To what extent did the nineteenth century American private law reflect the interests of the entrepreneurial class?

By Evan Papamichael

In this essay, an analysis of nineteenth century American private law (hereinafter referred to as the law) is proposed. I hope to highlight and support my belief that in several isolated cases the law promoted the public interest, yet overall, the law reflected the interests of the entrepreneurial class, in relation to the intensification of economic growth.

Firstly, what is required is a working definition of entrepreneur. According to the World Book English Dictionary, entrepreneur is defined as “a person who organises and manages a business or industrial enterprise, taking the risk of not making a profit and getting the profit when there is one”. (1971:697). Horwitz (1977:xiiff) argues that by focusing on four areas of the law – tort, contract, property, and commercial law, it is possible to assess the extent to which the law favoured the interests of entrepreneurs; which forms the basis of this paper.

Horwitz (1977:205ff) argues that the first component of the law that reflected the interests of the entrepreneurial class was tort law. In one sense, tort law was used to promote the public interest. Courts of New York refused to permit carriers to contract out of liability, during the period 1830-1849. This point is highlighted by the fact that Justice Cowen, in the case Cole v Goodwin (N.Y.1838), claimed that whatever law has an inclination to favour guilty negligence, is opposed to public policy; such as, “the consequence of allowing the common carrier to throw off or in any way restrict his legal liability” …

The traveller and bailor is under a sort of moral duress… My conclusion is, that [the carrier] shall not be allowed in any form to higgle with his customer and extort one exception and another, not even by express promise or special acceptance any more than by notice.

Horwitz (1977:206) points out that conversely, judicial resistance in New York started to disintegrate approximately 10 years later, in favour of the commercial class. In the ruling made by the United States Supreme Court in the case New Jersey Steam Navig Co. v Merchants Bank, (U.S. 1848), carriers were permitted to limit liability by contract; which influenced future cases. Judges of New York from 1850 onwards allowed carriers to place a restriction on their liability. In some instances courts felt that such a practice was necessary “because of the great importance of the question to a commercial people, especially of uniformity between the courts of the States and Union, in the rules of law regulating commercial transactions”. It was also viewed that if carriers were denied the permission to contract out, it “would … be an unwarrantable restriction upon trade and commerce, and the most palpable invasion of personal right”.

Similarly, Friedman (1973:262), describing the law of tort in nineteenth century America, points out that the law favoured the interests of entrepreneurs. It was intended by the law makers, that this would assist in the growth of businesses. One such doctrine was the fellow – servant rule.

This was the rule that one servant (employee) could not sue his master (employer) for injuries caused by the negligence of another employee. In the law of agency, [however], the principal is generally, liable for negligent acts of his agent. [For], if an inn-keeper’s servants rob his guests, the master is bound to restitution… so likewise if the drawer at a tavern sells a man bad wine, whereby his health is injured, he may bring an action against the master.

Friedman (1973:262) argues that, this rule never applied to the factory and to railroad yard workers. The case, Farwell v Boston and Worcester Railroad Corporation (1842); illustrates this point well. In this case, where an employee lost his hand in an accident at work, Chief Justice Lemuel Shaw argued that the employer in their case wasn’t negligent, since the plaintiff knew how perilous the job was and therefore was aware of the risk involved. Also, Shaw argued that the employee’s income rate consisted of an adjustment for the danger. Therefore the injured workman was denied compensation payment. “The economic impact of railroad accidents was thereby, socialised (or ignored), relieving the lines of one possible heavy cost.”

Friedman (1973:263) argues that there were further inequalities with the fellow – servant rule. Only in the case where an employer’s own personal misbehaviour and not those of fellow colleagues, caused injuries to the employee, was an employee able to sue his employer for negligence. This was difficult when, in mines, factories, and on railroads, any sort of negligent behaviour was usually the behaviour of a fellow colleague; “factory and railroad owners and managers were not usually at the work site at all and every year, corporate masters employed a higher percentage of the workforce.

