Law and Economics from an Evolutionary Perspective

Law and Economics from an Evolutionary Perspective

New Horizons in Institutional and Evolutionary Economics series

Glen Atkinson and Stephen P. Paschall

Law and economics are interdependent. Using a historical case analysis approach, this book demonstrates how the legal process relates to and is affected by economic circumstances. Glen Atkinson and Stephen P. Paschall examine this co-evolution in the context of the economic development that occurred in the nineteenth and early twentieth centuries as well as the impact of the law on that development. Specifically, the authors explore the development of a national market, the transformation of the corporation, and the conflict between state and federal control over businesses. Their focus on dynamic, integrated systems presents an alternative to mainstream law and economics.

Chapter 3: The corporate form and the state

Glen Atkinson and Stephen P. Paschall

Subjects: economics and finance, economic psychology, evolutionary economics, law and economics, law - academic, law and economics


Throughout the entire eighteenth century in the United States only 355 corporations had been formed (Friedman 1973, p. 166). Most of those corporations were not engaged in business activity but were municipal governments, churches and voluntary, often charitable, associations (Wright 2010, p. 219). The charter for each corporation was the result of special legislation by the state in which the corporation was created. The US Constitution adopted in 1789 made no mention of corporations. The Constitution did, however, protect contractual obligations in Section 10 of Article I where states were prohibited from passing laws impairing the obligation of contracts (US Const. art. I, §10). The application of this clause to corporate charters would be tested before the courts even before the corporate form became the dominant mode of business organization. CORPORATE CHARTER IS A CONTRACT The Supreme Court was called upon in 1819 to rule on the power of a state legislature to change the terms of a corporate charter. Under the leadership of its fourth Chief Justice, John Marshall, the Court would reach a decision which established a baseline for the powers of, and limits on, corporations. This baseline would influence the Supreme Court’s decisions for most of the nineteenth century on the relationship between a state and the corporations domiciled in that state. John Marshall’s service as Chief Justice began in 1801 following on the appointment of John Jay as the first Chief Justice by President Washington in 1789, the resignation of John Jay in 1795 to become Governor of New York, the recess appointment of John Rutledge as Chief Justice by President Washington in July 1795, the refusal of the Senate to confirm Rutledge, the appointment of Oliver Ellsworth in March 1796 to succeed Rutledge and the resignation by an ailing Ellsworth in 1800. In the final months of the Federalist administration of President John Adams before the advent of the Republican administration of Thomas Jefferson, Adams appointed John Marshall who was seated as Chief Justice in time to administer the oath of office to Thomas Jefferson on 4 March 1801.

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