States, Not Nation
Naomi R. Lamoreaux and John Joseph Wallis
When we first started to write the paper that became “Economic Crisis, General Laws, and the Mid-Nineteenth-Century Transformation of American Political Economy,” we called it “States, Not Nation.” That pithier title underscored a key historiographical insight that we wished to convey: that the institutional changes that mattered most for the economic and political development of the United States occurred at the state—not the national—level, and were a product of the mid-nineteenth century, not the founding era. As we revised our paper for publication and responded to comments from referees and other readers, we found ourselves downplaying this issue in favor of others that currently preoccupy historians. The argument is critically important, however, and so we glad to have the opportunity to highlight it here.
Viewed in the context of world history, the United States is one of a very small number of countries that have made the transition from a government organized around personal rules (rules that vary depending on the identity of the individuals to whom they apply) to one based on impersonal laws (laws that apply uniformly to everyone or at least to broad groups of citizens). Most economic and political theory acknowledges either explicitly or implicitly the centrality of this transformation for the development process, but scholars know almost nothing about when and how it occurred. Indeed, most American historians do not even know that politics in the United States was for a long time organized around personal rules and that most of what legislatures did in the first half of the nineteenth century, at both the state and the national levels, was to enact private and local bills on behalf of specific individuals, groups, and localities. Those acts included the special charters for banks and corporations that historians have written about, but they also included many other types of bills. Moreover, despite the scholarly attention devoted to the general incorporation laws that spread in the middle third of the century, these statutes actually did little to curb the practice of granting special charters or other privileges to favored business organizations.
What did bring change was a set of state constitutional revisions initiated by Indiana in 1851 and then adopted by almost all the other states over the next several decades. These revisions typically prohibited legislatures from enacting private, special, and local bills in a long list of categories, including corporate charters, but they went further and mandated that whenever possible laws had to be general and uniform throughout the state. In the wake of these revisions, private, special, and local bills for all practical purposes disappeared. Instead, the bulk of the now greatly reduced legislative output consisted in the first place of general laws and secondarily of measures needed to structure and fund state governments, whose responsibilities were also growing during this period. This growth in state capacity was not coincidental. To the contrary, as we show, the regulatory state was itself largely an outgrowth of the shift to general laws.
These developments occurred entirely at the state level. The federal constitution was never similarly amended, and the features of that document that scholars have lauded, such as separation of powers and the Bill of Rights, did nothing to prevent Congress from enacting droves of special bills. Nor did the Fourteenth Amendment. Although the state constitutional mandates for general laws changed the norms for how governments should operate, reform came only slowly to the federal government. For nearly a century after Indiana’s pioneering provisions, Congress systematically undermined the general laws it enacted by enabling favored individuals and companies to escape their terms through special legislation. Not until 1946, with the passage of the Administrative Procedures and Legislative Reorganization Acts, did Congress make a serious effect to rein in private bills. But even then it did not completely halt the practice, as illustrated by the 1980 Abscam scandal, a sting operation in which several congressmen were convicted of accepting bribes in exchange for private legislation granting asylum to a fictitious sheik.
Our article, which focuses on Indiana’s pivotal constitutional revision, just scratches the surface of what needs to be done to understand the transformation to general laws and its effect on the workings of the economic and political system. To the extent that the historical literature has considered the role of state governments it has been mainly to debate whether the U.S. had a strong or weak state in the nineteenth century. We think this is the wrong question. Governments can be strong in a conventional sense, yet operate on the basis of personal rules. Sustained economic growth and healthy democratic politics require impersonal rules. Historians’ obsessive focus on the federal constitution and national-level developments cannot advance our knowledge of this transformation. What we need instead is a new narrative built up from a foundation of ground-breaking research on the individual states. The work will be difficult because there are many states and as many variations in the way the shift to general laws played out. But it is critical to produce these accounts and to learn how to generalize from them. The payoff from undertaking this still largely unknown history is potentially huge. Can we say the same about another study of the framers?
