An Empire of Wealth by John Steele Gordon

Author:John Steele Gordon
Language: eng
Format: epub
Publisher: HarperCollins

THE NEW INDUSTRIAL and trading corporations were increasingly corporate in form, and the corporation became crucial to the American economy by the last third of the nineteenth century because enterprises dramatically increased in size at that time. In the eighteenth and early nineteenth centuries the economy had been characterized by individually and family-owned and operated enterprises. Organizations with more than a hundred employees were a rarity. By the time of the Civil War, however, several railroads were employing thousands, and industrial companies were growing rapidly as well. The Bath Iron Works of Maine, the largest industrial employer in 1860, had forty-five hundred workers.

Because railroads were very capital-intensive enterprises, they were mostly organized as corporations from the beginning. And as the railroads grew and spread across the land, their suppliers and, increasingly, their freight customers became larger and also became corporations.

In the earliest days of independence, obtaining a corporate charter had required a specific act of a state legislature, with all the politics that involved. But beginning in the early nineteenth century, states began passing general incorporation statutes, allowing companies to obtain charters under certain circumstances automatically. Legislatures began surrendering the power to form corporations not for altruistic reasons, of course, but simply because it was no longer possible for them to handle the demand for corporate charters.

In the entire colonial period, there had been only 7 companies incorporated in the British North American colonies. But in just the last four years of the eighteenth century, 335 businesses incorporated in the new United States. Between 1800 and 1860, the state of Pennsylvania alone incorporated more than 2,000.

In 1811 New York State became the first to pass a general incorporation statute, although it was originally restricted to companies seeking to manufacture particular items, such as anchors and linen goods. The types of businesses eligible to incorporate soon included all forms of transportation and nearly all forms of manufacturing and financial services as well, however.

The corporate form had numerous advantages over partnerships. Partnerships automatically terminated at the death of one of the partners, but corporations could live forever (although early ones were often limited to a term of years). And in a partnership, any partner can sign a contract, binding on all the partners, whereas a corporation could hire management to handle the business of the firm. Most important, a corporation can sue (and be sued) and buy, own, and sell property as an entity. That is why Chief Justice John Marshall described a corporation as “an artificial being,” one that was “invisible, intangible, and existing only in contemplation of the law.”

Corporations can also merge. Many of the original railroads were local affairs, aimed at solving particular transportation bottlenecks. They were often financed by people living in the neighborhood, who bought their stock, chose their management, and kept an eye on things. But these small railroads quickly merged into larger affairs as they sought efficiency and economies of scale. The New York Central, which originally ran from Buffalo to Albany, parallel to the Erie Canal, was formed in 1853 from the merger of nine local roads.

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