Hurst (1977:190ff) also points out that in one sense tort law could be used to promote the public interest by promotionally supporting the use of scientific and technical knowledge; which would benefit the public yet, with negligence for example, “the law laid down deliberate policy that society should welcome maximum exploitation of technological competence. “The law favoured entrepreneurs, since an employee who complained of injuries from his employer’s behaviour possessed the burden of convincing the court that the defendant’s use of his property or machinery “be fairly deemed against good order and subject to redress. Such was the ordinary standard applicable in the law of personal injury and of nuisance.”

Horwitz (1977:186) argues that the second component of the law which reflected the interests of the entrepreneurial class was contract law. The courts favoured the interests of the commercial class rather than those of the public, due to the transformation of the law in the nineteenth century. For “in the eighteenth century the subjection of individual bargains to the extensive supervisory powers of courts and juries expressed the legal and ethical culture of the small town of the farmer, and of the small trader,” meaning the public interest. However, the will theory of contract, in the nineteenth century favoured the interests of the commercial class.

Horwitz (1977:186) highlights this point by arguing that under the labour contracts in the nineteenth century (“in which the employee had agreed to work for a period of time – often a year – for wages that he would receive at the end of his term”) the employee was disadvantaged. For the worker could receive no payment for the work he performed if he resigned before the term finished, according to jurists. For it was considered that the contract was an “entire” one, emphasising the fact that it couldn’t be considered as a group of agreements that were more diminutive. The courts also considered that… “since the breach of any part was therefore a breach of the whole there was no basis for allowing the employee to recover “on the contract”. To further discriminate the employees, the judges declared that employees had no right to have the contract re-written and permit the employee himself to regain on quantum meriut for the fair value of his work.

Friedman (1973:158) points out that during the period 1800-1849, that the legislatures intended to provide a balance among all members of society in the area of franchise; “giving every identifiable interest group (geographical ones included) it cut of the pie”, for the construction of a canal or access to the services provided by a bank.

Hurst (1970:19ff) argues that during the first half of the nineteenth century the contract law created by legislatures was intended, to some extent, to promote the public interest. For under franchises members of the public (in the case of them being grantees) were able “to use assets or exact payments or impose burdens on others in ways which would have been either impracticable or illegal or both without the law’s specific sanction. This was evident with the payment of bank notes, which were distributed as a medium of exchange under the law and authority being given for the amelioration of navigation and the construction of dams for power, just to name a few. Although in some instances individuals and/or several unincorporated individuals were granted franchises by legislatures, particularly in the latter case; by the 1850s the issue of bank notes was restricted by statutes, to banks that were incorporated.

Horwitz (1977:110ff) argues that the third component of the law that reflected the interests of the entrepreneurial class was property law. In one sense property law was used to promote the public interest in the early nineteenth century. For a Virginia Supreme Court in 1809 approved an act that was legislative, which rectified the charter of an insurance corporation. In this case:

With respect to acts of incorporation, Judge Spencer Roane observed they ought never to be passed, but in consideration of services to be rendered to the public… it may be often convenient for a set of associated individuals, to have the privileges of the corporation bestowed upon them; but if their object is merely private or selfish; if it is detrimental to, or not promotive of, the public good, they have no adequate claim upon the legislature for the privileges.
Horwitz (1977:112) point out that the interests of the entrepreneurial class were protected, to some extent, at the time. In 1806, a Massachusetts Supreme Court recognised for the first time the “private nature” of the new turnpike corporation. By attempting to disregard the long history of state laws of the activities of municipal corporations, the court claimed that “the rights legally vested in this, or in any corporation, cannot be controlled or destroyed by any subsequent statue, unless a power for that purpose be reserved to the legislature in the act of incorporation”.

Horwitz (1977:111) argues that legislatures in the nineteenth century distinguished between public and private interests to the advantage of the latter. Private investment was at first, considered part of the government’s promotion of economic policy. Yet, it was confronted with difficulties since “previous state concessions to private interests had come to represent obstacles to continued growth” …yet… “for the first time state efforts to encourage economic growth began to diverge from private efforts to preserve existing legal expectations. Statutory rules that permitted certain uncompensated injuries to property replaced the previous exclusionary and monopolistic view of property. From this “the legal presumption in favour of competition emerged full blown”.

