Endogenizing Change: Power and Taxes in the Development of American Corporate Law

• In Event: 355 - Section on Economic Sociology Roundtable Session (one-hour).
  In Refereed Roundtable: Table 14. Law, Consent, Corruption

Abstract

Modern American corporate law affords corporations many rights,
including the ability to own the stock of other corporations.
But for most of the 19th century state legislatures created
corporations using individual laws, dictating what business they could
engage in and what property they could own.
In 1896, New Jersey enacted the first modern corporate law and several states
soon followed.
Using these laws, capitalists reduced ruinous competition by
consolidating American industries in the great merger wave 1895-1920.

Using a path-dependency and contingency model economic sociologists
successfully refute the efficiency explanation for this important
change, but the causes they cite did not occur in New Jersey.

To understand why New Jersey enacted the first modern corporate law despite
lacking these causes, this paper compares 28 cases of successful and
unsuccessful attempts to change New Jersey corporate laws 1830 - 1913.
Drawing on original datasets of laws, legislative bills, votes,
politicians, incorporations, with existing data on taxes and trusts,
this paper demonstrates that New Jersey corporate law changed less because of
contingencies than because of how the law served the interests of both
political and economic incumbents.

Corporate laws that solved the problems of both political and economic
incumbents by providing state revenues and limiting competition
persisted because those incumbents protected them against challengers.
By replacing specific, contingent explanations with general conditions
under which institutions such as corporate law change and persist,
this paper advances our understanding of the development of American
capitalism and institutional change more broadly.

Author

• Alexander Jerneck, University of Pennsylvania