railroad-specific patents had increased from fifty per year to more than five hundred.14 Railroads also used numerous patentable devices and procedures that were not specific to the railroad, and that ranged from paints, lubricants, and building materials to pumps, office machinery, and electrical equipment. The avidity with which suppliers courted the railroads was in no way surprising. Railroads were an excellent market. Large and complex, they relied on a prodigious variety of technical equipment, which they often purchased in bulk. In addition, and in contrast to many other industries, this equipment was often in plain view. For railroad suppliers, this posed a dual advantage. Not only did it provide many opportunities to discover room for improvement, but it also made it relatively easy to determine if one of their patents had been infringed. Despite these lures, suppliers of patented equipment faced significant challenges in plying the railroad trade. Outsiders often had trouble gaining access to the tracks and equipment necessary to test and refine their inventions. When independent inventors and other suppliers did come up with something new, they encountered a technically savvy customer with formidable technical capabilities that had been honed by the operational demands of maintaining a far-flung network of locomotives, cars, and equipment. Many railroads operated their own machine shops

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and foundries and could easily manufacture much of the equipment that they purchased from suppliers. Indeed, many railroad-specific patents had originated as inventions devised by the employees who worked in these facilities. Not surprisingly, railroad managers tended to assume that the solutions their employers devised to operational problems would become part of the industry’s generic stock of technical knowledge. The sheer number of railroad-specific patents confronted suppliers with a still-further challenge. If railroad managers detected a conflict between two patented inventions, they might refuse to purchase either one, confident that they could fend off an infringement suit by contending that the ownership of the product or process in question remained in dispute. So long as the territory railroads embraced remained small and the organizational complexity of their equipment limited, the potential costs of patent infringement suits remained low. By the 1860s, however, several railroads—in the East, the Pennsylvania, the Baltimore & Ohio, and the New York Central; in the West, the principal lines running west and south from Chicago—had become so geographically extensive and the scale of their operations so complex that the potential costs suddenly grew much larger. Such vast integrated enterprises were far more vulnerable to patent infringement lawsuits than their smaller and less complex predecessors. Should a patent holder persuade a court that he deserved to receive a financial award from a railroad that had infringed on his patented invention, the patent holder might well be able to secure a large settlement—since the settlement would be based on the number of pieces of equipment on which the patented invention had been used. As railroads expanded, the potential for a large settlement increased, and patent infringement suits multiplied. Typically, they involved devices and procedures that railroad managers assumed had either become generic or that were covered by patents for which they had paid a nominal fee. The most celebrated patent infringement suits involved inventions known as “double-acting” brakes. By the 1860s double-acting brakes had been adopted by railroads throughout the country. Double-acting brakes greatly simplified the routine operations of a train by permitting a brakeman to apply brakes on both ends of a railroad car by turning a single wheel. The technique reduced labor costs and, according to some, extended the life of the railroad cars’ wheels. No single prototype existed. The very lack of uniformity in railroad practice provided an opening for Thomas Sayles, an enterprising patent agent who acquired the rights to three different kinds of double-acting brake. In effect, Sayles tried to create a single, comprehensive composite invention whose rights he controlled.

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Each variant in this composite had been patented between 1849 and 1852, and one had been reissued in 1853, long before the railroads had expanded to their present dimensions. Nonetheless, Sayles claimed, each of his patents embraced an indispensable element of any double-acting brake, while any railroad that used such a brake—which, by the 1860s, meant almost every railroad in the country—had either to pay him a licensing fee or risk a lawsuit for patent infringement. Sayles’s audacity caught railroad managers unawares. To compound their woes, they soon received a major setback in the courts. In Sayles v. Chicago and Northwestern Railway Company (1871), a federal court case adjudicated in Chicago, Judge Thomas Drummond awarded Sayles damages in a railroad patent infringement suit on the basis of a recently articulated legal doctrine known as the “doctrine of savings.” Prior to this time, courts had customarily required infringers to pay patent holders three times the patent holders’ ordinary license fee. Under certain circumstances, however—or so several courts had recently ruled—it was impossible to determine just what a fair price for a patent would be. Not surprisingly, many of these cases involved railroads: after all, it was here, in a technically complex and rapidly expanding industry dominated by large corporations, that it was becoming increasingly difficult to rely on market criteria to value assets.15 In such a situation, or so Drummond and several of his colleagues on the federal bench decreed, infringers would henceforth be liable to pay patent holders three times the savings they had derived from the use of a patented invention. In the case of Sayles’s double-acting brake, attorneys for Sayles pressed Drummond to accept their calculation that the savings railroads had obtained by using Sayles’s patent amounted to $455 per railroad car per year. If this total were multiplied to include every railroad car that might be found guilty of infringing on Sayles’s patent, the total liability confronting the railroad industry—or so one railroad patent lawyer estimated—would total $45 million, an enormous sum.16 Although Drummond responded by lowering the per-car total, the total liability for an individual railroad of modest size remained well over $40,000. Larger lines operating more cars and infringing for longer periods would pay far more. Sayles, of course, was but one patent holder. What might happen, railroad managers brooded, should other patent holders institute similar suits? Compounding their unease was their recognition that, in similar cases, the courts had ruled that the doctrine of savings applied not only when the infringing enterprise had lost money in its overall business operations but also when a money-making enterprise had proven in court that the patented invention had not been worth the investment.17

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Potential cost-saving technologies such as double-acting brakes were but one class of patented inventions that confounded railroad managers. Equally daunting was the challenge posed by inventions designed to improve railroad safety. Many of these devices replaced human input with some kind of automatic mechanism. For example, an automatic signal might be activated by the tripping of an electric circuit embedded in a railroad track, eliminating the need for a signalman. An automatic brake, similarly, might be configured to operate independently of the intervention of a brakeman. For various reasons, railroad managers showed little enthusiasm for such novelties and generally resisted public clamor to experiment with them. The public had a right to railroad safety, they proclaimed, but not to dictate to the railroads how they ought best to attain it.18 In the changing political climate of the postwar period, the managers’ intransigence grew increasingly untenable. To improve railroad safety, several states and municipalities enacted ordinances requiring railroads to fence their lines, slow down in congested areas, stop at crossings, and install in their locomotives fire-preventing spark arrestors. State railroad commissions, originally established primarily to monitor railroad finance, soon turned their attention to the hazards railroads posed.19 In response to the public outcry that followed a deadly railroad accident in Revere, Massachusetts, in 1871, Massachusetts railroad commissioner Charles Francis Adams Jr. issued two widely circulated reports on railroad safety. The first was directed primarily at industry insiders and stressed the importance of careful planning and the strict enforcement of rules. The second was intended for the railroad-traveling public and included a discussion of such technical fixes as automatic brakes and automatic signals. To determine which worked best, Adams went so far as to promise that the Massachusetts railroad commission would supervise experimental trials.20 Among the greatest beneficiaries of Adams’s publicity campaign was George Westinghouse Jr., a young inventor who had devised an automatic braking system that used compressed air. Hardly anyone doubted that Westinghouse’s air brake could stop a train faster and more reliably than almost any other product on the market. Yet before Adams had issued his second report, only a few railroad managers had placed substantial orders for the devices, and many of those had acted only at the urging of disgruntled passengers. Adams’s reports, and the ensuing government-sponsored trials, were a boon for Westinghouse. The public clamor for air brakes became intense, and legislation mandating their installation was seriously debated not only in several states

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but also in Congress. Seizing the moment, Westinghouse negotiated lucrative air-brake contracts with several large railroads, and sued others for patent infringement. Westinghouse’s conduct deeply troubled Adams. His reports, he now came to see, had encouraged state legislatures to consider legislation that would, in effect, have granted Westinghouse a lucrative monopoly over an entire class of railroad equipment. To remedy his mistake, Adams and certain railroad managers desperate to circumvent Westinghouse laid plans for a new series of trials intended to showcase promising alternatives to Westinghouse’s air brake—such as a brake occupied by vacuum. To the chagrin of Adams and the railroads, Westinghouse promptly purchased the patents that covered the vacuum principle. Before long, Westinghouse would also add to his patent portfolio automatic signaling. Westinghouse’s rapid ascendancy convinced railroad managers of their extreme vulnerability to patent holders with inventions that capitalized on new commercial opportunities that the railroads had done so much to create. To make matters worse, Westinghouse was not alone. Sleeping-car mogul George Pullman, for example, parlayed a portfolio of equipment patents into a popular service—the sleeping car—that railroad passengers came to demand. In an age in which it had become possible to travel thousands of miles by railroad, one could make a good deal of money by providing specialized services for those passengers who had the means and the desire to travel in predictable comfort and style. Meatpackers similarly took advantage of their patents on refrigerator car design to bring dressed meat to consumers in widely dispersed urban markets, in the process depriving railroads of a lucrative business in shipping livestock. While neither Pullman nor the meatpackers benefited as directly from government-generated publicity as had Westinghouse, they too found a sympathetic forum in the courts, which repeatedly voided all attempts by state and local interests to prevent them from operating on a nationwide scale.21 Taken together, the doctrine of savings and the emergence of ambitious, nationally oriented inventor-entrepreneurs such as Westinghouse and Pullman put railroad managers in an unenviable position. Were present trends to continue, or so they feared, it seemed likely that the returns on technical innovation in their industry would flow primarily to outsiders. Cost savings derived from productivity-enhancing innovations would pass to patent holders under the doctrine of savings, while innovations that increased safety, enhanced comfort, or provided new kinds of services would reap large profits for outsiders like Westinghouse and Pullman. Committed to preventing the patent system from throttling

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their industry, railroad managers turned to Congress—one of the few forums with the necessary authority to grant them relief. Railroad managers harassed by patent infringement lawsuits first approached Congress in early 1874. Working through industry-wide trade associations that they had established to defend themselves against patent agents, they lobbied to block Congress from exercising its authority to extend Sayles’s patents. To their surprise, they found support from an unexpected quarter. For reasons unrelated to the railroad managers’ specific grievance—yet that followed directly from the transformation in the scale of economic activity that the railroad had done so much to foster— the issuance of patent extensions had found its way onto the national political agenda. Patent extensions emerged as a national issue in 1872, when Congress extended a patent for a sewing machine that had originally been granted many years earlier to Elias Howe. This legislative grant enabled the Singer Sewing Machine Company (which controlled Howe’s patent) to stifle its competitors while it built its own nationwide marketing network. Although convenient for Singer, the extension outraged the thousands of farmers who had joined together to form the National Grange. Grangers despised Singer. Most bought their sewing machines from Montgomery Ward, a mail-order house that had established a large following among farmers by working through Grange-sponsored cooperatives. Montgomery Ward received a substantial percentage of its revenue from the sale of “knock off” sewing machines, which it sold for roughly half Singer’s price. To the Grangers, the price differential between a Singer sewing machine and a Montgomery Ward sewing machine neatly symbolized the oppressive tax patent monopolists extracted from farmers. As the 1874 congressional campaign season heated up, Grangers made opposition to the Singer patent-extention bill a key test of political loyalty. Grange leaders urged their members to defeat any congressman who had supported the bill.22 Fearing the worst, chastened members of the House committee on patents rejected virtually every new application for patent extensions, including Sayles’s. Sayles, they reasoned, had already obtained an adequate return on his investment, having collected substantial damages from his victory in Chicago. Buoyed by Sayles’s defeat, patent attorneys employed by railroad trade associations drafted a model bill to curb the doctrine of savings and limit the financial awards that patent holders could secure from infringers. To ensure its enactment, these novice lobbyists hoped to tap resentment toward the patent system among Grangers, who, or so they assumed, had

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sufficient political clout to secure whatever patent legislation they desired. This was a tricky strategy, since the Grangers also disliked the railroads— whom they accused of charging unduly high and unfairly discriminatory rates to ship agricultural staples. Well aware of the Grangers’ distrust, railroad attorneys lobbying on behalf of the proposed legislation took particular pains to conceal their role in the bill’s formulation. For a time it looked as if the railroad lobbyists might prevail. The 1874 congressional elections had bolstered the Grangers’ political clout by restoring control of the House to the Democrats, a party sympathetic to farmer concerns. In the following session, emboldened farmers flooded Congress with complaints about “patent sharks” who threatened them with lawsuits for the unauthorized use of such ubiquitous devices as the swing gate and the driven well. A patent for the latter claimed to cover the principle of tapping an underground water source by driving a pipe into the ground. To the outrage of thousands of farmers and ranchers in the arid Southwest, patent agents had swarmed into the region warning gate and well users that, if they wished to avoid paying fifty-dollar license fees, they must travel to St. Louis to defend themselves in court. The southwesterners’ outrage at the patent agents’ audacity was compounded when it became known that the patent office had originally assigned the well patent to a Union army officer who claimed to have invented it while on active duty during the Civil War. Even staunch Unionists wondered why they should have to pay for the rights to an invention that had been devised in wartime by a federal employee. Railroad lobbyists counted on farmer outrage to help them slip their bill through Congress. Although they prevailed in the House, they failed in the Senate, where the bill died. The bill’s defeat—or so contended a member of the House committee on patents, in an assertion that went unchallenged—had been ensured by the backstage maneuvering of “a single senator,” presumably Roscoe Conkling.23 As railroad attorneys hatched plans to reopen the patent issue during the following session, they found the political landscape decisively transformed. When they had originally introduced the patent bill, even careful students of federal patent policy—such as, for example, the editors of Scientific American—had associated it not with the railroads, but, instead, with the Grangers. By the summer of 1877, the cat was out of the bag. Exposed by Scientific American as the handiwork of covetous corporations, the patent bill had drawn the attention of wary congressmen, who insisted that, prior to it coming up for a vote, it be substantially revised and subjected to extensive public hearings conducted by patent committees in both the House and the Senate.24

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The subsequent hearings, which took place in the winter of 1877–78, posed for railroad lobbyists a major challenge. Here they confronted not only lawyers representing their primary antagonists—Sayles, Westinghouse, and Pullman—but also the Grangers, who, while still fiercely hostile to the patent system, objected strenuously to the omission from the proposed legislation of an “innocent purchaser” provision exempting from legal action anyone who had unwittingly infringed a patent. The phrase “innocent purchaser” touched for many a sensitive nerve—since it had recently been deployed, in a quite different context, by federal courts in the South and West to block state governments from voiding fraudulent railroad bond issues on the rationale that these governments had an obligation to protect the “innocent purchaser” of the bonds. Farm groups did not understand why this principle could not be extended to patents, and had sponsored several “innocent purchaser” patent bills that had been passed by the House.25 Challenged by patent holders and rebuffed by farmers, railroad lobbyists turned for support to congressmen who considered themselves liberal in the nineteenth-century sense of opposing big government and supporting market competition.26 Often dubbed “liberal reformers” to underscore their commitment to constructive legislative change, these congressmen opposed the kind of radical attack on the patent system that farm groups had mounted. Yet in no sense were they merely reactionary defenders of the status quo. On the contrary, liberals hoped to recast the patent system to bring it into better balance with the emergent corporate order. The sponsor of the railroad lobbyists’ bill, Bainbridge Wadleigh of New Hampshire, belonged to this group, as did most of its supporters in the Senate. To help make their case, Wadleigh and his allies put railroad lobbyists in touch with like-minded patent lawyers. Prominent among them was Chauncey Smith, a highly successful Cambridge, Massachusettsbased attorney with extensive experience in patent litigation. Smith and his fellow patent lawyers, most of whom hailed from New England (a region that boasted many corporations reliant on patented inventions), redrafted the patent bill and generated friendly testimony on its behalf, which Wadleigh and his Senate allies then drew heavily upon in making the case for reform. The liberals’ argument for patent reform hinged on their probing analysis of the relationship of invention to innovation in an economy increasingly characterized by large and geographically extensive corporations. Where, they asked, was the locus of innovation? And who should enjoy its fruits? Even in the early days of the patent system, Wadleigh explained, inventors never captured all the savings that their

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inventions had generated. In fact, inventors had always received only a portion of their return, with the rest flowing to users. Should inventors try to capture the entire return, they would find it necessary to charge for the use of their inventions such an exorbitant price that they would never find a buyer. “In the introduction of inventions to the public use,” or so Chauncey Smith informed the Senate committee, in sustaining Wadleigh’s argument, “the case rarely if ever, occurs where an inventor is able to place in his own pocket any considerable amount of the value which the community derives from his invention.” Accordingly, any statute or legal decision that presupposed such an outcome must “involve in some way some lurking fallacy.”27 Here, in a single phrase, was the essence of the liberals’ argument. The challenge of rewarding inventive activity was particularly vexed, the liberals explained, by the fact that in many industries—such as the railroads—technical change almost always involved far more than the onetime purchase of a patented device in the open market. Here, for example, a great deal of technical change took place independently of the patent system, in the ordinary course of operating the business. To hammer home this point, liberals relied heavily on the evidence that the railroad patent attorneys had presented in their congressional testimony. “All inventions run in lines,” one attorney-cum-lobbyist lectured the Senate committee, in a brief tutorial on the nature of technical change: “There is a certain progress and steady improvement in all the arts, and . . . not by virtue of the patent law exclusively. These lines of invention are what is called ‘the art.’”28 Such arguments persuaded the liberals that at least some railroad employees were at least as creative (since they were well versed in the “art”) as the independent inventors that the patent system had been established to encourage. “In the army of inventions that are presented to the railroad companies,” one railroad attorney explained, the patent holder had “simply the broad seal of the United States in his hands” while taking it for granted that the railroad itself would “manufacture and introduce the article.”29 To be useful, inventions had to be integrated into a complex array of technical devices and operating procedures, many of which had been devised not by patent holders but, rather, by their users—that is, the railroads. Surely, then, the enterprises that used such inventions should be given some of the credit for creating the conditions that brought them into use. In short, when courts equated the complex process of innovation with the simple act of invention, they exaggerated the contribution of the outside inventor and slighted the creativity of the company deploying the device or procedure. In so doing, they lost sight

