5 December 2014
Law and the courts were clearly a factor in American economic development during the antebellum era. Law both helped shape the process and helped determine who gained the most and who lost the most. The transformation of American law 1780-1860 was the most influential. This was most clearly true with respect to law affecting construction of new transportation infrastructure, and settlement and economic development of land west of the Appalachians.
One high profile example had to do with the issue of whether early franchises carried exclusive rights against future competitors. The first great wave of bridges, ferries, and turnpikes built in the new USA in the later 18th century, was typically done through state franchises to private individuals and companies. Sometimes, a franchise gave an exclusive right an individual or company to operate a bridge, ferry, or turnpike in a given area. The terms of the franchise provided that tolls or rates would be charged for using the transportation facility. The income from the user fees was either returned to the person or company operating the facility, or reverted to the state. Although the early transportation franchises were monopolies, the grants of exclusive rights to operate a facility rarely extended over a large geographic area. A study of Ohio in the canal building era, found that the state parceled out franchises to a large number of groups, each of which had exclusive rights that were limited to particular types of transportation and specific geographic areas. As more and more franchises were granted, the law franchises began to evolve. In the 1819 the trustees of Dartmouth College v. Woodward, the US Supreme Court held that a state grant to a private corporation, Dartmouth, was a contract with in the meaning of the US Constitution contracts clause. For that reason, the grant created an obligation on the states’ part not to modify the grant’s terms later. The ruling suggested that unlimited grants of franchises to individuals or corporations gave them legal rights into perpetuity, but Justice Story’s concurring opinion noted that states, when making such grants, could reserve the right to make changes to them later.
In 1837, the Supreme Court, which was then headed by Chief Justice Roger Brooke Taney, handed down its long awaited decision in the Charles River Bridge Case. A majority held that even though a Massachusetts legislature had granted proprietors of the Charles River Bridge an exclusive franchise to build a bridge over the Charles River in Boston, a later legislature could enfranchise a second bridge over that river without violating the contracts clause of the US Constitution. Justice Story, who supported the claim of the first bridge, dissented. Taney’s opinion for the court made much of the fact that no specific exemption from competition by other bridges had been included in the first chapter. Taney argued that such charters carried implied terms, one of which was that they stand in the way of economic progress. The Charles River Bridge decision, like the Dartmouth College one, was essentially pro-development.
In recent decades, much of the legal historical scholarship has been heavily critical of the judiciary’s performance in this era. Judges intentionally and creatively reinterpreted long-standing legal rules so as to facilitate economic development in ways that aided the investor class and harmed the general public. Legal historian Patrick Attiyah has argued that the judges did not really know what they were doing. Attiyah argues that the judges were confronted with radically new conditions and so tried to improvise their way forward. He says that the judges came up with rules that helped the investor class the most, out of a belief that doing so, would benefit the general public in the long run. Horwitz paints the judges work as conspiratorial. While that scholarly debate goes on,…