Friedman (1973:216ff) further emphasises this by arguing that property law reflected the interests of the entrepreneurial class, to some extent. For… “businessmen and creditors were not without resources. They appealed, sometimes successfully, to the law for protection.

Horwitz (1977:247ff) argues that the fourth component of the law that reflected the interests of the entrepreneurial class was commercial law. Commercial law in early nineteenth century America, to some extent promoted the public interest. For certain decisions made in courts, in the 1820s, “to enforce a conflicting law of another jurisdiction,” … “arose not because the law had any “intrinsic force” of obligation but from “motives of public policy”.

Conversely, Horwitz (1977:245ff) points out that the interests of the entrepreneurial class were reflected in the law, particularly from 1842 onwards. In the case Swift v Tyson (1842), the Supreme Court held that “the rule that in the exercise of its diversity jurisdiction, the federal judiciary was not bound by state judicial decision but rather was free independently to decide a case on the basis of “the general principles of commercial law”.

Horwitz (1977:245ff) argues that the case Swift v Tyson (1842) transformed American commercial law, in the sense that judges when deciding cases, didn’t have to take into consideration the public interest “it proclaimed the rule that in the exercise of its diversity jurisdiction, the federal judiciary was not bound by state judicial decision but rather was free independently to decide a case on the basis of “the general principles of commercial law”.

Horwitz (1977:247ff) points out that a court in one particular state was permitted to disregard the law enacted, by a magistrate from outside his territory; where the decision was “prejudicial to its own interests”. Similarly, Friedman (1973:231) describing commercial law in 1842, argues that the law was to some extent unified, to enable a single piece of law to be formed under federal hegemony. Swift v Tyson (1842) made this possible, for the court in this case decided that “federal courts, in ordinary commercial cases, had the right to apply the “general” law of commerce, even if this was different from the law of the state in which the court was sitting and even if no “federal question” was presented, and the case came to a federal court solely because plaintiff and defendant were residents of different states.”

Hurst (1956:45ff) also points out that commercial law in nineteenth century America reflected the interests of the entrepreneurial class. Congress was awarded with commerce power, which… “involved some displacement of state power. Here, economic growth would be promoted by the courts (by setting aside state legislation) in favour of the entrepreneurs.

Hurst (1956:49) argues that such action was significant since:

The power to construct, or to authorise individuals or corporations to construct national highways, and bridges from state to state, [was] essential to the complete control and regulation of interstate commerce. Without authority in Congress to establish and maintain such highways and bridges it would be without authority to regulate one of the most important adjuncts of commerce”.

It appears that to a substantial extent the law reflected the interests of the privileged class, namely the entrepreneurs; for they benefited from the increased wealth gained from the promotion of economic growth. In the light of this, perhaps the law makers of the time hoped that by taking such action “America” would benefit in the long run and eventually be transformed into the economic giant that it has become in the twentieth century.

BIBLIOGRAPHY

1. Friedman, L.M. 1973. A History of American Law. Simon and Schuster, New York.

2. Horwitz, M.J. 1977. The Transformation of American Law 1780-1860. Harvard University Press, Boston.

3. Lurie, J. 1979. The Chicago Board of Trade 1859-1965: The Dynamics of Self-Regulation. University of Illinois Press, Chicago.

4. Hurst, J.W. 1965. The Growth of American Law: The Law Maker. Little, Brown and Company, Boston.

5. Hurst, J.W. – 1972. Law and Social Order in the United States. Cornell University Press, New York.

6. Hurst, J.W. 1956. Law and the Conditions of Freedom in the Nineteenth-Century United States. The University of Wisconsin Press, Madison.

7. Hurst, J.W. 1970. The Legitimacy of the Business Corporation in the Law of the United States 1780-1970. The University Press of Virginia, Charlottesville.

8. Letwin W. 1965. Law and Economic Policy in America: The Evolution of the Sherman Antitrust Act. Random House, New York.

9. The World Book English Dictionary: Volume I A-K. Doubleday and Company, Inc. Chicago, 1971.