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of the basic rationale for patent infringement cases, which was not to embolden patent holders to extort fantastically large sums from corporations but to prevent infringers from securing the financial rewards that were the inventors’ rightful due. The railroads’ argument proved persuasive to many congressmen, including Wadleigh. It was nothing short of outrageous, Wadleigh contended, for an amateur independent inventor brandishing a sketchily drawn patent claim to hold hostage a legion of technically trained experts. The original design covered by one of Sayles’s patents for doubleacting brakes, Wadleigh observed, was a “very simple one indeed”—and, he believed, had been proven in court to have been devised by “several workmen in railroad shops” who “did not apply for a patent” and had put it into use on their railroad before anyone else.30 Other advocates of patent reform made a related, yet distinct, argument about more technically distinctive inventions, such as the Westinghouse air brake. Without denying that Westinghouse’s invention was, in fact, original to Westinghouse, one railroad representative wondered why Westinghouse should be granted a monopoly that exempted him from the competition that characterized all “other branches of trade.” “Why should we be obliged to buy any power brake of Westinghouse,” the representative asked rhetorically: and, in order to be able to protect the lives and property of the people, pay them $150 for what it costs them $10 or $12 to make in the first instance, and then be obliged to buy every part that wears out, whether the piston or the rubber tube, from the manufactory of the patentee, and pay him a like profit? . . . I say it is an outrage, and that so far from receiving such profits upon the manufacturing, they ought to receive a reasonable patent royalty, and be subject to the competition in manufacturing that characterizes all other branches of trade.31 The liberals’ argument inverted the traditional relationship between the inventor of a novel product or process and its users. Traditionally, inventors were progressive benefactors and users reactionary monopolists. For the liberals, in contrast, the users of patented inventions were the progressive benefactors who rendered them accessible to the general population, while inventors were selfish monopolists fully prepared to withhold the fruits of invention from the general population should it prove impossible to extort a king’s ransom for their use. “The great evil of our society now”—lamented Representative Stephen Hurlbut of

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Illinois, in an astute summary of the case for patent reform that linked it to a broader cultural concern about the changing meaning of work—“is this undue and unsound desire, which amounts to a mania among the people, to grow suddenly rich without work. I think that the present patent law as it is administered—not in the law itself, but as it is administered—tends to create that appetite, and foster that gambling spirit. I think it holds out the same temptation in the instances of these enormous profits, that have been made from time to time, that are held out by the lottery.”32 The liberal critique of the patent law did not go unopposed. Among the liberals’ most determined foes were New York Senator Roscoe Conkling and a small group of like-minded senators, which included Maryland senator William D. Whyte and Illinois senator David Davis. On the patent issue, Conkling and his allies were bound together less by their admiration for ex-president Ulysses S. Grant than by their longstanding engagement with patent law. Whyte had served as a defense attorney in an influential case that helped established the doctrine of savings. Davis, a former Supreme Court justice, had taken part in many leading patent cases in his years on the bench, and had long cultivated a reputation as a champion of farmers and other independent proprietors. Conkling himself was a seasoned patent lawyer who had recently defended two manufacturers in major infringement suits.33 This group’s opposition to patent reform drew on a distinctive blend of judicial reasoning and ideologically charged political rhetoric that many found compelling in an age in which corporations had yet to acquire the moral legitimacy that proprietors—then and now—could take for granted. Why, Conkling asked, was it impossible to calculate the savings that an invention might bring certain users, such as a railroad or a large manufacturer, but not to others, such as a village blacksmith? How, Conkling asked precisely, did these two kinds of enterprise differ? To drive his point home, Conkling proposed an array of hypothetical examples in which users had incorporated patented inventions and goaded Wadleigh to explain why the doctrine of savings did or did not apply. Why did a state-spanning railroad that incorporated a patented invention into a locomotive deserve relief when a village blacksmith who relied on a patented alloy to harden his metal or who unwittingly installed a patented axle in a wagon did not? Supporters of patent reform rebuffed Conkling’s assault by emphasizing that, under the proposed law, blacksmiths and farmers would enjoy, in at least certain circumstances, the same privileges as railroads. Undaunted, Conkling raised the rhetorical stakes by assailing the

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corporations that had supported the bill. “The bill is objectionable,” Conkling declared, because it carved out a protection not for the “innocent” and the “defenseless,” but rather for “exactly those persons who do not need it”: “It is an exemption of aggregated capital, of powerful combinations, of intelligent persons from a rule of law which in the same bill we propose to visit upon the ignorant, the weak, and those who accidentally become subject to it.”34 Conkling found particularly objectionable those clauses of the proposed legislation that would have excluded railroads and other organized interests from the doctrine of savings. “Who are excluded?” Conkling asked sneeringly: “We know not from this bill, but from other information of which we cannot fail to take notice we do know who the excluded parties are, namely the strong, the rich, the powerful, the owners of aggregated capital, the great mill-owners, the railway corporations of the country.”35 Conkling’s anticorporate rhetoric was echoed by Illinois senator Davis. The reformers’ assault on the doctrine of savings, Davis warned, was rooted less in any desire to render the fruits of innovation more accessible, than it was in the “monopoly power” of patent users—including, of course, the railroads—whose “concentrated power is sufficient to ruin any patentee who attempts to bring them to public account.”36 While Conkling and Davis’s rhetoric was unquestionably overheated, it would be a mistake to dismiss it as altogether fatuous. On the contrary, it drew on a highly influential tradition of social thought that exalted producers and demonized corporations.37 Conkling was hardly a disinterested bystander; as a patent lawyer, he had long derived a tidy income from patent infringement suits—and, thus, had a vested interest in maintaining the status quo. Yet there is good reason to doubt that his anticorporate animus was insincere. His public pronouncements, for example, were echoed by his private dealings: even when Conkling was out of the spotlight, he remained loyal to the time-honored values of the proprietary capitalism of his youth.38 Conkling’s hostility toward the railroad made him somewhat unusual among prominent public figures of his day. Conkling was, or so railroad magnate Collis Huntington believed, incorruptible—a view that seems, at least among railroad leaders, to have been widely shared. Conkling’s archrival James K. Blaine was far more willing to hasten an accommodation with the emergent corporate order, especially if there was something in it for himself.39 Conkling’s defense of the existing patent system, in sum, derived less from the self-interest of a patent lawyer than from a principled allegiance to the proprietary values that the patent system had been originally intended to sustain. From the standpoint of the proprietary capitalist, the

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giant railroad corporation was less the harbinger of a new, more technically progressive age than a Frankenstein’s monster—a mutant that had grown far larger and more unruly than its government creators had intended. The true monopolist was not the patent holder, and certainly not the independent inventor, but these frightening “aggregations of capital.” Anyone who defended this alien creature, whether a liberal like Wadleigh or a political rival like Blaine, deserved the most emphatic rebuke.40 Yet this was as far as Conkling was willing to go. Unlike the Grangers, Conkling refused to support innocent purchaser provisions that would have gutted the existing patent system. Like the similar appeals to repudiate bonds and other financial obligations of government, these proposals threatened the property rights that Conkling deemed essential to proprietary capitalism—rights that he believed the government had an obligation to defend. Even before Conkling’s obstructionism killed the proposed patent reform bill, railroad attorneys who had lobbied Congress had begun to reap dividends from an alternative approach that focused on the courts. In October 1878, in Railway Company v. Sayles, the U.S. Supreme Court rendered its judgment regarding Thomas Sayles’s claims for double-acting brakes. In his opinion, Justice Joseph P. Bradley refrained from making any sweeping pronouncements about the possible relevance to the case of the doctrine of savings; instead, Bradley honed in on the specific details of the patent claims that Sayles had advanced. In particular, Bradley denied Sayles’s contention that every double-acting brake system necessarily relied on essential, indispensable principles derived from each of the three patents that Sayles controlled. On the contrary, Bradley concluded, the patents merely covered three possible solutions to a problem that had been “in the air” thirty years before, when the original patents had been issued. Each patent covered a particular arrangement—and nothing more. Railroads that had obtained rights to the patent that covered the arrangement they relied on, or that had adopted some other design, need not fear that they might one day have to pay patent holders tens of thousands of dollars for infringing on their patents. In this way, to draw on a concept familiar to students of patent law today, Bradley had severely restricted the scope of Sayles’s patents.41 Bradley’s ruling in Railway Company v. Sayles was but one of several in which he advanced an argument that could be plausibly characterized as pro-railroad. Before Bradley joined the Supreme Court, he had served for many years as chief counsel to the Camden and Amboy Railroad, an enterprise notorious for its artful manipulation of the legal process. And

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while on the Court, Bradley had steadfastly rebuffed litigants who sought legal rulings to relieve state and local legislatures from the obligation to pay railroad bondholders even in instances in which the original bond issue had been tainted by fraud. Yet if Bradley’s railroad rulings are considered in their entirety, a more nuanced picture emerges. For example, in the landmark case of Munn v. Illinois (1877), Bradley upheld the constitutionality of state railroad regulation—a decision railroad managers vociferously opposed— while, in various railroad passenger liability cases, Bradley consistently held up railroads to high standards. It would be equally misleading to assume that Bradley invariably favored corporate interests in patent disputes. In a famous 1888 telephone patent case, for example, Bradley dissented from Chief Justice Morrison Waite’s monumental decision to uphold the legality of Alexander Graham Bell’s telephone patents, a decision that became a cornerstone of the legally sanctioned monopoly of telephone giant American Bell.42 Bradley’s ruling in Railway Company v. Sayles, like most of his decisions pertaining to business, is best explained not by his supposed procorporate bias but, rather, by his creative engagement with the problem of monopoly. Relying on distinctions far more supple than those that Conkling had employed, Bradley articulated in these decisions a theoretically compelling yet empirically grounded critique of monopoly power. Not only in Munn, but also in the Slaughterhouse Cases (1873), Bradley based his decisions primarily on his assessment of whether or not the institution that had become the subject of litigation did or did not enjoy in practice an exclusive monopoly. Bradley’s rulings in the railroad passenger safety cases, similarly, hinged on his determination that railroad passengers lacked the alternative means of transit that would have absolved the carrier from the responsibilities that monopoly power entailed.43 In reaching his decisions, Bradley took great care to establish the specific facts involved in each particular situation. A similar sensibility informed his rulings in patent cases. Determined to balance the rights of patent holders against those of the public, Bradley immersed himself in technical detail. If inventors could persuasively establish a solid claim to distinctiveness and originality, Bradley was willing to interpret their patent broadly—even if his ruling might cause substantial harm to established industries that relied on their invention. But his standards were strict.44 The disciplined imagination that informed Bradley’s approach toward what we would today call patent scope is evident in two of his

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rulings—both widely cited—that had obvious parallels to his decision in Railway Company v. Sayles. In Mitchell v. Tilghman (1874), Bradley dissented from the majority, which had narrowly construed a patent for a method of obtaining glycerin from animal fat. The glycerin patent, like the patents for double-acting brakes, dated back to the 1850s; in this case, however, Bradley ruled against an infringer who claimed his particular means of obtaining glycerin fell outside the patent.45 When, in Tilghman v. Proctor (1881), the Supreme Court revisited the glycerin patent, Bradley’s broad reading prevailed. This decision proved to be a major financial embarrassment for Procter and Gamble, the nation’s largest manufacturer of glycerin.46 In a majority decision in Brown v. Selby (1874), Bradley likewise construed broadly an 1854 patent for a mechanical corn planter. Here Bradley once again reversed a decision by Judge Drummond, the judge in the Sayles case; yet, on this occasion, he did so on precisely the opposite grounds. Drummond had held the corn planter patent invalid because its inventor had “swelled claims” and had tried to “lay his hands on the corn planting machine entire.”47 Bradley demurred in an erudite ruling that was, as legal historian Charles Fairman has observed, of “extraordinary length” and based entirely on the “factual details of the case.”48 By grounding so many of his patent decisions in specifics, Bradley kept patent law relatively unencumbered by abstract principles—such as the doctrine of savings—that might unintentionally foster the abuse of monopoly power. Bradley’s method proved influential: not only was he the author of many of the most important Supreme Court patent decisions, but he won over many of his legal colleagues to the merits of his approach. In following this course, the federal courts could apply patent law much more flexibly than could Congress, which must in its legislation prescribe comprehensive remedies applicable to all cases. In at least one court ruling, however, Bradley provided a sweeping justification for the changing locus of innovation in the emerging corporate order. “The process of development in manufactures,” Bradley declared in 1883 in Atlantic Works v. Brady, creates a constant demand for new appliances, which the skill of the ordinary head-workmen and engineers is generally adequate to devise, and which, indeed, are the natural and proper outgrowth of such development. Each step forward prepares the way for the next, and each is usually taken by spontaneous trials in a hundred different places. To grant a single party a monopoly of every slight advance made, except where the exercise of invention somewhat

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above ordinary mechanical or engineering skill is distinctly shown, is unjust in principle and injurious in its consequences . . . It was never the object of [the patent] laws to grant a monopoly for every trifling device, every shadow of a shade of an idea, which would naturally and spontaneously occur to any skilled mechanic or operator in the ordinary progress of manufacturers. Such an indiscriminate creation of exclusive privileges tends rather to obstruct than to stimulate invention. It creates a class of speculative schemers, who make it their business to watch the advancing wave of improvement and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country without contributing anything to the real advancement of the art. It embarrasses the honest pursuit of business with fears and apprehensions of concealed liens and unknown liabilities to law suits and vexatious accountings for profits made in good faith.49 Interestingly, Bradley’s effusive tribute to the technical virtuosity of the “ordinary head-workmen”—as well as his conviction that the patent system had never been intended to grant a monopoly to a “class of speculative schemers” intent on capitalizing on “every trifling device” and “every shadow of the shade of an idea”—echoed almost word for word the arguments that railroad patent attorneys had devised in the double-acting brake cases and that, in their capacity as lobbyists, they had subsequently deployed in the congressional hearings on patent reform in 1878–79. Not surprisingly, railroad leaders were quick to publicize Bradley’s statement; it was, for example, quoted at length in the 1885 annual report of the Eastern Railroad Association.50 Bradley’s peroration in Atlantic Works v. Brady tilted the balance to the railroads in their ongoing struggle to keep independent inventors and patent holders at bay. Building on Bradley’s ruling, railroad managers worked through trade groups such as the Eastern Railroad Association to identify technical precedents for patented inventions in their own shops and facilities. The principle of priority was important since, in American law, inventors could not rightfully claim a patent for inventions already in use at the time of their application. Railroad managers also redoubled their efforts to monitor their own inventive activity. In addition to prohibiting unauthorized experiments, they discouraged employees from marketing patented inventions themselves, and required

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employees who might have devised patentable inventions to assign their rights to their employers. Before long, control over railroad technology passed into the hands of organized bureaucracies that established centralized testing facilities staffed by experts.51 The age of the independent inventor was passing; the age of corporate research and development had begun.52 The challenge railroads posed for the patent system was but one dimension of a more general phenomenon. Railroads were the harbingers of an emergent corporate order that was closely bound with the coordination of complex technical systems. By 1900, analogous technical systems would come to dominate many industries. For a time in the early twentieth century—a period often termed the “Progressive Era”—the regulation of these technical systems would become a central focus of American politics at the federal, state, and local level.53 From this period of intense contestation would emerge the twentieth-century administrative state.54 The organizational capabilities of the twentieth-century state would have startled lawmakers of Roscoe Conkling’s generation. Yet it would be a mistake to exaggerate its novelty, for it built on much that had gone before. The public debate over patent reform in the post–Civil War decades, both in Congress and the courts, had demonstrated the intellectual earnestness and moral intensity with which contemporaries grappled with the emergent corporate order decades before the rise of big business would preoccupy lawmakers of the Progressive Era. Indeed it was the high intellectual caliber with which lawmakers grappled with such complex issues as patent rights—far more than the often-exaggerated moral failings of individual politicians—that may well be the most distinctive policy legacy of the age.55 The caliber of this debate owed much to the particular social milieu in which it occurred—a milieu in which the competing moral claims of proprietary capitalism and corporate capitalism remained in creative tension. The principal challenge lawmakers confronted was the design of a regulatory regime that could accommodate both. The solutions they proposed naturally differed in some important respects from those of their early twentieth-century successors. By the Progressive Era, corporations had become ubiquitous, and politicians from across a wide spectrum looked for the federal government to reach some sort of accommodation with them. In the 1870s, the ranks of reformers were far smaller, and the relationship of the federal government toward the corporation remained far more adversarial, a circumstance that did much to energize public debate. Why congressmen like Conkling were so unabashed in attacking

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corporate power is an intriguing question. At least in part, it was because corporations remained on the periphery of the more traditional, proprietary economic order that continued to account for the bulk of the country’s economic activity.56 Although legislators and judges dominated the public debate, other groups loomed large. Patent lawyers, specialized journalists, industry lobbyists, and the federal administrators who staffed the patent office all shaped the evolving regulatory regime. The role of the patent office was particularly notable, not the least because it is so often overlooked. Here was a bastion of administrative autonomy deep within the federal bureaucracy that exerted a subtle yet pervasive influence on public policy. The patent office anchored the ever-broadening community of experts, including influential figures in Congress and the courts who interacted with it as lawmakers and litigants. Among these litigants were the railroad patent attorneys who, during the congressional patent debate of 1878–79, evolved into some of the nation’s earliest corporate lobbyists. By floating ideas that would soon be incorporated into proposed legislation and court decisions, this small yet influential group carved out for itself a distinctive niche in the policy arena. In so doing, they became an integral part of the policy process.57 At the vanguard of what we would today call interest-group politics, these lobbyists—in conjunction with trade groups such as the Eastern and Western Railroad Associations and the National Grange—helped not only to shape the political economy of the late nineteenth century but also to link it with the political economy of today. Georgia Institute of Technology University of Illinois at Chicago

Notes 1. Arguments before the Committees on Patents of the Senate and the House, 45th Cong., 3d sess., 1878, S. Misc. Doc. 50, serial 1788 (hereafter Arguments). 2. The literature on the late nineteenth-century state is vast. For a brief introduction, see Richard R. John, “Farewell to the ‘Party Period’: Political Economy in NineteenthCentury America,” Journal of Policy History 16: 2 (2004): 117–25. Two useful review essays are Charles W. Calhoun, “Late Nineteenth-Century Politics Revisited,” History Teacher 27 (May 1994): 325–37, and Calhoun, “Political Economy in the Gilded Age: The Republican Party’s Industrial Policy,” Journal of Policy History 8 (April 1996): 291–309. For a critique of the “courts and parties” framework, see John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic, 1787–1835,” Studies in American Political Development 11 (Fall 1997): 347–80.