14 September 2021
About the Authors
Naomi R. Lamoreaux is Stanley B. Resor Professor of Economics and History at Yale University, Senior Research Scholar at the University of Michigan Law School, and a Research Associate at the National Bureau of Economic Research.
John Joseph Wallis is Mancur Olson Professor of Economics at the University of Maryland.
This is a great essay from which I have already learned a great deal, as will everyone else who reads it. Here are a few follow-up questions I would raise, of a quasi-historiographical nature. Vizt:
How would you relate your argument to (a) the suggestive work done by Sarah B. Gordon and Kellen Funk on how ideas of general incorporation procedures arose first in the realm of the disestablishment of religion, starting (I think) with NY; (b) John Larson’s Internal Improvements book, which explains how state-based schemes of internal improvement generally failed; (c) the famous four monographs done by the Handlins, Hartz, Heath, and Scheiber on MA, PA, GA, and OH?
Thanks for these great questions! Yes, the first general incorporation laws were for churches, starting with New York in the 1780s. These were followed by similar acts for other special purposes, such as benevolent associations, educational institutions, medical societies, manufacturing enterprises (starting in New York in 1811), and banks (starting in New York in 1838). The point we would emphasize is that these general incorporation laws did not prevent individuals and groups from seeking more favorable arrangements in the form of special charters. For example, churches sought special acts so that they could exceed the strict limits on real estate holdings and income imposed by the general incorporation law. New York’s 1829 Revised Statutes contains nearly 600 pages listing the special incorporation acts still in force in that year. After the public finance crisis of the early 1840s, five of the states that defaulted and three that almost defaulted (including New York) revised their constitutions to ban special charters of incorporation. What makes the Indiana case so important is that the state’s 1851 constitution banned seventeen additional categories of special laws and then went on to mandate that all laws had to be general whenever possible. By 1900, the idea that legislatures should enact general laws had become the norm, and most others states had revised their constitutions to include similar provisions.
John Larsen’s book on internal improvements is useful, but it focuses on the interaction between national and state attempts to build transportation projects, much as Carter Goodrich did earlier: When proposals for national government involvement, like the Gallatin Report, failed to move forward, the states started up their own projects. This way of thinking discounts the upsurge in state transportation projects in the 1830s that were motivated, not by the failure of national initiatives, but by the financial incentives created by the national government’s public land policies, particularly the states’ ability to tax federal land sold to private individuals after five years. Indiana officials, for example, could see in 1836 that the amount of taxable acreage in the state would more than double by 1841, and their transportation projects were scaled accordingly. After the state defaulted on its debts in 1841, political leaders tried to figure out how to prevent the state from making the same mistake again. Near the top of their lists of reforms was prohibiting the private, local, and special legislation that they thought had blinkered legislators’ vision. These reforms are not part of the history told by Goodrich or Larsen.
We proudly admit we stand on the shoulders of the Handlins, Hartz, Heath, and Scheiber, as well as Goodrich, Benson, and others commissioned by the Committee on Research in Economic History. These scholars’ classic studies are the fundamental starting point for all our work. Addressing the question of whether American policy in the early nineteenth century was laissez-faire, they responded with a definitive NO: The states were incredibly active in promoting and encouraging economic development projects. What these scholars did not go on to study, however, was the transformative effect of the institutional changes of the 1840s and 1850s on the development of the American polity and economy. What we are arguing, and the commonwealth studies did not, is that the states ultimately promoted economic development by requiring legislatures to formulate impersonal rules in the form of general laws, rather than by investing in canals, railroads, and banks.
This is fascinating and useful scholarship. I work for a state Supreme Court, and we frequently encounter doctrines and caselaw implicating the mid-nineteenth century turn toward general laws. One recent case was TOMRA of North America, Inc, v Dep’t of Treasury, 505 Mich 333 (2020), in which the Court addressed the presumption that tax laws were to be strictly interpreted to favor the government with regard to tax exemptions. The Court traced this principle of construction to mid-nineteenth century jurists and political thinks who espoused “equal rights” as against special legislation.
I am no scholar, but I can certainly say that literature like this article is critical for courts to situate the legal principles that still govern to this day.