John Steele Gordon - An Empire Of Wealth by The Epic History Of American Economic Power

Author:The Epic History Of American Economic Power
Language: eng
Format: epub
Published: 2008-04-26T05:59:20+00:00

TH E N EW I N DU STR IAL and trading corporations were increasingly cor-

porate 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 individu-

ally 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 indus-

trial 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 rail-

roads 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 incor-

porated in the British North American colonies. But in just the last four

years of the eighteenth century, 335 businesses incorporated in the new

Doing Business with Glass Pockets � 229

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 incorpora-

tion 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 ser-

vices as well, however.

The corporate form had numerous advantages over partnerships.

Partnerships automatically terminated at the death of one of the part-

ners, 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 cor-

poration 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.

As the railroads became bigger, they also became more remote from

their stockholders, who in turn became much more numerous.

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