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3. On the monopoly problem in nineteenth-century America, see Herbert Hovenkamp, Enterprise and American Law, 1836–1937 (Cambridge, Mass., 1991). On the link between the monopoly problem and patent policy, see Steven W. Usselman, Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840–1920 (New York, 2002), chap. 4. 4. Usselman, Regulating Railroad Innovation, chap. 1, and James Livingston, Pragmatism and the Political Economy of Cultural Revolution, 1850–1940 (Chapel Hill, 1994), chap. 2. See also Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), part 2. 5. In 1847, the Patent Office received 1,531 patent applications and issued 572 patents (a 37 percent success rate). In 1871, it received 19,472 patent applications and issued 13,033 patents (a 67 percent success rate). Report of the Commissioner of Patents, 42d Cong., 2d sess., 1872, H. Ex. Doc. 86, serial 1511, 8. 6. For a brief but valuable discussion of patent lobbying during the Grant administration, see Margaret Susan Thompson, The ‘Spider’s Web’: Congress and Lobbying in the Age of Grant (Ithaca, 1986), esp. 264–70. 7. The nineteenth-century patent system has attracted a great deal of attention. See, for example, Hugo Meier, “Technology and Democracy, 1800–1860,” Mississippi Valley Historical Review 43 (March 1957): 618–40; Robert C. Post, Physics, Patents, and Politics: A Biography of Charles Grafton Page (New York, 1976); Eugene S. Ferguson, Oliver Evans: Inventive Genius of the American Industrial Revolution (Greenville, Del., 1980), 52–59; Brooke Hindle, Emulation and Invention (New York, 1981), 16–23 and 42–43; Morgan Sherwood, “The Origins and Development of the American Patent System,” American Scientist 71 (September–October 1983): 500–506; Kenneth L. Sokoloff and B. Zorina Khan, “The Democratization of Invention during Early Industrialization: Evidence from the United States,” Journal of Economic History 50 (June 1990): 363–78; Carolyn C. Cooper, Shaping Invention: Thomas Blanchard’s Machinery and Patent Management in Nineteenth-Century America (New York, 1991); Steven Lubar, “The Transformation of Antebellum Patent Law,” Technology and Culture 32 (October 1991): 932–59; I. Bernard Cohen, Science and the Founding Fathers: Science in the Political Thought of Thomas Jefferson, Benjamin Franklin, John Adams, and James Madison (New York, 1995), 237–43; B. Zorina Khan, “Property Rights and Patent Litigation in Early Nineteenth-Century America,” Journal of Economic History 55 (March 1995): 58–97; and Khan, The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790–1920 (Cambridge, forthcoming). 8. Crosbie Smith and M. Norton Wise, Energy and Empire: A Biographical Study of Lord Kelvin (New York, 1989). 9. Harry N. Scheiber, “Federalism and the American Economic Order, 1789–1910,” Law and Society Review 10 (1975): 57–118. 10. On the postal system, see Paul Starr, The Creation of the Media: Political Origins of Modern Communications (New York, 2004), chap. 3, and Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, Mass., 1995), esp. chaps. 1–3. On the military, see Mark R. Wilson, “The Politics of Procurement: Military Origins of Bureaucratic Autonomy,” in this issue of the Journal of Policy History. 11. Robert C. Post, “‘Liberalizers’ versus ‘Scientific Men’ in the Antebellum Patent Office,” Technology and Culture 17 (January 1976): 24–54. 12. On regional perceptions of the patent system, see Ari Hoogenboom, The Presidency of Rutherford B. Hayes (Lawrence, Kans., 1988), 117. 13. Usselman, Regulating Railroad Innovation, chap. 2. 14. Patent totals are taken from the patent commissioner’s annual reports, which appeared annually in the congressional serial set. For the period discussed here, these reports include only sketchy information about patents specific to railroads. For the 1852 total, see Report of the Commissioner of Patents for 1852, 32d Cong., 2d sess., 1853, Sen. Ex. Doc. 55, serial 667, 438. The total for 1865 appears in the Report of the Commissioner of Patents for 1865, 39th Cong., 1st sess., 1866, H. Ex. Doc. 52, serial 1257, 18.

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15. The key cases are: Mowry v. Whitney, 14 Wall 620 (1872), reversing Whitney v. Mowry, 29 F. Cas. 1105 (1870); Mevs v. Conover, 131 U.S. 142 (1877), affirming Conover v. Mevs, 6 F. Cas. 322 (1868) and Conover v. Mevs, 11 Blachf. 197 (1873); and Cawood Patent, 94 U.S. 695, reversing in part Turrill v. Illinois Central Railroad Company, 24 F. Cas. 383 (C.C.N.D.Ill. 1867), 24 F. Cas. 385 (1871), and 24 F. Cas. 387 (1873). 16. Sayles v. Chicago and NW Ry Co., 21 F. Cas. 600 (1871). The case first came before the federal district court in 1865 and reached the Supreme Court in 1878. Sayles v. Chicago and NW Ry Co., 21 F. Cas. 597 (1865); Railway Company v. Sayles, 99 U.S. 554, 556–57 (1878). See also Arguments, 229; and John J. Harrower, History of the Eastern Railroad Association (1905), 23, 29. 17. For the relevant cases, see note 15 above. 18. On the forty-year contest between the government and the railroads over safety appliances, see Usselman, Regulating Railroad Innovation, chaps. 3, 8. 19. David O. Stowell, Streets, Railroads, and the Great Strike of 1877 (Chicago, 1999). 20. On Adams, see Thomas K. McCraw, Prophets of Regulation (Cambridge, Mass., 1984), chap. 1. 21. Charles W. McCurdy, “American Law and the Marketing Structure of the Large Corporation, 1875–1890,” Journal of Economic History 38 (September 1978): 631–49; Richard Franklin Bensel, The Political Economy of American Industrialization, 1877–1900 (New York, 2000), chap. 5. 22. On the Grangers’ hostility to Singer, see Hal Barron, Mixed Harvest: The Second Great Transformation in the Rural North, 1870–1930 (Chapel Hill, 1997), 172. The Grangers also supported state legislation to bar Singer agents from individual states. When the Supreme Court declared this legislation unconstitutional, it greatly hastened the emergence of national marketing networks. McCurdy, “American Law and the Marketing Structure.” 23. Arguments, 438. The Senate bill, according to one newspaper account, should have been enacted in March 1877, but it was “pushed over.” New York Times, 14 July 1878, 6. 24. Scientific American closely monitored legislative and judicial actions pertaining to the patent system, while its editors frequently commented on major policy changes. For the editors’ shifting analysis of the patent bill, see Scientific American: 17 March 1877, 36: 161, 15 December 1877, 37: 368, and 13 April 1878, 38: 224. 25. Innocent purchaser bills often found their way to the House; their deliberations can be followed in the patent committee’s annual reports. On the bond cases, see Charles Fairman, Reconstruction and Reunion, 1864–1888: History of the Supreme Court of the United States, Part One (New York, 1971), chaps. 17, 18. 26. John G. Sproat, ‘The Best Men’: Liberal Reformers in the Gilded Age (New York, 1968). On the liberals, see, in addition to Sproat, David Montgomery, Beyond Equality: Labor and the Radical Republicans, 1862–1872 (New York, 1967); William Gillette, Retreat from Reconstruction, 1869–1879 (Baton Rouge, 1979); Michael McGerr, The Decline of Popular Politics (New York, 1986); Eric Foner, Reconstruction (New York, 1988), chap. 10–12; and Nancy Cohen The Reconstruction of American Liberalism, 1865–1914 (Chapel Hill, 2002). On the enthusiasm of liberals for administrative expertise, see Thomas L. Haskell, The Emergence of Professional Social Science: The American Social Science Association and the Nineteenth-Century Crisis of Authority, rev. ed. (Baltimore, 2000 [1977]), and Stephen Skowronek, Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (New York, 1982), esp. 132–38. 27. Arguments, 45. 28. Ibid., 110. 29. Ibid., 128. 30. Ibid., 32, 38. 31. Ibid., 114–15. 32. Ibid., 439. 33. Alfred R. Conkling, The Life and Letters of Roscoe Conkling, Orator, Statesman, Advocate (New York, 1889), 491–93, 571–73.

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34. Cong, Rec., 45th Cong., 3d sess., 15 January 1879, 8: 460. 35. Cong. Rec., 45th Cong., 3d sess., 17 January 1879, 8: 523. 36. Cong. Rec., 45th Cong., 3d sess., 19 December 1878, 8: 305. 37. For a survey of the tension between proprietary and corporate (or “capitalistic”) values, see Tony A. Freyer, Producers versus Capitalists: Constitutional Conflict in Antebellum America (Charlottesville, 1994). 38. The propensity of historians to exaggerate the corruption of post–Civil War public figures such as Conkling is a recurrent theme of Mark Wahlgren Summers’s Era of Good Stealings (New York, 1993). Conkling, Summers concluded, was as “personally honest” as William H. Seward, though no less willing to “close an eye” to whatever “dirty deals” his lieutenants back in New York might be orchestrating (28). 39. So long as Conkling remained in Congress, railroad magnate Collis Huntington confided to his partners, he “would take nothing from us.” David J. Rothman, Politics and Power: The United States Senate, 1869–1901 (Cambridge, Mass., 1966), 196–97. The extent to which Conkling was less solicitous than Republican rivals to the railroads and other organized economic interests was noted half a century ago by political historian Lee Benson. For example, Conkling gave New York Central Railroad lobbyist Chauncey Depew a “sharp going over” at the hearings of the Windom Committee in 1873—the first hearings at which Congress considered the subject of railroad regulation in any detail. Conkling remained antagonistic to the New York Central and other “corporate monopolies” until his resignation from Congress in 1881. Lee Benson, Merchants, Farmers, and Railroads: Railroad Regulation and New York Politics, 1850–1887 (Cambridge, Mass., 1955), 156–60. For a more skeptical view of Conkling’s relationship with corporations, see Charles J. McClain, “From the Huntington Papers: The Huntington-Conkling Connection,” Pacific Historian 29 (Winter 1985): 30–46, and Richard White, “Information, Markets, and Corruption: Transcontinental Railroads in the Gilded Age,” Journal of American History 90 (June 2003): 19–43. 40. Cong. Rec., 45th Cong., 3d sess., 24 January 1879, 8: 717, 723; 6 February 1879, 8:1069; 8 February 1879, 8: 1146; and 1 March 1879, 8: 2257–59. Conkling resigned from the Senate shortly after the inauguration of President James K. Garfield in 1881 in a dispute over patronage appointments in the New York Custom House. Conkling’s departure has often been interpreted as the last gasp of a machine politician. Rothman, Politics and Power, 32–35. Yet Conkling’s position on patent law suggests that his quarrel with the Garfield administration might have extended to the “great commercial and industrial questions” that Garfield considered the real business of the day. Thompson, Spider’s Web, 113. 41. Robert P. Merges and Richard R. Nelson, “The Complex Economics of Patent Scope,” Columbia Law Review 90 (1990): 839–916. 42. On Bradley’s tenure on the Supreme Court, see Charles Fairman, Reconstruction and Reunion, whose analysis we follow closely here. See also Edward G. White, The American Judicial Tradition: Profiles of Leading American Judges (New York, 1976), chap. 4. 43. Railroad Company v. Lockwood, 17 Wallace 357 (1873), and Railway Co. v. Stevens, 95 U.S. 655 (1878). 44. An analogous argument informed Bradley’s majority opinion in an influential 1879 copyright case, Baker v. Selden, 101 U.S. 99 (1879). Selden claimed that a book he had copyrighted in 1859 covered the essential principles of the bookkeeping method it described, and that subsequent books on the subject violated his copyright. Bradley ruled that Selden’s book covered only the particular expression of his accounting method and not the idea itself. By firmly upholding the dichotomy between an idea and its expression, and by stressing the importance of empirically verifying the author’s claims, Bradley extended to copyright law principles long central to patent litigation. “To give to the author of the book an exclusive property in the art described therein,” Bradley declared, “when no examination of its novelty has ever been officially made, would be a surprise and a fraud upon the public.” Quoted in Siva Vaidhyanathan, Copyrights and Copywrongs: The Rise of Intellectual Property and How It Threatens Creativity (New York, 2001), 29–30.

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45. Mitchell v. Tilghman, 19 Wallace 287 (1874). 46. Tilghman v. Proctor, 102 U.S. 707 (1881). 47. Brown v. Selby, 21 Wallace 181 (1874). 48. Fairman, Reconstruction and Reunion, 122–23. 49. Atlantic Works v. Brady, 107 U.S. 192 (1883), 199–200. 50. Annual Report of the Executive Committee of the Eastern Railroad Association 19 (1885): 16. 51. For a more extended discussion, see Usselman, Regulating Railroad Innovation, chap. 5–7, 9. 52. On the rise of corporate industrial research, and the concomitant changes in legal doctrine, see David F. Noble, America by Design: Science, Technology, and the Rise of Corporate Capitalism (New York, 1977), esp. chap. 6, and David A. Hounshell, “Industrial Research and Manufacturing Technology,” in Encyclopedia of the United States in the Twentieth Century, ed. Stanley I. Kutler (New York, 1996), 2:831–57. 53. Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890–1916: The Market, the Law, and Politics (New York, 1988). 54. For a variety of perspectives on early twentieth-century state-building, see Skowronek, Building a New American State; Morton Keller, Regulating a New Economy: Public Policy and Economic Change in America, 1900–1933 (Cambridge, Mass., 1990); and Daniel P. Carpenter, The Forging of Bureaucratic Autonomy: Reputations, Networks, and Policy Innovation in Executive Agencies, 1862–1928 (Princeton, 2001). 55. For a related conclusion, see Allan G. Bogue, The Earnest Men: Republicans of the Civil War Senate (Ithaca, 1981), 296. No one who has studied closely the public pronouncements of mid-nineteenth-century senators, Bogue observed, can argue that they “took their tasks and obligations lightly”: “Obviously, too, they attached considerable importance to showing themselves to be consistent in their approach to specific issues.” 56. To emphasize the adversarial character of government-business relations in the 1870s calls into question the long-standing consensus of business historians that the socalled “adversarial relationship” between government and business originated in the period after 1880, and reached its peak in the period after 1900. For a convenient statement of this thesis—which has long been associated with Alfred D. Chandler Jr.—see Thomas K. McCraw, “Business and Government: The Origins of the Adversary Relationship,” California Management Review 26 (Winter 1984): 33–52, esp. 39–41. 57. On the continuing involvement in patent issues of the Eastern Railroad Association, see Usselman, Regulating Railroad Innovation, chap. 4. On the growing legitimacy of organized groups in the framing of public policy, see Elisabeth S. Clemens, The People’s Lobby: Organizational Innovation and the Rise of Interest Group Politics in the United States, 1890–1925 (Chicago, 1997).

R. DANIEL WADHWANI

Protecting Small Savers: The Political Economy of Economic Security

Admitting, then, that it is eminently desirable to reduce the action of the organized public force to the minimum . . . shall we not say that government can not relieve itself from the necessity of frequent and minute interferences with industry in any other way to so great an extent as by, 1st, insisting on the thorough primary education of the whole population; 2d, providing a strict system of sanitary administration; 3d, securing by special precautions the integrity of banks of savings for the encouragement of the instincts of frugality, sobriety, and industry? Each of these things is contrary to the doctrine of Laissez faire; yet I, for one, can not find room to doubt that, on purely economical grounds, the action of the State herein is not only justifiable but a matter of elementary duty. —Francis Amasa Walker, The Wages Question: A Treatise on Wages and the Wages Class (1876) In his 1876 history of savings banks in the United States, New York State bank regulator Emerson Keyes tried to explain the rapid rise of this financial institution since its origins in the early republic. In the past half-century, Keyes observed, savings banks had grown faster than any other major financial institution in the United States. For millions of Americans, they were the first financial institution of any kind in which they had invested. By the 1870s, savings banks held between a quarter and a third of all the wealth in all the financial institutions in the country.1 What, then, was the fundamental cause or concern that had given rise to such a vital and dynamic institution? “In a word,” Keyes concluded, it was “Poverty!”2

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Savings banks were the most important of a host of novel financial institutions that nineteenth-century lawmakers promoted and regulated for the purpose of enhancing economic security among working-class Americans. Like benefit societies and building and loan associations, which they in certain respects resembled, they were not supposed to extend credit to businesses—the principal activity of commercial banks. Instead, they were designed to encourage the accumulation of personal savings for periods of economic distress and, in this way, prevent dependence on public relief. Benefit societies offered insurance in cases of illness, injury, or death. Building and loan associations guaranteed small-denomination mortgage loans to buy homes. Savings banks provided a safe repository for the accumulation of nest eggs that could be withdrawn during periods of unemployment and hardship, and in old age.3 This essay on the regulation of savings banks in the nineteenth-century Northeast takes as its theme the emergence of a coherent body of law designed to ensure the economic security of small savers.4 During the nineteenth century, various governmental institutions—including, above all, state legislatures and courts—designed an enduring and effective regulatory regime to protect small savers from the risks of the financial market. By crafting and implementing legal rules for savings banks that favored stability over competition and security over high returns, lawmakers enshrined the economic security of the household as a paramount policy goal. This conclusion differs markedly from most traditional accounts of nineteenth-century American economic policy. Political and legal historians have long contended that governmental institutions in this period were preoccupied not with economic security but with dynamic growth.5 Economic historians have reached a similar conclusion.6 Both presume that lasting regulatory safeguards for small savers emerged in response to twentieth-century financial crises, most notably the Great Depression of the 1930s, rather than to formative nineteenth-century concerns over the economic security of households in a market economy.7 Following a brief introduction that sets forth the nineteenth-century lawmakers’ rationale for protecting small savers, this essay chronicles the emergence of savings bank regulation in three sections. The first section surveys the regulations lawmakers enacted to limit competition between savings banks; the second, the restrictions they placed on the contracts savings banks entered into; and the third, the fiduciary standards they established to evaluate the conduct of savings bank trustees.8

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The financial system in the northeastern United States during the nineteenth century was comprised of an array of institutions, each designed to provide a specific and often quite limited bundle of services.9 Its cornerstone was the commercial bank, which state legislatures chartered to maintain a money supply and extend short-term commercial credit. Prior to the National Banking Act of 1863, commercial banks were regulated by the states; after 1863, some also came to be regulated by the federal government. While commercial banks were extremely important to the conduct of business, they were only rarely used by individuals of modest means who wished to set aside small sums for future needs.10 The needs of small savers were met by a variety of other financial institutions, of which the most important were savings banks.11 The first savings banks in the United States were established during the 1810s in Philadelphia, Boston, New York, and Baltimore. From the outset, these institutions had been intended primarily to enable persons of modest means to save a portion of their present income to meet future needs. They furnished, as the founders of the Bank for Savings in New York explained in 1819, a “secure place of deposit” for “all who wish to lay up a fund for sickness, for the wants of family, or for old age.”12 Savings banks received special charters from state legislatures that granted them certain privileges in return for the performance of specific duties. These charters varied, at least early on, from institution to institution. In the nineteenth century, all were granted by state legislatures: in contrast to commercial banks, savings banks did not come under the jurisdiction of federal law.13 Many accepted deposits as small as $1. Although savings banks typically paid depositors a relatively modest rate of interest, this shortcoming was counterbalanced, at least in theory, by the presumption that their deposits were unusually secure. For lawmakers, economic security was from the first the most important of the bundle of services that savings banks provided. The small savers for whom the institutions were established, lawmakers reasoned, could ill afford to lose the nest eggs they had accumulated for unemployment, hardship, and old age. Lawmakers were especially concerned that the failure of savings banks during difficult times could have a devastating impact on public welfare and hence emphasized that the institutions were to be managed in ways that minimized the risks of depositor loss. Yet, unlike wealthy investors—who had the resources and personal connections to ensure that their investments in local banks were properly managed—small savers, who comprised the vast majority of the investing public, lacked the ability to monitor effectively the safety of financial institutions for themselves.14

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For these reasons, state legislatures chartered savings banks as specially incorporated public trusteeships over which state governments retained broad regulatory authority. Unlike commercial banks, savings banks were not usually formed as joint-stock corporations run by selfinterested investors who had the right to lay claim to their earnings.15 Nor were they mutuals owned by their members. Rather, they were overseen by a self-perpetuating board of trustees empowered by the state legislature to oversee them as a public service. As public trusteeships, neither their administrators nor their founders had the rights that the courts customarily accorded to managers and owners of private business corporations.16 The distinctive mandate of the savings bank was highlighted by the U.S. Supreme Court in Huntington v. Savings Bank (1877). This case involved an attempt by the heirs to a founder of the National Savings Bank to oblige the bank to distribute its profits to them. The court rejected the plaintiffs’ argument. The purpose of such an institution, the court ruled, was not the promotion of the “property interests” of its trustees but, instead, the provision of a “safe depositary”: “We think the complainants have mistaken the nature of the corporation. It is not a commercial partnership, nor is it an artificial being the members of which have property interests in it, nor is it strictly eleemosynary. Its purpose is rather to furnish a safe depositary for the money of those members of the community disposed to intrust their property to its keeping.”17 Savings banks, the court explained, had been designed for the “public advantage” in which no one—not even their trustees—had a vested interest. The trustees’ role was, rather, analogous to that of a church warden entrusted with the maintenance of a place of worship, a college of surgeons responsible for the encouragement of medical science, or a society of antiquaries founded for the advancement of the study of the past.18 The subordination of savings banks to the regulatory authority of lawmakers differentiated them markedly from ordinary business corporations—which, in the nineteenth century, were gradually shedding their public character. A corporation charter, Supreme Court Chief Justice John Marshall declared in the celebrated Dartmouth College case, constituted an inviolable contract that the state could not later abridge. In response to the potentially expansive private rights granted to corporations by this ruling, lawmakers grew accustomed, when drafting corporate charters, to stipulating “reserve regulatory powers” that the legislature retained.19 Although the reserve powers that legislatures withheld from ordinary business corporations were limited by the private rights of the corporation’s owners, the reserve powers constraining savings banks were often quite broad. Lawmakers recognized that, in regulating savings

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banks, they did not have to defer to a particular group of stakeholders. As a consequence, they presumed that they retained the necessary authority to ensure that these institutions served the public good. The effectiveness of these reserve powers in protecting depositors was illustrated by an 1852 opinion of the Supreme Judicial Court of Massachusetts that concerned the management of the Provident Institution for Savings. The Provident’s 1816 charter granted its trustees authority to invest their depositors’ savings in ways that “improved [them] to the best advantage.”20 Beginning in 1834, however, the Massachusetts legislature enacted a series of statutes that restricted the ways in which savings banks could invest their deposits. The Massachusetts Senate asked the supreme judicial court whether these restrictions applied to the Provident, which had been chartered prior to their enactment. Was not the Provident’s chartered right to choose how to best invest its funds protected under the federal Constitution, as Marshall had held in Dartmouth College?21 The Massachusetts court upheld the authority of the state legislature to regulate the Provident’s investment decisions. It was now the “well-settled law of the land,” the court conceded, in an acknowledgment of Marshall’s ruling in Dartmouth College, that the charter of a private corporation was a contract within the meaning of the federal Constitution, and that “any act of a state legislature which violates any corporate right, secured by such a charter, without the consent of the corporation, is void as against that constitution.” Yet, the court added, the reserve powers built into the charters of savings banks ensured that the public’s right to regulate their safety would prevail over the private rights of the corporation. “The officers and managers of these institutions,” the court explained, “have no private, personal, pecuniary interest in them, but conduct them wholly for the benefit of the poorer classes of the community, and therefore, laws made for the benefit and security of depositors, cannot be objected to by these officers, on the ground that any interest of their own is affected.” The officers of most other banks were “personally interested in them”; savings bank trustees, in contrast, acted “wholly for the public and for the poorer and less prosperous classes of the public.”22 The distinction the Massachusetts court drew between savings banks and other kinds of corporations hinged on the special responsibility savings banks owed to their depositors. Savings banks had been entrusted with a large sum of money by “persons who can ill afford to lose it, and who are in no condition to be able to judge of, or provide for, its security.” Regulations to protect small savers could not, therefore, be construed as impermissible limits on the power of these institutions; rather, they were “directly in

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aid and support of that power.” The very “usefulness” of a savings bank, the court explained, depended on “public confidence”—which, in turn, must necessarily “very much depend upon their being under the wholesome inspection and control of government.”23 Other courts reached similar conclusions. Savings bank depositors, the New York Supreme Court ruled as late as 1893, were different from depositors in a trust company. Although both institutions fell under the jurisdiction of state governments, they were subject to different regulatory “restrictions” that in turn derived from the “difference in the purpose” for which each had been chartered: “The trust company is incorporated for the purpose of gain to the members of the corporation, while the savings bank is in the nature of a charitable institution, the sole corporate purpose of which is to securely protect moneys deposited up to a certain fixed amount by individuals and, by investing them in such limited and prudent ways as the legislature has prescribed, to secure a safe and moderate return by way of interest upon the moneys held.”24 The special restraints upon savings banks, the court explained, had been designed as a “safeguard” for institutions chartered as “safe depositaries of the people’s moneys” and “designed solely for the public advantage” and “not for the promotion of any private interests of the organizers.”25 The rapid proliferation beginning in the 1810s of savings banks in the northeastern states posed a major challenge for lawmakers intent on safeguarding depositors’ investments. To recruit depositors, new entrants typically offered higher interest rates than existing institutions; to obtain the revenue necessary to pay these higher rates, savings bank managers found themselves obliged to seek out riskier investments. In so doing, they increased the likelihood that their bank might fail: in an economic downturn, banks operating on thin margins with limited reserves often found it impossible to meet their necessary obligations.26 Following the Panic of 1837, a handful of these banks did in fact collapse.27 In response, lawmakers devised regulations to restrict entry into the market, limit the interest rates banks could offer, and mandate the establishment of substantial financial reserves. The lawmakers’ aversion to competition in the savings bank market contrasted markedly with their endorsement of competition between commercial banks. This contrast is illustrated by the history of banking policy in New York. In 1838, the New York legislature enacted a free banking act—a watershed in the history of commercial banking. Henceforth, any group of investors could incorporate a commercial bank by meeting a few basic requirements.28 By eliminating barriers for new

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entrants, the act enshrined competition as a cornerstone of state banking policy—a principle that lawmakers would extend after the Civil War to the federal government.29 When the New York legislature turned its attention to savings banks, however, it explicitly rejected competition as a policy goal. The “salutary influence of competition,” a legislative committee declared in 1848, that was “usually found so corrective” in all enterprises “undertaken for gain,” did not extend to savings banks. This was because these institutions had been designed exclusively as a “safe place for the poor man to deposit his surplus earnings”—rather than, like a commercial bank, as a “receptacle for the funds of the rich or man of business.”30 The charters regulating savings banks, the committee further explained, gave them an “indorsement” that the people had a “right to regard”: “The sphere of action of such institutions should be made a legitimate one, and the regulation of deposits and of investments can be varied by the legislature, in keeping with the peculiar circumstance of the locality from which the application may proceed.”31 Not until 1875, nearly four decades after it had enacted a free banking law for commercial banks, would the New York legislature enact a general incorporation law for savings banks. And when it did, the legislature justified the principle of general incorporation not as an endorsement of competition but, rather, as a form of government control. The number of savings banks had grown too great, declared banking authority Emerson Keyes, to continue the long-established tradition of scrutinizing each new charter. As a consequence, the legislature had found it “simply impossible” to exercise the “scrupulous care” in evaluating new charters that it had in the past.32 If carefully framed—or so Keyes hoped— the new law would actually reduce the number of new entrants in the savings bank market, and, in this way, dampen competition and increase the ability of lawmakers to regulate their conduct. The enactment of a general incorporation law for savings banks “without any conditions or limitations,” Keyes maintained, would quite understandably be “very justly deprecated”; yet, he added, such provisions were not a “necessary feature of a general act upon this subject.” On the contrary, the “one particular need of this great interest” was legislation to “diminish rather than increase the facility with which savings banks are organized.”33 Among the regulations that lawmakers designed to limit competition between savings banks was the requirement that they maintain a safety fund. Initially, legislatures had been more concerned that savings banks might hoard their assets from depositors.34 By mid-century, however, they turned their attention to the potential hazards of a too-limited surplus. The first savings-bank charter in the state of New York to permit

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a savings bank to maintain a reserve fund was granted shortly after an 1846 legislative report recommended the innovation; soon thereafter, the legislature permitted the already chartered Buffalo Savings Bank to amend its charter so that it too might maintain an “available fund.”35 Similar laws were soon enacted in other northeastern states. In 1854, for example, the Connecticut state legislature required every savings bank in the state to maintain a surplus of at least two and one half percent of its deposits; in 1868, it increased this requirement to five percent.36 In addition to requiring savings banks to build reserve funds, legislatures also limited competition by imposing a ceiling on the amount of interest they could pay out. Savings banks that promised high interest rates invariably found it necessary to make riskier investments. The discouragement of such conduct was a major goal of lawmakers. The New York law, for example, limited the rates that newly chartered savings banks could offer depositors prior to their establishment of a safety fund. In addition, the law made trustees personally liable for all dividends distributed to depositors that exceeded their bank’s actual earnings.37 The potential evils of high interest rates were a particular preoccupation of the Massachusetts legislature. In 1852, for example, a legislative committee assigned to consider whether it might be advisable to “fix” by law the interest rate savings banks could offer depositors, concluded that “inducements” to increase “annual dividends” were “detrimental” to their economic security because they encouraged investments with “a view to increased income with more hazard of loss.”38 In 1859 and 1860, the legislature went so far as to mandate that the state’s bank commissioners examine saving banks before they could declare a dividend; in addition, they restricted interest payments to income accrued in the previous year.39 The New York General Savings Bank Act of 1875, often regarded by late nineteenth-century lawmakers as a model law, included an analogous provision that pegged the interest rate a savings bank could charge to the size of its surplus.40 Just as lawmakers limited competition between savings banks, so too they prescribed the contracts that savings banks could enter into. Here, too, lawmakers justified these regulations by stressing that saving banks had a special obligation to protect small savers. The range of contracts that lawmakers monitored was quite broad, and extended from employee compensation and operating expenses to depositor services.41 Nothing imperiled a depositors’ savings more than the investment decisions of bank officials; not surprisingly, it was in this realm that regulatory constraints were the most extensive.

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The existence of these restrictions was perhaps the single factor that most sharply differentiated savings banks from commercial banks. The “discretion” of savings bank trustees with regard to the “disposition” of the funds committed to their keeping has “always” been “controlled by legislative action,” observed Emerson Keyes in 1876.42 It had, for example, long been customary for legislatures to prohibit savings banks from making short-term business loans—the primary investment activity of commercial banks. In so doing, legislatures tried to shelter savings banks from the inherent risks of entrepreneurial finance. Even states that permitted savings banks to make business loans carefully restricted the practice. In Massachusetts, for example, savings banks could loan to businesses only if they found it impossible to make any of the loans that state law had “prescribed”; even then, they were obliged to secure at least three promisors to guarantee their security, and they could not invest more than one-fourth of the bank’s deposits.43 Legislatures routinely enumerated the kinds of “safe” financial instruments that they presumed it appropriate for savings banks to invest in. Among the recommended options were government securities and mortgages on real estate. Government securities had the advantage of being relatively easy to redeem. Even here, however, lawmakers remained cautious: in some instances, for example, they enumerated the kinds of government bonds in which savings banks could legally invest.44 Mortgage-backed loans were also deemed to be relatively secure. The Connecticut legislature, for example, typically required savings banks to invest some portion of their deposits in financial instruments of this kind.45 Most states took the further precaution of permitting savings banks to loan only a portion—usually half—of the unencumbered value of the real estate in which they had invested. Certain states, especially in New England, also permitted trustees to invest in the securities of banks and railroads incorporated under state law or to make loans that had been secured by such investments.46 In cases in which the propriety of a particular kind of financial asset had been left vague by the legislature, courts stepped in to define whether the investment was appropriately safe by applying the commonlaw doctrine of ultra vires. Ultra vires was a proscription on a corporation acting beyond its legal authority. It grew out the nineteenth-century convention that a corporation was an artificial, state-created entity with limited powers. Should a corporation enter into a contract that exceeded these limits, courts could deem it ultra vires and declare it void.47 The doctrine came into widespread use in the mid-nineteenth century as a judicial response to the growth of general incorporation

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laws and the decline of special charters.48 Yet by the end of the century, ultra vires was rarely invoked in litigation involving ordinary business corporations, since courts had by this time come to grant them great leeway in making transactions.49 For corporations presumed to serve a public purpose—including savings banks—no such transition occurred. The “powers and capacities” of such institutions—as legal authority Seward Brice explained—were “not for the advantage of itself or its individual members” but for the “public weal”: “Any employment of such powers or capacities, save and except for the public purposes, and those special public purposes for the advancement of which they were designated, is consequently ultra vires, and being so, it will . . . constitute a public grievance.”50 The practical significance of the ultra vires doctrine can be illustrated by the 1890 ruling of the New York Court of Appeals in Jemison v. Citizens’ Savings Bank. In the previous year, the cashier of the Texas-based Citizens’ Savings Bank had contracted with a New York cotton broker, Elbert Jemison, to purchase a futures contract on one hundred bales of cotton. Jemison purchased the futures, which soon declined in value. To cut their losses, the trustees of the Citizens’ Savings Bank contended that the bank’s charter had not allowed its officers to make such an investment. The court sided with the trustees. Speculative contracts that had been entered into for the sale or purchase of stock by a savings bank, the court ruled, were “subject to the hazard and contingency of gain or loss” and were thus ultra vires and a “perversion of the powers conferred by its charter.” Savings banks, the court explained, had been designed for the public purpose of encouraging “economy and frugality” among “persons of small means.” Public policy and “the rights of the public” mandated that contracts such as Jemison’s that imperiled this purpose should be regarded as void.51 The ultra vires doctrine was used to nullify a wide range of transactions that were deemed unsafe for savings banks. Courts voided contracts on loans backed by risky commercial assets or the securities of manufacturing corporations.52 In addition, investments were sometimes deemed ultra vires if a bank trustee had a personal interest in them.53 Courts also held trustees personally liable for loans backed by real estate that was unproductive, that had been inadequately appraised, or that “exceeded the amount in that manner directed to be invested by the charter.”54 Contracts might also be voided if they had been entered into in such a way as to disregard the procedures that the law demanded. When the Cambridge Savings Bank discovered an encumbrance on a property that it had used as collateral on a loan, a Massachusetts court ruled the

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original contract unenforceable since bank officials had not followed the statutory requirement that it enlist “not less than two members of the board” to check the title. In justifying this ruling, the court observed that the “rule” in regard to savings banks was in “some particulars” stricter that in regard to business corporations, since it was “part of our elaborate statutory system” for the “government and regulation of savings banks” and, thus, “intended to protect the interests of depositors.”55 Although the precise definition that courts relied on in deeming transactions ultra vires varied from case to case, it was by no means arbitrary. The principal criterion was whether or not a contract or action compromised the safety and security of the depositors’ investment. To underscore this emphasis on safety and stability, courts after the Panic of 1873 developed a common-law standard for the fiduciary obligation of savings bank trustees that emphasized the avoidance of risk. The key legal test they created was the standard for the “duty of care” that trustees owed the savings banks over which they presided. Before the Panic of 1873, courts only rarely challenged the wisdom or prudence of savings bank trustees so long as their decisions fell within the provisions of the bank’s charter. “I have found no judgment or decree which has held [corporate] directors to account, except when they have themselves been personally guilty of some fraud on the corporation” or performed actions that were “clearly ultra vires,” explained Pennsylvania Supreme Court Chief Justice George Sharswood in Spering’s Appeal, a landmark 1872 liability case involving the directors of a joint-stock savings bank.56 In the past, the court observed, bank directors had been held responsible only for “gross negligence,” a standard, Sharswood made plain, that was hardly exacting. Directors, he observed, had been deemed not liable for “mistakes of judgment,” even though these errors might be “so gross” as to “appear to us absurd and ridiculous”—provided they were honest and had acted “fairly within the scope of the powers and discretion confided to the managing body.”57 The fiduciary standard against which courts evaluated the business decisions of savings bank trustees became considerably more rigorous in the aftermath of the Panic of 1873. In this period, as legal scholar Arthur Sedgwick explained in an 1880 article in the American Law Review, the courts found themselves contending with numerous lawsuits that pitted the state-appointed receivers of insolvent savings banks against bank trustees charged with “breaches of trust, waste and misappropriation of funds entrusted to their care.”58 By drawing on the exacting fiduciary standard of the trustee-beneficiary relationship, courts expanded the

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accountability of trustees well beyond the charter-based and statutory restrictions that had previously prevailed. Of the many cases that receivers brought against trustees, the most important was Hun v. Cary. The financial institution at the center of this case, the Central Savings Bank, had been chartered in New York in 1867. During its first six troubled-yet-solvent years, the bank operated out of a rented office in midtown Manhattan. In the mid-1870s, the bank’s trustees built a large and distinctive headquarters building as part of an ambitious expansion program to lure new depositors, a common business strategy in the period. That the Central Savings Bank possessed the authority to conduct such a transaction was not in dispute: its charter had explicitly granted it the power to build a structure “requisite for the transaction of its business.” Unfortunately, the bank soon became insolvent and went into receivership. Receiver Marcus Hun sued the trustees on behalf of the depositors, claiming that the construction of such an opulent building had been “careless and negligent” and a breach of the trustees’ fiduciary obligations. Both the trial court and the appellate court decided in favor of Hun. According to the latter, the trustees’ conduct had been “reckless” and marked by “unreasonable extravagance”— and, thus, had failed to maintain the “measure of reasonable prudence, care and skill which the law requires.”59 The appellate court took pains to emphasize that the liability of the Central Savings Bank’s trustees extended well beyond actions that were explicitly fraudulent or ultra vires. “There was no question,” as Sedgwick observed in the American Law Review, “that the purchase [of a headquarters building] was within the powers of the corporation—it was an act intra vires.”60 Further, the court never suggested that the trustees had acted fraudulently. Instead, the appellate court rejected the low fiduciary standard set forth in Spering’s Appeal.61 In its place, it held trustees accountable to a significantly higher duty-of-care standard that required them to use “ordinary skill and judgment” in making business decisions.62 In this way, as Sedgwick observed, Hun v. Cary “entirely [swept] away the distinction which seemed to have grown up between fraudulent and non-fraudulent breaches of trust, and extend[ed] the common-law liability of trustees . . . to all cases of negligence.”63 In holding the trustees of the Central Savings Bank personally liable for poor judgment in pursing an inappropriately risky business strategy, the appellate court explicitly recognized that the duty-of-care standard would take into account the predicament that small savers confronted when they entrusted their money to a savings bank. After all, in deciding to build their own bank building, the trustees had taken what, in other

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circumstances, might well have been regarded as an acceptable risk. The “principal motive,” the court observed, that had led the trustees to make this investment was their determination to “improve the financial condition of the institution by increasing its deposits”: “Their project was to buy this corner lot and erect thereon an imposing edifice, to inspire confidence, attract attention, and thus draw deposits.”64 Yet, the court continued, “culpable negligence” was dependent on the “subjects” to which it had been applied: “What would be slight neglect in the care of a quantity of iron might be gross neglect in the care of a jewel. What would be slight neglect in the care exercised in the affairs of a turnpike corporation or even of a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted with the savings of a multitude of poor people.”65 Savings banks, the court explained, had not been “organized as business enterprises”: “They have no stockholders, and are not to engage in speculations or money-making in a business sense.”66 Given the already shaky financial condition of the Central Savings Bank, the decision of its trustees to build a lavish bank building—a reasonable risk for a corporation that had been established to return a profit to it stockholders, or even a savings bank in less perilous financial condition—was a breach of the fundamental duty that the bank’s trustees owed to maintain safety and stability for its depositors. By setting a high safety-oriented fiduciary standard for savings bank trustees, Hun expanded considerably the protections that state governments had traditionally afforded small savers. It did so in two ways. First, it shifted the government’s authority over the management of savings banks from the legislative realm of charter restrictions and statutory mandates to the common-law realm of fiduciary obligation. And second, it established a fiduciary standard for the safety of savings banks that was much more stringent than the standard it applied to ordinary business corporations. “If there is any difference between the amount of care required in the one case than in the other,” Sedgwick explained in his comments on Hun, “it must be because the object and purpose of the trust is in one case profit, which involves the idea of risk, and in the other absolute safety, which excludes it.”67 The high standard of fiduciary obligation that the New York appellate court had mandated in Hun was swiftly adopted and in some instances expanded on in other legal jurisdictions, even outside the Northeast. In Trustees of the Mutual Building Fund and Dollar Savings Bank v. Bosseiux, for example, the Virginia District Court conceded that though savings bank trustees had previously not been held liable for “acts short

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of fraud and of ultra vires,” in the future they should be held accountable for “gross negligence.”68 Courts also began to hold trustees responsible for “supine negligence” and for having “negligently trusted” their responsibility to others.69 Before 1873, courts had been hesitant to find an individual trustee guilty of a particular act unless it could be proven that he had “connived” in its perpetration; after 1873, they began to rule that trustees had a duty to prevent such acts altogether. When plaintiffs sued the trustees of the Bond Street Savings Bank for not actively preventing one of its officers from making a loan that had been secured by an unproductive property, the court found the trustees to be under a “positive duty” to ensure that bank funds had not been “invested contrary to law”—after all, a disregard of “such obligation is a breach of duty and a ground of liability.”70 Every transaction entered upon the books of a savings bank, ruled the New York Appeals Court in Paine v. Meade—even if the transaction had been performed by a bank employee rather than a trustee—could be presumed to have been entered into “with the knowledge and assent” of the trustees, since the trustees were ultimately “responsible for the acts of the officers whom they place and retain in position.”71 “The courts have been rigid”—New York’s attorney general dryly warned in reviewing these rulings—“in holding trustees to personal accountability for abuses of their trust.”72 Beginning in 1891 with Briggs v. Spaulding, the U.S. Supreme Court would gradually begin to apply this safety-oriented duty-of-care standard to commercial as well as savings banks.73 Although the justices in Briggs differed on the facts, both the majority and the minority upheld the extension to commercial banks of the common-law standard for fiduciary obligation that previously had been applied to savings banks. In weighing whether bank directors had met their obligations—or so Justice John M. Harlan repeatedly asserted, in his influential dissent—the courts had an obligation to consider not only the shareholders’ interest in profits but also the depositors’ interest in economic security.74 In the following two decades, Harlan’s position would be affirmed by courts in New York, New Jersey, and Massachusetts.75 In so doing, the courts began to extend to the depositors of commercial banks regulatory safeguards that they had previously applied only to savings banks. These safeguards would remain an important feature of commercial bank regulation throughout the twentieth century. In extending a safety-oriented duty-of-care standard to the directors of commercial banks, Briggs marked a new departure in the kinds of protection that the government afforded depositors. Twentieth-century lawmakers would expand on this legacy by extending small-saver protections

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to a wide variety of financial institutions. Although savings banks and commercial banks remained distinct, the defining feature of the nineteenth-century savings bank—the existence of elaborate regulatory safeguards for depositors—would eventually become a common feature in other depositor-oriented financial institutions. It is beyond the scope of this essay to explore the history of government banking regulation in the twentieth century. Yet several aspects of this history are worth highlighting. Beginning around 1900, commercial banks began to shift their focus from enterprise finance toward the provision of a diversified array of financial services. By the 1920s, commercial banks would permanently overtake savings banks as the principal depository for household savings. Mid-nineteenth-century lawmakers might have responded to such a radical change in industry structure by protecting the market that savings banks served. In the late nineteenth century, however, such a strategy was foreclosed by the predisposition of the courts to invest corporations with a broad array of rights—including the right of substantive due process. In such a situation, it became increasingly difficult for courts to block commercial banks from entering new markets. As a consequence, lawmakers found themselves deprived of a method to prevent commercial banks from recruiting small savers. In response, lawmakers extended to commercial banks several of the regulatory protections that they had traditionally afforded small savers; following the bank panics of the Great Depression, they established federal deposit insurance for all major depository institutions. By the mid-twentieth century, bank regulations regarding competition, contracting arrangements, and fiduciary standards would be designed to protect the new guarantor of depositor risks—that is, the federal government.76 In this way, the regulatory burden of safeguarding the investments of small savers had shifted from state legislatures and state courts to highly specialized federal administrative agencies such as the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). While these twentieth-century safeguards are undeniably important, one should not overlook the prior achievement of nineteenth-century state governments in popularizing the financial system for individuals of modest means. Over the course of the nineteenth century, state governments made the protection of small savers a cornerstone of American financial policy. This innovation was in itself highly significant, and in no sense merely a prelude to the kinds of protection that depositors would come to be afforded in the twentieth-century by the administrative state. Long before the Great Depression, lawmakers had recognized the need to protect small savers from the vagaries of the market. Although respected

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economists such as Francis Amasa Walker remained wary of regulatory interventions that challenged the “doctrine of Laissez faire,” even he praised such safeguards as part of the “elementary duty” of a liberal state.77 The significance of these regulations extended well beyond the protections they afforded small savers. By heightening public trust in financial institutions, they did much to establish the social preconditions for the eventual popularization of all kinds of financial institutions. In 1830, only a small percentage of urban households in the northeastern United States held assets in financial institutions; by the 1890s, the majority did.78 Savings banks played a major role in this transformation, as did the regulatory regime lawmakers had devised to guarantee small savers a modicum of economic security. The creation of such a regulatory regime was, in this way, a precondition for—rather than merely a by-product of—the emergence of the United States as the world’s largest and most dynamic national economy. Harvard Business School

Acknowledgments The author would like to thank James Darroch, Robin Einhorn, Tamar Frankel, Jeff Fear, Tony Freyer, Michael Katz, Walter Licht, Richard Sylla, Peter Tufano, Robert Wright, and especially Richard R. John for their extensive comments. Earlier versions of this essay were presented at the Business History Conference, the Policy History Conference, and the Business History Workshop at Harvard Business School. Notes 1. Assertions regarding growth rates, deposits, and total assets are based on data from Series X 20–41 and Series X 238–39 in The Statistical History of the United States from Colonial Times to the Present (Stamford, Conn., 1965), 623–25, 641. See also Herman Krooss and Martin Blyn, A History of Financial Intermediaries (New York, 1971), 81–82. 2. Emerson Keyes, History of Savings Banks in the United States From Their Inception in 1816 Down to 1874 (New York, 1876), 1:1–4. 3. For more detail, see Rohit Daniel Wadhwani, “Citizen Savers: The Family Economy, Financial Institutions, and Social Policy in the Northeastern U.S. from the Market Revolution to the Great Depression” (Ph.D. diss., University of Pennsylvania, 2002), 18–66. 4. For the purposes of this essay, the northeastern United States can be understood to embrace the six New England states as well as New York, Pennsylvania, Delaware, New Jersey, and Maryland.

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5. That state governments promoted economic development in the nineteenth century is well known. Indeed, an extensive body of literature has characterized the role of the government during this period as primarily promotional. See, for example, Morton Horwitz, The Transformation of American Law, 1780–1860 (Cambridge, 1977); J. Willard Hurst, Law and the Conditions of Freedom in the Nineteenth-Century United States (Madison, 1956); and Oscar and Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy—Massachusetts, 1774–1861 (Cambridge, Mass., 1947; rev. ed. 1969). Recently, several historians have contended that the role of the government in the nineteenth-century political economy extended beyond promotion to embrace regulation and even public administration. See, for example, Richard R. John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic, 1787–1835,” Studies in American Political Development 11 (Fall 1997): 347–80; William Novak, The People’s Welfare (Chapel Hill, 1996); and the literature cited in Harry N. Scheiber, “Private Rights and Public Power: American Law, Capitalism, and the Republican Polity in Nineteenth-Century America,” Yale Law Journal 107 (December 1997): 823–61. 6. See, for example, Robert E. Wright, Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780–1850 (New York, 2002), 1–8, 193–211; Howard Bodenhorn, A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation Building (New York, 2000); and Naomi Lamoreaux, Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England (Cambridge, 1994), 52–83. The centrality of banking and financial institutions to economic growth has long been a preoccupation of economic historians. See, most notably, Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, Mass, 1962), and Rondo Cameron, Banking in the Early Stages of Industrialization (London, 1967). 7. Although nineteenth-century lawmakers experimented with various expedients to limit risk taking by commercial banks, most of these experiments proved fleeting. For a lucid introduction to this topic, see Howard Bodenhorn, State Banking in Early America: A New Economic History (New York, 2003), 155–218, and David A. Moss and Sarah Brennan, “Managing Money Risk in Antebellum New York: From Chartered Banking to Free Banking and Beyond,” Studies in American Political Development 15 (Fall 2001): 138–62. On the relationship between risk taking and shareholder liability, see Benjamin Esty, “The Impact of Contingent Liability on Commercial Bank Risk Taking,” Journal of Financial Economics 47 (1998): 189–218. 8. For a broader discussion of the impact of governmental institutions on economic and social life in the nineteenth century, see John, “Governmental Institutions as Agents of Change,” 347–80. On the role of the government in managing risk, see David Moss, When All Else Fails: Government as the Ultimate Risk Manager (Cambridge, Mass., 2002). 9. For an overview of the early American financial system, see Wright, Wealth of Nations Rediscovered, 9–166. For a discussion of specific financial institutions, see Krooss and Blyn, Financial Intermediaries, 3–116. My own approach to the historical study of financial institutions has been shaped by the functional model proposed in Robert Merton, “The Financial System and Economic Performance,” Journal of Financial Services Research 4 (December 1990). For an elaboration of this model, see Dwight Crane et al., The Global Financial System: A Functional Perspective (Boston, 1995). 10. See Wadhwani, “Citizen Savers,” 1–3; Robert Wright, “Banking and Politics in New York, 1784–1829” (Ph.D. diss., SUNY Buffalo, 1996), 975. 11. On the history of savings banks in the United States, see Alan Olmstead, New York City Mutual Savings Banks, 1819–1861 (Chapel Hill, 1976); Weldon Welfling, Mutual Savings Banks: Evolution of a Financial Intermediary (Cleveland, 1968); and Lance Davis and Peter Payne, The Savings Bank of Baltimore, 1818–1866: A Historical and Analytical Study (Baltimore, 1956).

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12. “An Address to the Public,” June 1819, reprinted in Charles Knowles, History of the Bank for Savings in the City of New York, 1819–1929 (New York, 1929), 42. 13. An important exception was the Freedman’s Savings Bank, which had a federal charter and operated branches throughout the South during Reconstruction. See Carl Osthaus, Freedmen, Philanthropy, and Fraud: A History of the Freedman’s Savings Bank (Urbana, 1976). 14. For a discussion of how shareholders and banknote-holders monitored the management of commercial banks in the early republic, see Bodenhorn, State Banking, 36–42. On the importance in the early republic of kinship and personal connection as conduits for the monitoring of financial institutions and investments, see Lamoreaux, Insider Lending, 22–27. For a theoretical discussion of the special problems small depositors faced in monitoring banks, see Mathias Dewatripoint and Jean Tirole, “Efficient Governance Structure: Implications for Banking Regulation,” in Capital Markets and Financial Intermediation, ed. Colin Mayer and Xavier Vives (New York, 1993), 12–45; G. Caprio Jr. and R. Levine, “Corporate Governance in Finance: Concepts and International Observations,” in Financial Sector Governance: The Roles of the Public and Private Sectors, ed. R. E. Litan, M. Pomerleano, and V. Sundararajan (Washington, D.C., 2002); and Jonathan Macey and Maureen O’Hara, “The Corporate Governance of Banks,” FRBN.Y. Economic Policy Review 9 (April 2003): 91–107. 15. Stock-issuing savings banks were much more common in other parts of the United States. In the Northeast, however, they were rare and in some instances prohibited. 16. On the legal structure of savings banks, see Henry Hansmann, The Ownership Enterprise (Cambridge, 1996), 246–51. 17. Huntington v. Savings Bank, 96 U.S. 388, 394 (1877). 18. Ibid. 19. For an introduction to the constitutional dimensions of nineteenth-century corporate law, see Tony A. Freyer, “Business Law and American Economic History,” in The Cambridge Economic History of the United States, ed. Stanley Engerman and Robert Gallman (New York, 2000), 2:435–82. On the continuing role of state governments in corporate oversight, see Tony Freyer, Producers Versus Capitalists: Constitutional Conflict in Antebellum America (Charlottesville, 1994), 54; Novak, People’s Welfare, 105–11; William Novak, “The American Law of Association: The Legal-Political Construction of Civil Society,” Studies in American Political Development 15 (October 2001): 163–88; and Harry Scheiber, “Regulation, Property Rights, and Definition of ‘the Market’: Law and the American Economy,” Journal of Economic History 41 (March 1989): 103–9. On the reserve powers of legislatures over financial institutions, see Freyer, Producers, 95–104. On the gradual emergence of the distinction between public and private corporations, see John Whitehead, The Separation of College and State: Columbia, Dartmouth, Harvard, and Yale, 1776–1876 (New Haven, 1973), and Hendrik Hartog, Public Property and Private Power: The Corporation of the City of New York in American Law, 1730–1870 (Chapel Hill, 1983). For the view that modern corporate law has been designed primarily to facilitate the mobilization of private capital, see Willard Hurst, The Legitimacy of the Business Corporation in the Law of the United States, 1780–1970 (Charlottesville, 1970), and Herbert Hovenkamp, Enterprise and American Law, 1836–1937 (Cambridge, 1991). For a discussion of how banking law shaped the emergence of the modern corporate form, see Richard Sylla, “Early American Banking: The Significance of the Corporate Form,” Business and Economic History 14 (1985): 105–23. 20. In the Opinion of the Justices, 9 Cush. 604, 610 (1852). 21. In the Opinion of the Justices, 9 Cush. 604 (1852). 22. In the Opinion of the Justices, 9 Cush. 604, 609 (1852). 23. In the Opinion of the Justices, 9 Cush. 604, 609–11 (1852). 24. People v. Binghamton Trust Company, 139 N.Y. 185, 191–92 (1893). 25. People v. Binghamton Trust Company, 139 N.Y. 185, 192 (1893). 26. Olmstead, Savings Banks, 35–42.

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27. For examples, see “The Case of the Philadelphia Savings Institution,” in Reports of Cases Adjudged in the Supreme Court of Pennsylvania in the Eastern District, ed. Thomas Wharton (Philadelphia, 1836), 1:461–68, and The Highly Interesting and Important Trial of Dr. T. W. Dyott, the Banker, for Fraudulent Insolvency (Philadelphia, 1839). 28. For a more general discussion of the implications of early American free banking laws for free incorporation, including, in particular, the extension of limited liability, see Sylla, “Early American Banking.” 29. Bodenhorn, State Banking, 183–218. 30. “Report of the Committee on Banks and Insurance Companies on the Bill from the Assembly for the Formation of Savings Banks,” 28 March 1848, in Emerson Keyes, A History of Savings Banks in the State of New York (Albany, 1870), 293–95. 31. Ibid. 32. Keyes, History of Savings Banks in the State of New York, 127. 33. Ibid. Emphasis added. 34. As early as 1819, at least one board of trustees had established a contingent fund. Board of Managers Meeting Minutes, 7 June 1819, V441, Philadelphia Saving Fund Society Collection, Hagley Museum and Library, Wilmington, Delaware. 35. Willis Paine, Laws of New York Relating to Banks, Banking, Trust Companies, Loan, Mortgage, and Safe Deposit Corporations (Albany, 1894), 63–64. 36. Keyes, History of Savings Banks in the United States, 1:132. 37. General Savings Bank Law (New York, 1875), 26. 38. Commonwealth of Massachusetts, Sen. Doc. 66 (1852). 39. Keyes, History of Savings Banks in the United States, 1:67–68. 40. General Savings Bank Law, 25. 41. Paine, Laws of New York, 233–34; Greeley v. Nashua Savings Bank, 63 N.H. 145, 146 (1884). 42. Keyes, History of Savings Banks in the United States, 1: 376. 43. “An Act to Regulate Institutions for Savings,” 2 April 1834, sec. 8, in Keyes, History of Savings Banks in the United States, 1:49. 44. See, for example, Paine, Laws of New York, 66–67. 45. Keyes, History of Savings Banks in the United States, 1:127–28. 46. The investments that legislatures permitted trustees to make varied from charter to charter. These variations might seem capricious, yet, in fact, they often reflected lawmakers’ judgments about the capabilities of a particular board of trustees. See Keyes, History of Savings Banks in the State of New York, 72 (including footnote). 47. Seward Brice, A Treatise on the Doctrine of Ultra Vires, ed. Ashbel Green (New York, 1880), 673. 48. Ibid., ix–xi. 49. Hovenkamp, Enterprise, 59–64; Morton Horwitz, “Santa Clara Revisited: The Development of Corporate Theory,” West Virginia Law Review 88 (1985): 186–88. According to Hovenkamp and Horwitz, the courts had by the late nineteenth century abandoned ultra vires as a regulatory tool. To reach this conclusion, Hovenkam and Horwitz focused on litigation involving ordinary business corporations. In the case of savings banks, however, ultra vires persisted much longer. Furthermore, when courts refused to apply the doctrine, they often did so in recognition of the fact that its invocation might harm the group it had been designed to protect. As one court explained, the doctrine of ultra vires “cannot prevail against depositors . . . from whose protection it was given.” Samuel Hurd, Receiver v. Richard Kelly, 78 N.Y. 588, 596 (1879). 50. Brice, Treatise, 706–7. 51. Jemison v. Citizens’ Savings Bank, 122 N.Y. 135, 140 (1890). 52. Pratt v. Short, 79 N.Y. 437 (1880); Franklin Company, in Equity v. Lewistown Institution for Savings, 68 Me. 43 (1877); Paine v. Peter Barnum et al., 59 Howard’s Practice 303 (1880). 53. Albert and Albert v. Baltimore and Savings Bank of Baltimore, 2 Md. 159 (1852).

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54. Paine v. Mead et al., 59 Howard’s Practice 318 (1880). 55. Delia Gilson v. Cambridge Savings Bank, 180 Mass. 444, 446 (1902). 56. Spering’s Appeal, 71 Pa. 11, 24 (1872). 57. Spering’s Appeal, 71 Pa. 11, 31 (1872). See also Percy v. Milladoun, 8 Mart. 68 (1829); Watt’s Appeal, 780 Pa. 370 (1874); Chamberlin v. Chamberlin, 43 N.Y. 424 (1871). 58. Sedgwick, “Trustees as Tort-Feasors,” American Law Review 10 (1880): 36. 59. Hun v. Carey, 82 N.Y. 65, 78–79 (1880). 60. Arthur Sedgwick, “Trustees as Tort-Feasors II,” American Law Review 11 (1881): 160. It is “not disputed,” the court added, that the bank had the power under its charter to purchase a lot for a headquarters building. Hun v. Carey, 82 N.Y. 65, 77 (1880). 61. Hun v. Carey, 82 N.Y. 65, 73 (1880). 62. Hun v. Carey, 82 N.Y. 65, 74 (1880). 63. Sedgwick, “Trustees as Tort-Feasors II,” 167. 64. Hun v. Carey, 82 N.Y. 65, 78 (1880). 65. Hun v. Carey, 82 N.Y. 65, 71 (1880). 66. Hun v. Carey, 82 N.Y. 65, 78 (1880). 67. Sedgwick, “Trustees as Tort-Feasors II,” 169. 68. Mutual Building Fund and Dollar Savings Bank v. Bosseiux and Others, 3 F. 817 (1880). See also Marshall v. F&M Savings Bank, 85 Va. 676 (1889). 69. Marshall v. F&M Savings Bank, 85 Va. 676, 688 (1889). 70. Paine v. Peter Barnum et al., 59 Howard’s Practice 303 (1880). 71. Paine v. Meade, 59 Howard’s Practice 318 (1880). 72. Paine, Laws of New York, 231–32. 73. Briggs v. Spaulding, 141 U.S. 132, 152 (1891). 74. Patricia McCoy, “A Political Economy of the Business Judgment Rule in Banking: Implications for Corporate Law,” Case Western Reserve Law Review 47 (Fall 1996): 35–38. 75. McCoy, “Business Judgment Rule in Banking,” 39–40. 76. Ibid., 38–43; Wadhwani, “Citizen Savers,” 286–386. 77. Francis Amasa Walker, The Wages Question: A Treatise on Wages and the Wages Class (New York, 1876), 414. 78. This conclusion is based on an analysis of a sample of probate records. For a more general discussion of the popularization of financial institutions that is based on an analysis of bank records, see Wadhwani, “Citizen Savers,” 166–72.

NAOMI R. LAMOREAUX

Did Insecure Property Rights Slow Economic Development? Some Lessons from Economic History

Not long ago, a 43-year-old Wonder Bread deliveryman named John Dugger logged on to eBay and, as people sometimes do these days, bought himself a house. Not a shabby one, either. Nine rooms, three stories, rooftop patio, walls of solid stonework—it wasn’t quite a castle, but it put to shame the modest redbrick ranch house Dugger came home to every weeknight after a long day stocking the supermarket shelves of Stillwater, Oklahoma. Excellent location, too; nestled at the foot of a quiet coastal hillside, the house was just a hike away from a quaint seaside village and a quick commute from two bustling cosmopolitan cities. It was perfect, in short, except for one detail: The house was imaginary.1 Not only was Dugger’s house imaginary, but so too was the country in which it was located. Yet Dugger paid 750 very real dollars—more than he earned in a week—for a piece of property that he could enjoy only when he logged onto the Internet role-playing fantasy game, Ultima Online. Nor was Dugger’s transaction unusual. Houses in Britannia, the fantasy world in which Ultima Online is played, are auctioned all the time on eBay, as are other accessories associated with the game: swords, suits of armor, magic scrolls, iron ingots, bales of hay, furniture, even potted plants—all imaginary, of course. Moreover, Ultima is only one of about half a dozen such fantasy games played by hundreds of thousands of people on the Internet.2 Economist Edward Castronova has studied another online game, Sony’s Everquest, and its associated fantasy world, Norrath. Castronova conducted a survey of the game’s players and, based on their responses as well as on real-world sales of Norrath assets, estimated as a lower bound that Norrath’s per capita gross domestic product

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(GDP) is at least as large as Bulgaria’s and, as an upper bound, that it may even be as high as Russia’s. In addition, Castronova discovered that Norrath players accumulated, on average, imaginary assets worth between $1,800 and $3,000—a surprisingly large sum, if one recalls that the median amount of wealth that a family holds in the United States is only about $9,000.3 This willingness of people to invest relatively large sums of money in the assets of what are, after all, fantasy worlds is intriguing—not only because the assets are imaginary but also because the property rights to these imaginary assets are by no means secure. Each game has an owner (the corporation that runs the underlying system of hardware and software), and that owner is an absolute monarch who has the power to alter the rules of the game—and hence the value of the imaginary assets—at will. Indeed, owners have from time to time changed aspects of their games in ways that have affected property rights. For example, some of the most valuable assets in fantasy games are pieces of scenery and other similar items that programmers neglected to fix in place, enabling the players who discovered them to claim them as their property without paying anything for their purchase. These “rares,” as they are called, traded for substantial amounts until game owners deliberately deflated the market by creating more items like them. Similarly, Ultima Online’s owner decided to sell highly sophisticated avatars (characters whose identities are assumed by players in the game) to anyone who plunked down the modest sum of $29.95, instantly depreciating the assets of players who had painstakingly built up their own avatars or who had purchased them at higher prices from other players.4 To anyone interested in the question of how to foster economic development in the world’s poorest countries, this willingness of players to invest in online games is intriguing because it calls into question one of the central tenets of what is known as the Washington Consensus—the set of policies and institutions that officials at the World Bank, the International Monetary Fund (IMF), and other similar organizations have been attempting to impose on developing countries. Although the particular mix of policies included in these recommendations may vary somewhat from one organization to the next, proponents all agree that it is absolutely critical for developing countries to guarantee the security of property rights in order to attract capital.5 What is most striking, then, about these online games is that property rights in their associated fantasy worlds are anything but secure, and yet investors keep right on investing. Of course, one might argue that the people who buy these imaginary assets may only be willing do so because they are confident that they will

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be able to seek redress in real-world courts, should the game owners infringe on their property rights. Yet these games have massive numbers of players in countries, such as China, in which property rights are not ordinarily regarded as secure. Moreover, even for players in the United States, the situation is not at all clear. For example, Sony claims legal title to all assets associated with its Everquest game and insists that players sign an End User Licensing Agreement that defines every click and motion in the game as “uploaded content” to which the player waives any and all rights. To further consolidate its control over these virtual assets, Sony has tried to shut down trading outside the game by pressuring eBay, the dominant Internet auction site, to enforce a ban on sales of Norrath assets. Even so, trading persists on what is in effect a black market.6 In recent years, policymakers critical of the Washington Consensus have promoted an alternative model of economic development. Sometimes called the Beijing Consensus, this set of recommendations urges governments to play a more active developmental role and aggressively promote investment in key industries through policies ranging from tariffs and tax relief to outright subsidies. Although proponents of the Beijing Consensus do not think that property rights are an unimportant issue, they deny that secure property rights are a necessary precondition for economic development. On the contrary, they posit that protections for property will emerge “endogenously” over time as the beneficiaries of economic development become both large enough and powerful enough to demand this kind of security. Supporters of the Beijing Consensus worry, moreover, that a premature preoccupation with securing property rights might actually slow the pace of innovation by impeding the release of entrepreneurial energy needed to spur economic development.7 Although everyone would agree that certain Washington Consensus goals—such as eliminating barriers to free trade—have yet to be fully attained, proponents of these recommendations attribute the success of today’s most economically advanced countries to the adoption of essentially similar policies in the past. Critics of the Washington Consensus, however, have vigorously challenged this interpretation of history. For example, in an influential book—Kicking Away the Ladder: Development Strategy in Historical Perspective (2002)—the well-known political economist Ha-Joon Chang has argued that the wealthy countries of today grew and prospered under a set of policies that looks more like those associated with the Beijing Consensus than those currently being recommended by the World Bank and the IMF. In Chang’s view, the United States and other economically advanced countries grew rich because they implemented government policies that built economic infrastructure and

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actively promoted infant industries. By discouraging developing countries from pursuing similar strategies at the present time, proponents of the Washington Consensus are effectively “kicking away the ladder” that wealthy countries used to climb to the top.8 The fight over the Washington versus Beijing Consensus recommendations is thus being waged to a large extent on historical terrain. Since neither side has exhibited a particularly deep command of the historical literature, policy historians have an important role to play in the debate, even if it is only to help the participants get their facts straight. Economic historians have an even more immediate stake in this controversy since the paradigm that increasingly governs research in their field—that is, the brand of institutionalism associated with the work of Douglass North—also underpins the Washington Consensus recommendations. This paradigm, which is sometime known as the “new” institutionalism, has at its core a set of ideas derived from the analysis of “transaction costs”—that is, costs that result from the imperfect character of real-world institutions and that have to be surmounted in order for economic activity to occur. The essence of the transaction-cost paradigm can be summarized in three basic propositions: first, although powerful incentives may exist for two (or more) parties to enter into an economic relationship with each other, the incentives may not be strong enough to prevent one party from later taking advantage of the other(s); second, anticipating this problem, the parties will try to structure their relationship so as to prevent this kind of expropriation from occurring (for example, they may try to write a formal contract); and, third, if they cannot do this credibly (for example, if the contract cannot be enforced), it is likely that they will decide not to enter into what was otherwise a mutually desirable relationship. In the terms of this paradigm, therefore, a fundamental precondition for economic development is a set of institutions that makes contracting possible by enabling economic actors to structure their relationships to prevent future exploitation. This set of institutions is what economic historians generally mean by secure property rights.9 Put even more simply, the essence of the property rights argument is that individuals would not invest their money in assets whose returns were subject to manipulation, just as they would not freely lend to someone who could choose with impunity whether or not to pay them back, or how much to pay them. When the argument is phrased in this way, it seems so obvious as to be uncontestable. And yet, as the behavior of individuals who play online games suggests, the “real” world may not conform to these simple propositions. The next section of this essay explores an important historical example that poses an analogous puzzle: the

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willingness of investors to buy minority shareholdings in corporations in the late nineteenth-century United States despite the very real possibility that investors owning a majority of the shares would expropriate a significant percentage of their returns. The final section of this essay suggests how shareholders’ willingness to invest under such circumstances can inform the debate over the relative merits of the Washington Consensus and the Beijing Consensus. Economic historians have conventionally regarded the granting of corporate charters to business enterprises to be an important tool for economic development. They have adopted this view for three main reasons: first, because, these grants limited the liability of shareholders and thus made it possible for corporate managers to collect capital from a broad pool of investors; second, because they guaranteed these enterprises a perpetual existence that made it feasible for managers to invest in expensive, longlived machinery; and, third, because, they reduced the inefficiencies associated with multiple ownership by concentrating managerial authority in an elected set of officers.10 As many scholars have recognized, however, the corporate form also had significant disadvantages. One particularly serious problem was that the concentration of managerial authority, especially when coupled with a grant of perpetual existence, could—and in many instances, did—render minority shareholders powerless to counter managerial decisions that were detrimental to their interests. To be sure, minority shareholders were never liable for more than their investments—that was what limited liability meant. Yet they stood to lose sums that were potentially far larger than their initial investment if the majority shareholders who controlled the corporation’s management expropriated more than their fair share of the enterprise’s revenue stream. In fact, it was quite common in the late nineteenth century for majority shareholders to take advantage of their position to increase their own returns—for example, by electing themselves to corporate offices and then either voting themselves inordinately large salaries or contracting with themselves to provide the corporation with some service or good at an extravagant price. Perhaps the most notorious example of the latter culminated in the Crédit Mobilier scandal of the 1870s, in which newspapers exposed the outrageously favorable contracts that shareholders in control of the Union Pacific Railroad had awarded themselves to build the railroad’s right-of-way.11 Over the course of the nineteenth century, the legal conventions shaping corporate governance evolved in ways that actually made the predicament of minority shareholders worse rather than better. Early in

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the century, when the grant of a corporate charter still required a special act of a state legislature, the governance structures of corporations had varied widely. Sometimes charters assigned shareholders one vote per share, sometimes one vote per shareholder, and sometimes one vote per share up to some maximum number of votes. These last two rules protected minority shareholders by increasing their relative influence over corporate management. Unfortunately for such investors, however, their use declined over time. As the century progressed, moreover, an increasing number of state legislatures enacted legislation—known as “general incorporation laws”—that permitted business people to organize a corporation simply by filling out a set of forms, meeting a statutory requirement, and paying a fee. Over time, these laws institutionalized the one-vote-per-share rule, as well as the rule that a simple majority of those voting determined the outcome of elections.12 Indeed, before long, corporations that adopted any other governance structure were vulnerable to a court challenge. As recently as 1945, the New York Court of Appeals struck down a corporate by-law that required shareholders’ unanimous consent for the election of a corporate board of directors on the grounds that this by-law was “obnoxious to the statutory scheme of stock corporation management.”13 This majority-takes-all governance structure posed a variety of problems for minority shareholders. Most obviously, it left them with little recourse should the majority pursue policies that harmed their interests. Minority shareholders could neither force the majority to change its behavior nor compel a dissolution of the corporation. Nor, as a general rule, could they advantageously sell their shares. If the corporation were closely held, as was typically the case in the late nineteenth century, often the only buyers for their shares were the very majority shareholders who were taking advantage of them. Even if the corporation were publicly traded—and, thus, shareholding was more widely dispersed—minority investors were little better off, since the price at which they could sell their shares would have been reduced by the majority’s exploitative behavior. Compounding the minority shareholders’ predicament was their inability under the common law to take abusive majority shareholders to court. In the eyes of the law, the corporation was a legal person whose property was vested not in its shareholders but in itself. Hence, if the corporation’s officers were abusing their position, the injured party was the corporation—not minority shareholders.14 Lemuel Shaw, Chief Justice of the Massachusetts Supreme Court, laid out the basic principle in 1847 in an important case, Smith v. Hurd. The Phoenix Bank had failed in 1842

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after lending large sums to its directors. Joseph Smith, a minority shareholder in the bank, sued the directors for failing to perform their duty in accordance with law. The counsel for the directors countered that Smith did not have standing to sue, since only the corporation, and not an individual shareholder, could “maintain an action on the facts alleged in this declaration.” In his ruling, Shaw accepted the counsel’s argument, declaring that there was “no legal privity, relation, or immediate connexion” between the “holders of shares in a bank, in their individual capacity, on the one side, and the directors of the bank on the other.” In Shaw’s view, the “individual members” of the corporation had “no right or power to intermeddle with the property or concerns of the bank, or call any officer, agent or servant to account,” since they were not the “legal owners of the property” and any “damage done to such property” was “not an injury to them.” The legal person whose rights were at stake was the corporation. Thus, the appropriate remedy was for the corporation itself to seek redress for “injuries done to the common property, by the recovery of damages.”15 The problem with this remedy, as Shaw himself admitted, was that it was “a theoretic one.” If the majority shareholders were the source of the problem—as they had been for the plaintiffs in Smith v. Hurd, and as they would so often be for plaintiffs in the decades to come—they were unlikely to be willing to take action against themselves, and there was nothing that the minority shareholders could do to compel them. At least in theory, however, minority shareholders did have an alternative legal remedy. Under certain circumstances, they could challenge the majority under their own names in a court of equity, where disputes were resolved with reference to considerations of fairness rather than simply precedent (as under the common law).16 In an early and also frequently cited case, Robinson v. Smith (1832), a New York equity court judge explicitly extended to business corporations principles that previously had been confined to charitable trusts. The directors of a corporation, the judge declared, were trustees of the corporation’s property. Shareholders had a joint interest in this property and hence in effect were “cestui que trusts”—the ones who were trusting. Because equity courts never permitted wrongs to go unredressed “merely for the sake of form,” if the corporation’s officers were abusing their position, minority shareholders might (if they could show that majority was preventing the corporation from seeking redress itself) file a bill in their own names, “making the corporation a party defendant.”17 This so-called “derivative” right of shareholders to sue a corporation quickly became an established principle of equity. As one Massachusetts judge proclaimed in 1888, equity courts were “swift” to protect otherwise

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“helpless” minority shareholders from the “oppression and fraud of majorities.”18 The situation was not nearly as favorable to minority shareholders, however, as such grand statements might seem to suggest. Many courts construed Robinson v. Smith narrowly, and as a consequence, minority shareholders often faced substantial legal hurdles when they pursued their grievances in an equity court.19 To begin with, as one Massachusetts court ruled in 1870, they had to demonstrate that their corporation was under the control of the parties who had been “charged with the wrong,” and so suitable redress was not attainable through the “action of the corporation.”20 More importantly, they had to demonstrate that the refusal of the corporation’s directors to redress the alleged wrong was not merely a matter of business judgment, but of fraud—that is, they had to show that the directors were not simply pursuing different policies from those that minority shareholders thought they should adopt. As another Massachusetts court ruled in 1888, since “intelligent and honest men” might differ on “questions of business policy,” a corporation’s directors might “properly refuse” to bring a suit that one of its shareholders supported.21 If the refusal was simply a matter of business judgment, the court would not be willing to intervene. The courts’ acceptance of what became known as the “business judgment rule” had a particularly corrosive effect on the property rights of minority shareholders. Take, for example, the long-standing common-law principle that contracts tainted by conflicts of interest were voidable. This rule had traditionally been an absolute one: that is, it applied to contracts that otherwise seemed completely reasonable—even to those that could not have been negotiated on more favorable terms. As the Michigan Supreme Court ruled in Flint & Pere Marquette Railway Company v. Dewey (1866), it was completely “immaterial” whether there had “been any fraud in fact, or any injury to the company.” All that mattered for the decision to void such a contract was that it had originated in a conflict of interest.22 The applicability of this common law rule to corporations was emphatically affirmed by U.S. Supreme Court Justice Stephen Field in 1880 in Wardell v. Railroad Company. The case arose as a result of a contract negotiated by officers of the Union Pacific Railroad with a coal company that the officers themselves had organized. Although Field was generally reluctant to challenge corporate prerogatives, in this instance he intervened to void a contract so obviously tainted by a conflict of interest: “Directors of corporations, and all persons who stand in a fiduciary relation to other parties, and are clothed with power to act for them, are subject to this rule; they are not permitted to occupy a position which will conflict with the interest of parties they represent and are bound to

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protect. They cannot, as agents or trustees, enter into or authorize contracts on behalf of those for whom they are appointed to act, and then personally participate in the benefits.”23 Field’s ruling might seem to have provided a way for minority shareholders to protect themselves against at least this one form of exploitation by the majority. In fact, however, his decision was much narrower than might at first glance appear. The contract that Field voided had been challenged not by the Union Pacific’s shareholders, but by the Union Pacific corporation itself. Thus, in this case, the Supreme Court did not have to consider whether contracts involving conflicts of interest could be voided at the instance of minority shareholders. The precedents Field cited in his ruling suggest that, if the Court had faced this question, the outcome might well have been different.24 Indeed, Field’s citations indicate that state courts had been applying a reasonableness test in such situations since the middle of the century—a test that was much harder to pass than the absolute standard Field articulated in Wardell. For example, in the often-cited case of Hodges v. New England Screw Company, originally decided in 1850, the Rhode Island Supreme Court had refused to invalidate the sale of assets by one corporation to another that was controlled by essentially the same people on the grounds that the transaction was “judicious” and “for the interest” of the company.25 The utility of the conflict-of-interest standard for minority shareholders was limited still further the year following Field’s decision in Wardell, when the U.S. Supreme Court ruled in Hawes v. Oakland that a shareholder who had been victimized by such a conflict could only sue in his own name in a court of equity if the plaintiff could demonstrate either that the contract was “fraudulent” and would result in “serious injury” to the corporation, that the board of directors had entered into it in a manner “destructive” of the corporation or the rights of minority shareholders, or that the majority shareholders were “oppressively and illegally” pursing a course that violated the minority shareholders’ rights.26 In short, it was no longer sufficient for minority shareholders merely to demonstrate that a contract endorsed by the majority shareholders involved a conflict of interest. They now also had to pass a much stricter test—to demonstrate that the contract had been fraudulent or injurious or destructive or oppressive or illegal. If there was any doubt, moreover, that the contract was any of these things, the courts tended to decide in favor of the majority. “It is always assumed until the contrary appears,” as the Massachusetts Supreme Court bluntly declared in 1888, that corporate directors “obey the law, and act in good faith towards all their members.”27 Judges found it

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difficult to believe that majority shareholders would deliberately take actions that harmed their corporation and thus eroded the value of their own stock. “We are the more confirmed” in our conclusion that the majority shareholders had made a reasonable decision, ruled a Rhode Island court in Hodges v. New England Screw Company, “when we recollect that the directors owned a large majority of the capital stock of the Screw Company, and could not reduce the plaintiff’s stock, without, at the same time, and in the same proportion, reducing the value of their own.”28 Similarly, in Fauds v. Yates (1870), the Illinois Supreme Court found nothing wrong with a partnership agreement among three shareholders of the Chicago Carbon and Coal Company. Collectively the three partners held a majority of the corporation’s shares, and they agreed to vote their shares in a block so that they could control the election of the board of directors. The partners also leased the company’s coal lands and operated its mines. Yet, in the view of the court, the record “wholly fails to disclose any injury to the other shareholders” or “any waste of the property,” and consequently there was no reason to invalidate the agreement. The court went even further and asserted that there could be no conflict of interest since the goals of the partners and of other shareholders were the same. The partners, according to the court, had a “double interest to protect”— that is, their interest as shareholders and their interest as lessees: “As shrewd, skillful and prudent men, they were desirous of increasing the investment, and making the stock more valuable. Their interests were identical with the interests of the minority shareholders.”29 Although the courts remained willing to intervene on behalf of minority shareholders who could demonstrate that the contracts they were challenging were unquestionably fraudulent, it is important to underscore the magnitude of the shift that had occurred. Prior to the mid-nineteenth century, the courts had always nullified contracts that involved conflicts-of-interest; following Hawes v. Oakland, minority shareholders had to clear significant legal hurdles in order to obtain redress. Without systematically studying the dispensation of cases at the lowercourt level, it is hard to know precisely how high the hurdles were in actual practice. But one can obtain some idea of the relevant standards from cases that were appealed to higher courts. This type of evidence suggests that minority shareholders were unlikely to persuade a court that a contract tainted by conflict of interest was fraudulent unless they could demonstrate that the resulting payments were substantially in excess of market levels. For example, when in the 1890s Townsend Burden, a minority shareholder in the Burden Iron Company, sued his brother James, the company’s majority shareholder, he accused his brother of

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defrauding him of his rightful share of the company’s profits by buying iron ore from another of James’s companies. Townsend lost the case in part because he was unable to show that James had paid too much for the ore. The trial court concluded that there was no evidence that these purchases had been “made in bad faith or with any intent to defraud”; indeed, the court found that they had saved the Burden Iron Company money.30 Even if minority shareholders could demonstrate that the terms of a contract were disadvantageous, judges were liable to dismiss the plaintiffs’ grievances, as one New York court did in 1888, on the grounds that “mere errors of judgment” were not sufficient to bring a lawsuit, since the powers of “those entrusted with corporate management” were “largely discretionary.”31 Minority shareholders’ position was much stronger, however, if they could document that the contracting parties had been deceptive in some way—for example, that they had attempted to cover up their actions. Hence, in Brewer v. Boston Theatre (1870), the plaintiffs were able to win their case that several directors had fraudulently extracted profits from a corporation by demonstrating that the perpetrators had deliberately concealed their actions from other members of the board.32 This case, as well as others like it, suggests that, in certain instances, courts were willing to punish majority shareholders who exploited their position to the detriment of other owners. Yet before judges were willing to act, they almost always demanded compelling evidence of misdeeds. In 1866, the Michigan Supreme Court had predicted that if judges held contracts involving conflicts of interest to be valid unless plaintiffs successfully showed them to be “fraudulent and corrupt,” the result, as a “general rule,” would be that the contracts “must be enforced in spite of fraud and corruption.” This warning proved prophetic. As legal scholars have noted, the courts proved increasingly willing in the late nineteenth century to enforce corporate contracts that were tainted by conflicts of interest—contracts that their predecessors would automatically have voided.33 The legal position of minority shareholders began gradually to improve following the stock market crash of 1929. In response to the crash and the resulting financial depression, Congress in 1934 established the Securities and Exchange Commission (SEC) to regulate the country’s security markets.34 Although the protections of the SEC only covered shareholders in large publicly traded corporations, there is some indication that by the 1930s judges had become generally more receptive to shareholders’ complaints than they had been in the past.35 Nonetheless, the status of minority investors in private corporations would not change

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in a major way until the final third of the twentieth century. Beginning in the 1960s, there were at least two major waves of remedial legislation at the state level. The first established a separate legal category for “close” corporations, enabling corporations whose securities were not publicly traded to adopt governance schemes that increased the power of minority investors. The second provided legal remedies for “corporate oppression” and other similar torts.36 Contrary to what the theory of property rights would lead one to expect, the absence of such protections in the late nineteenth century does not seem to have impeded economic development. Business people organized corporations at an accelerating pace, and shareholders gamely invested their savings in the newly formed enterprises. In Ohio, for example, the number of charters increased from an average of 305 per year during the 1870s to 1,166 per year in the period between 1895 and 1904, to 4,047 per year in the 1920s. Although the growth in number was most rapid for small corporations, investors were increasingly willing to risk their savings in large corporations as well. In the 1870s, the authorized capitalization of new Ohio corporations valued at over $1 million averaged $37.6 million per year. The Ohio figures for later decades are not as informative because promoters of large corporations preferred to organize under the more permissive general incorporation laws of New Jersey or ultimately Delaware. The authorized capitalization of new New Jersey corporations valued at over $1 million averaged $928.4 million per year between 1895 and 1904; in Delaware, the comparable annual average by the 1920s was $18,814.2 million.37 The value of new corporate equities issued on the New York Stock Exchange rose so rapidly relative to GDP in this period that, as economist Mary O’Sullivan has shown, even before the speculative bubble of the 1920s it had reached levels that were higher than those attained in the second half of the twentieth century under the protection of the SEC.38 Why did investors so eagerly buy minority shares in corporations when their property rights as minority shareholders were clearly so insecure? One way of answering this question is to recognize that investors might have been willing to purchase minority stakes, even knowing that a percentage of their return would be expropriated, if they expected in that way to earn more than from alternative investments.39 Everything that we know about late nineteenth-century U.S. economy—from its rapid population growth and sharp drops in transportation and communications costs to the discovery of raw material resources and the dramatic pace of technological change—suggests that remunerative entrepreneurial opportunities abounded. It would thus seem likely that investors expected the

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corporations formed to take advantage of these opportunities to be highly profitable and that those favorable anticipations outweighed any fears they may have had about oppression by majority shareholders. But why were high-profit opportunities so abundant? At least part of the answer must be that the federal government took steps to protect certain kinds of property rights. Consider, for example, the case of the patent system. Before 1836, inventors could obtain a patent simply by registering their inventions at the Patent Office. Indeed, all they had to do was fill out an application and pay a fee. If a rival inventor challenged the patent, it was up to the courts to determine its validity—that is, whether the invention met the statutory requirement for novelty. Congress replaced the registration system with an examination system in 1836. From that year onward, experts in the Patent Office scrutinized all inventions for novelty before awarding them patents—a procedure that greatly enhanced the ability of patent holders to defend their property rights and thus increased the value of this kind of asset. Not only did patent rates soar as a consequence, but so too did the market for patent rights, as many investors discovered that there were large sums of money to be made by commercializing cutting-edge technologies.40 Yet the increased security of patent rights is only one aspect of the growth of entrepreneurial opportunity in the late nineteenth century. As economic historian Gavin Wright has shown in an influential essay, the rise of the United States to industrial supremacy during this period owed less to industries in which patents figured prominently—such as electricity and chemicals—than to industries that exploited the country’s vast storehouse of natural resources. By the early twentieth century, the United States had emerged as the world’s largest producer not only of oil and natural gas but also of copper, coal, iron ore, and other mining products crucial for industrial development. Moreover, the country’s most successful export industries—iron and steel and machinery made of iron and steel—were themselves intensive consumers of natural resources.41 It may, therefore, seem obvious that the answer to the question of why opportunities for profit were so abundant in the late nineteenth-century United States is simply that Americans had the good fortune to occupy such a well-endowed continent. Yet good fortune is also only part of the story. By world standards, as Wright and his co-author Paul David demonstrated in a related essay, the United States was not particularly well endowed with natural resources. Indeed, U.S. production of natural resources during the late nineteenth century enormously exceeded what we now know to be the country’s share of the world’s proven reserves. What really set the United

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States apart was not the abundance of its natural resources, Wright and David argue, but the effectiveness with which its business leaders exploited these resources for profit.42 At the root of this success story were public policies established by the federal government. It was the federal government that provided the necessary legal authority, as well as the financial fillip, to construct the railroads that traversed the mineral-rich lands of the West. It was the federal government that provided prospectors with open access to its public lands.43 It was the federal government that created and funded the U.S. Geological Survey, which mapped this terrain and assessed its mineral wealth. And it was the federal government that granted public lands to support institutions of higher education that trained, not only the staff of the Geological Survey, but also many of the mining engineers that the corporations that extracted these natural resources employed.44 Policymakers interested in economic development today might well conclude from the preceding discussion that they have devoted too much attention in recent years to the issue of property rights and too little to strategies for fostering profitable projects. It does not necessarily follow, however, that policymakers should give up on the effort to safeguard property rights in developing countries. As all historians know, context is everything, and it is likely that legal protections for property are even more important today than they were when the United States was rapidly industrializing in the late nineteenth century. This is because, in the current era of globalization, investors have the option of putting their funds into high-profit opportunities, not only in their home countries but anywhere in the world. All things being equal, one would expect that investors would prefer to do business in countries in which their property rights were more rather than less secure. Investors in the late nineteenth century United States would not have been better off buying stock in corporations in other countries—protections to minority shareholders were as poor in Europe as they were in the United States—but the same cannot be said for investors in developing countries today. It thus may well be that secure property rights are now more essential for successful economic development for the simple reason that investors will naturally gravitate toward countries where such protections exist.45 Here again, the analogy with on-line fantasy games can prove instructive. Although Sony and other game owners have absolute power over their imaginary domains, players can and do protest policies that they deem unjust on Internet discussion boards devoted to their game. In other words, players can mobilize what social scientists call “voice.”

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Moreover, if players become sufficiently discontented, they can migrate to another game or quit playing fantasy games altogether. In the language of social science, they can “exit.” Hence, though Sony and other game owners continue to regard players as consumers rather than citizens, if they wish to remain profitable in the competitive world of Internet gaming, they must take care not to trample on what players regard as their rights.46 To the extent that the government of a developing country such as China is in a position analogous to Sony—that is, to the extent that the Chinese government has to worry about remaining attractive to investors (both domestic and foreign) who have the option of shifting their funds to other countries—then there may be no reason to favor the Washington Consensus over the Beijing Consensus. China may well be as effectively constrained by market forces not to expropriate investors’ returns as it would be had its leaders adopted all of the Washington Consensus recommendations. Indeed, the experience of both South Korea and Taiwan lends support to Ha-Joon Chang’s argument that successful economic development itself will lead to more secure property rights. Yet the more troubling point is how few Chinas, South Koreas, and Taiwans have emerged over the last half-century. It is undoubtedly the case that, all things being equal, secure property rights can be expected to lower the profit rates necessary to attract investors. Nonetheless, the abysmally poor economic record of most developing countries in recent decades would seem to require a different kind of public policy initiative—one focused more on generating profitable opportunities for investment, even if, as in the case of government policy toward corporations, it sometimes put certain kinds of property at risk. University of California, Los Angeles

Acknowledgments I would like to thank Henry Yu for calling my attention to the world of online fantasy games, Richard R. John for his helpful editorial suggestions, Robin L. Einhorn, Peter Lindert, Gregory A. Mark, and Gavin Wright for their comments and encouragement, and seminar participants and audiences at Oxford University, the Greater Chicago Economic History Group, and the Organization of American Historians. This essay draws on work done for collaborative projects with Ruth Bloch and Jean-Laurent Rosenthal.

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Notes 1. Julian Dibbell, “The Unreal Estate Boom,” Wired (January 2003), 108. 2. Not only are people investing what are for them substantial sums in the assets of these fantasy worlds, but companies have also been set up to accumulate and trade these imaginary assets. One such enterprise, BlackSnow Interactive, rented space in Tijuana, bought a bank of computers, and hired three shifts of Mexican laborers at sweatshop wages to play around the clock and accumulate imaginary wealth for the company’s owners. Another firm claims to employ more than fifty full-time workers in the United States and Hong Kong. Dibbell, “Unreal Estate Boom”; Paul Tyrrell, “Realities of a Virtual Economy,” Financial Times, U.S. edition, 29 December 2003, 6; Clive Thompson, “Game Theories,” The Walrus Magazine, http://walrusmagazine.com/ (downloaded on 21 May 2004). 3. Edward Castronova, “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier,” CESIFO Working Paper 618 (2001), and Castronova, “On Virtual Economies,” CESIFO Working Paper 752 (2002). 4. Castronova, “Virtual Economies,” 31–36; Tyrrell, “Realities of a Virtual Economy”; Thompson, “Game Theories.” 5. The phrase Washington Consensus was coined in 1990 by John Williamson, a senior fellow at the Institute for International Economics. See Williamson’s subsequent discussion of the concept in “What Should the World Bank Think about the Washington Consensus?” World Bank Research Observer 15 (August 2000): 251–64. See also Dani Rodrik, “The Global Governance of Trade as if Development Really Mattered,” United Nations Development Program background paper (2001). 6. Castronova, “Virtual Economies,” 31–33; Dibbell, “Unreal Estate Boom.” 7. Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (London, 2002). See also Joshua Cooper Ramo, The Beijing Consensus (London, 2004). 8. See Chang, Kicking Away the Ladder. 9. For an introduction to the by-now-enormous literature on the “new” institutionalism in economics, see Douglass C. North, Structure and Change in Economic History (New York, 1981), and Oliver Williamson, The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (New York, 1985). For an influential application of these ideas, see Douglass C. North and Barry R. Weingast, “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” Journal of Economic History 49 (December 1989): 803–32. Although the “new” institutionalism in economics is only loosely related to the “new” institutionalism in political science, both share a preoccupation with the political preconditions of social change. 10. See, for example, Nathan Rosenberg and L. E. Birdzell Jr., How the West Grew Rich: The Economic Transformation of the Industrial World (New York, 1986). Such a view is also implicit in James Willard Hurst’s classic study, The Legitimacy of the Business Corporation in the Law of the United States, 1780–1970 (Charlottesville, 1970). The three principal features of corporations—concentrated management, permanence, and limited liability—were not originally standard attributes of the form but only emerged as such over time. See Naomi R. Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom in U.S. History: An Essay in Economics, Law, and Culture,” in Constructing Corporate America: History, Politics, Culture, ed. Kenneth Lipartito and David B. Sicilia (New York, 2004), 29–65, and John Wallis, “Market Augmenting Government? The State and the Corporation in Nineteenth-Century America,” in Market Augmenting Government: The Institutional Foundations of Prosperity, ed. Omar Azfar and Charles Cadwell (Ann Arbor, 2003), 223–67. Although it was theoretically possible to obtain any of these three features contractually—that is, without securing a corporate charter—there was considerable uncertainty about whether the courts would uphold all the provisions of the contract. See Edward H. Warren, Corporate Advantages without Incorporation (New York, 1929).

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11. For additional examples, see Naomi R. Lamoreaux and Jean-Laurent Rosenthal, “Corporate Governance and the Plight of Minority Shareholders in the United States before the Great Depression,” in Corruption and Reform, ed. Edward Glaeser and Claudia Goldin (Chicago, forthcoming). An earlier version of this article is available as NBER Working Paper 10900. The rest of this section draws heavily on this article, as well as on Ruth H. Bloch and Naomi R. Lamoreaux, “The Public-Private Distinction in American History: The Privatization of the Corporation and the Problem of Minority Shareholders,” unpublished paper in author’s possession. 12. Colleen A. Dunlavy, “From Citizens to Plutocrats: Nineteenth-Century Shareholder Voting Rights and Theories,” in Constructing Corporate Boundaries, ed. Lipartito and Sicilia, 66–93. For the shift from special to general incorporation laws, see Hurst, Legitimacy of the Business Corporation, and Pauline Maier, “The Revolutionary Origins of the American Corporation,” William and Mary Quarterly 50 (January 1993): 51–84. On the shift to general incorporation within individual states, see Oscar Handlin and Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy—Massachusetts, 1774–1861 (Cambridge, Mass., 1947; rev. ed., 1969); Louis Hartz, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (Cambridge, Mass., 1948); John W. Cadman Jr., The Corporation in New Jersey: Business and Politics, 1791–1875 (Cambridge, Mass., 1949); and Ronald E. Seavoy, The Origins of the American Business Corporation, 1784–1855: Broadening the Concept of Public Service during Industrialization (Westport, Conn., 1982). 13. Benintendi v. Kenton Hotel, 294 N. Y. 118 (1945). For a discussion of similar cases, see Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom,” and Naomi R. Lamoreaux and Jean-Laurent Rosenthal, “Legal Regime and Contractual Flexibility: A Comparison of Business’s Organizational Choices in France and the United States during the Era of Industrialization,” American Law and Economics Review 7 (Spring 2005): 28–61. 14. Although corporations have always been considered legal persons in the eyes of the law, they were never treated as equivalent to human persons and never accorded a full panoply of constitutional rights. Supreme Court decisions granting corporations Fourteenth Amendment protections have been particularly subject to misunderstanding. On this point, see Gregory A. Mark, “The Personification of the Business Corporation in American Law,” University of Chicago Law Review 54 (Fall 1987): 1447–55; Morton J. Horwitz, Transformation of American Law, 1870–1960: The Crisis of Legal Orthodoxy (New York, 1992), 66–70; and Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom.” 15. Smith v. Hurd, 53 Mass. 371 (1847). There was nothing new about this principle. Indeed, it had provided the foundation for the famous decision of Chief Justice John Marshall of the U.S. Supreme Court in Dartmouth College v. Woodward (17 U.S. 518 [1819]). What was new during the late 1840s was the avidity with which minority shareholders sought out legal remedies to limit the depredations of majority shareholders. 16. Equity courts, like common law courts, had their origins in Great Britain during the early modern period. Common law courts were staffed by judges who were supposed to render their judgments exclusively on precedent; the equity court, in contrast, was headed by a Chancellor empowered to base his decisions on considerations of fairness as well as precedent. After the War of Independence, some states—for example, New York— created both common law courts and an equity court. Because many Americans in the early republic associated the equity court with aristocratic privilege, several states, including Massachusetts, created only one court system and allowed common law judges to sit as a court of equity in limited, legislatively regulated circumstances. On the British court system, see Ron Harris, Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844 (Cambridge, 2000). On the controversy over equity courts, see Peter Dobkin Hall, “What Merchants Did with Their Money: Charitable and Testamentary Trusts in Massachusetts, 1780–1880,” in Entrepreneurs: The Boston Business

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Community, 1700–1850, ed. Conrad Edick Wright and Katheryn P. Viens (Boston, 1997), 365–421. On the later development of equity courts in the United States, see Sidney Post Simpson, “Fifty Years of American Equity,” Harvard Law Review 50 (December 1936): 171–251. 17. Robinson v. Smith, 3 Paige 222 (1832). 18. Dunphy v. Traveller Newspaper Assoc., 146 Mass. 495, 496 (1888). 19. See, for example, Hodges v. New England Screw Co., 1 R.I. 312 (1850); Abbott v. Merriam, 62 Mass. 588 (1851); Smith v. Poor, 40 Me. 415 (1855); and Peabody v. Flint, 88 Mass. 52 (1863). The Supreme Court gave the precedent a more expansive interpretation in 1856 in the case Dodge v. Woolsey, declaring that courts of equity “have a jurisdiction over corporations, at the instance of one or more of their members”—that is, shareholders—and could issue injunctions to restrain the officers and directors of corporations from taking any action in violation of their charters or to “prevent any misapplication of their capitals or profits“ that might lessen the dividends of stockholders, or the value of their shares, if the action would result in “what is in the law denominated a breach of trust” (59 U.S. 331, 341 [1856]). Yet, as is discussed below, the Supreme Court soon retreated from this expansive interpretation of minority shareholder rights. 20. Brewer v. Boston Theatre, 104 Mass. 378, 386–87 (1870). 21. Dunphy v. Traveller Newspaper Assoc., 146 Mass. at 497. 22. Flint & Pere Marquette Railway Company v. Dewey, 14 Mich. 477, 487 (1866). 23. Wardell v. Railroad Company, 103 U.S. 651, 658 (1880). 24. For example, Flint and Pere Marquette Railway v. Dewey was brought by a corporation whose directors had ratified a contract proposed by the company’s president without knowing that the president stood to profit from the arrangement. In its decision, the court raised the possibility that the contract might possibly be construed as binding if it had been ratified by the board “after a full explanation and knowledge of their interest and of all the circumstances” (487). 25. Hodges v. New England Screw Company, 1 R. I. at 343. 26. Hawes v. Oakland, 104 U.S. 450, 460 (1881). 27. Dunphy v. Traveller Newspaper Assoc., 146 Mass. at 497. 28. Hodges v. New England Screw Company, 1 R. I. at 343–44. 29. Fauds v. Yates, 57 Ill. 416, 421 (1870). 30. Burden v. Burden, 159 N.Y. 287, 306 (1899). 31. Leslie v. Lorillard, 110 N.Y. 519, 532 (1888). 32. Brewer v. Boston Theatre, 104 Mass. 378. 33. Flint & Pere Marquette Railway Company v. Dewey, 14 Mich. at 488. Harold Marsh Jr. “Are Directors Trustees?” Conflict of Interest and Corporate Morality,” Business Lawyer 22 (November 1966): 35–76; Gregory A. Mark, “A Tentative History of the Law Governing Managerial Discretion: The Concern with Conflicts of Interest,” unpublished paper in author’s possession. See also Adolf A. Berle Jr. and Gardiner C. Means, The Modern Corporation and Private Property (New York, 1933). 34. On the creation of the SEC, see Thomas K. McCraw, Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn (Cambridge, Mass., 1984). 35. Marsh, “Are Directors Trustees?” and Mark, “A Tentative History of the Law Governing Managerial Discretion.” 36. F. Hodge O’Neal, “Close Corporations: Existing Legislation and Recommended Reform,” Business Lawyer 33 (January 1978): 873–80; Robert W. Hillman, “The Dissatisfied Participant in the Solvent Business Venture: A Consideration of the Relative Permanence of Partnerships and Close Corporations,” Minnesota Law Review 67 (October 1982): 38–55; Lawrence E. Mitchell, “The Death of Fiduciary Duty in Close Corporations,” University of Pennsylvania Law Review 138 (June 1990): 1680–81. 37. George Heberton Evans Jr., Business Incorporations in the United States, 1800–1943 (New York, 1948), appendix 3.

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38. Mary O’Sullivan, “What Drove the U.S. Stock Market in the Last Century?” unpublished paper in author’s possession. 39. This point is developed more fully with the help of a formal model in Lamoreaux and Rosenthal, “Corporate Governance and the Plight of Minority Shareholders.” 40. Naomi R. Lamoreaux and Kenneth L. Sokoloff, “Intermediaries in the U.S. Market for Technology, 1870–1920,” in Finance, Intermediaries, and Economic Development, ed. Stanley L. Engerman et al. (New York, 2003), 209–46, and Lamoreaux and Sokoloff, “The Market for Technology and the Organization of Invention in U.S. History,” in Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Market Economies, ed. William Baumol and Eytan Sheshinski (Princeton, forthcoming). 41. Gavin Wright, “The Origins of American Industrial Success, 1879–1940,” American Economic Review 80 (September 1990): 651–68. 42. Paul A. David and Gavin Wright, “Increasing Returns and the Genesis of American Resource Abundance,” Industrial and Corporate Change 6 (March 1997): 203–45. 43. David and Wright make the intriguing argument that the very inability of the federal government to enforce property rights over the vast expanse of the West explained its policy of permitting open access to mineral resources on public lands. The “entire historical epoch,” they speculate, could be seen as a “gigantic illustration” of “excessive resource depletion in a common-property setting, augmented by the urgency of a race to drain a non-renewable common pool.” David and Wright, “Increasing Returns and the Genesis of American Resource Abundance.” 44. The federal government had also facilitated the establishment of communications networks that hastened the movement of commercial information. On these networks, see Paul Starr, The Creation of the Media: Political Origins of Modern Communications (New York, 2004), and Richard R. John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge, Mass., 1995). In addition, state and local governments since the early republic had been actively funding educational institutions, promoting transportation projects, and shaping resource extraction. For the role of state and local government in economic development, a classic study remains George Rogers Taylor, The Transportation Revolution, 1815–1860 (New York, 1951). More recent works include John Majewski, A House Dividing: Economic Development in Pennsylvania and Virginia before the Civil War (New York, 2000); John Lauritz Larson, Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (Chapel Hill, 2001); and Sean Adams, Old Dominion, Industrial Commonwealth: Coal, Politics, and Economy in Antebellum America (Baltimore, 2004). For an overview of the role of governments of all levels in promoting economic development, see Richard R. John, “Governmental Institutions as Agents of Change: Rethinking American Political Development in the Early Republic, 1787–1835,” Studies in American Political Development 11 (Fall 1997): 347–80. For a textbook that highlights the role of public policy in economic development, see Pauline Maier, Merritt Roe Smith, Alexander Keyssar, and Daniel J. Kevles, Inventing America: A History of the United States (New York, 2003). The federal government also protected many industries by imposing tariffs on imports, yet because these tariffs affected the price of inputs as well as the price of outputs, most economic historians consider their effect in promoting industrial development to be at best marginal and possibly even pernicious. See, for example, Gary R. Hawke, “The United States Tariff and Industrial Protection in the Late Nineteenth Century,” Economic History Review 28 (February 1975): 84–99, and Douglas A. Irwin, “Did Late-Nineteenth-Century U.S. Tariffs Promote Infant Industries? Evidence from the Tin Plate Industry,” Journal of Economic History 60 (June 2000): 335–60. 45. Kenneth L. Sokoloff, “Economic Development In and Out of the Tropics,” unpublished paper in author’s possession. 46. Castronova, “Virtual Economies,” 31–36. Players have increasingly asserted their rights as citizens of these virtual worlds and have even issued a “Declaration of the Rights of Avatars.”

Contributors RICHARD R. JOHN is Professor of History at the University of Illinois at Chicago. He is the author of Spreading the News: The American Postal System from Franklin to Morse (Cambridge, Mass., 1995) and many articles on the history of American public policy, business, and communications. He is currently completing a history of early American telecommunications. SEAN PATRICK ADAMS is Assistant Professor of History at the University of Florida. He is the author of Old Dominion, Industrial Commonwealth: Coal, Politics, and Economy in Antebellum America (Baltimore, 2004). His current research focuses on energy consumption in the early United States. ROBIN L. EINHORN is Professor of History at the University of California, Berkeley. She is the author of Property Rules: Political Economy in Chicago, 1833–1872 (Chicago, 1991) and American Taxation, American Slavery (Chicago, forthcoming 2006). NAOMI R. LAMOREAUX is Professor of Economics and History at the University of California, Los Angeles, and Research Associate at the National Bureau of Economic Research. She is the author of The Great Merger Movement in American Business, 1895–1904 (New York, 1985) and Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England (New York, 1994). She is currently working on several projects, including a study of the public/private distinction in American history. STEVEN W. USSELMAN is Associate Professor of History in the School of History, Technology, and Society at the Georgia Institute of Technology. He is the author of Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840–1920 (Cambridge, 2002), as well as numerous essays, including several on the history and political economy of computing and communications. R. DANIEL WADHWANI is a Lecturer in Business History at Harvard Business School. His current research focuses on the development of the household finance industry in the United States and its impact on the family economy.

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MARK R. WILSON is Assistant Professor of History at the University of North Carolina at Charlotte. His first book, The Business of Civil War, is scheduled to be published by The Johns Hopkins University Press in 2006. He is currently at work on a study of U.S. industrial mobilization for World War II.