Liberty Lost: Antebellum America’s Independent Sector
By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University, Sioux Falls, SD, for the Dartmouth College Decision Bicentennial Conference, University of Oklahoma Law School, Norman, OK, 14-16 November 2019
Historian Peter Dobkin Hall once claimed
that “historians have tended to ignore the nonprofit
sector.” This paper, by contrast, centers
non-profits in early America’s business, economic, and political history. First,
it argues, on the basis of ongoing data collection, that non-profit
corporations were at least as numerous as for-profit corporations formed by
special act of incorporation in the U.S. between Independence and the Civil War
and sketches the numerous socioeconomic problems addressed by the Third,
Independent, or Nonprofit Sector in the antebellum period. Second, it shows
that voluntary association, not the right to vote in political elections, grounded
early Americans’ conception of democracy and good governance. Third, it argues
that the right to voluntarily associate drove US economic growth and
development.
De Tocqueville
was right to consider antebellum America a nation of joiners. As I showed in Corporation
Nation and the accompanying database, “US Corporate Development, 1790-1860,”
available online at the Magazine of Early American Datasets (2015), between
the Revolution and the Civil War, several hundred thousand Americans joined
together to charter over 22,000 for-profit corporations by act of special
incorporation, plus thousands more by means of general incorporation. Over a
million different Americans owned at least one share of corporate stock over that
period.[1] Most tellingly, perhaps, Kevin
Butterfield shows that the legal knowledge needed to associate and incorporate,
i.e., to write lawful charters and by-laws, was widespread.[2]
My RAs continue
to collect data on specially-incorporated non-profit corporations but thus far
non-profits are holding their own. Consider the following table, which shows
that the total number of non-profits that received special charters exceeded
for-profits in eight of the 12 sampled states and only slightly trailed for-profit
formation overall, mostly due to Indiana and Vermont:
|
STATE
|
FOR-PROFITS
|
NON-PROFITS
|
|
Arkansas
|
83
|
110
|
|
California
|
11
|
42
|
|
Delaware
|
153
|
174
|
|
Georgia
|
506
|
621
|
|
Iowa
|
24
|
54
|
|
Indiana
|
602
|
310
|
|
Kentucky
|
1,151
|
898
|
|
New Mexico
|
9
|
9
|
|
Oregon
|
55
|
69
|
|
South Carolina
|
256
|
754
|
|
Vermont
|
663
|
311
|
|
Washington
|
11
|
26
|
|
TOTAL
|
3,524
|
3,378
|
SOURCE: PRELIMINARY DATA based on
the state statutes in the Hein Collection coded from microfiche.
Some
types of nonprofits in some states also enjoyed access to general
incorporation. In fact, nonprofit general incorporation acts for churches preceded
for-profit ones for manufacturers and banks by several decades and the relative
dearth of specially-chartered nonprofits in Vermont and Indiana appears
attributable to their early penchant for passing general incorporation laws for
the most common types of non-profits.
Even
more interestingly, perhaps, the variety of nonprofit organizations that
incorporated was truly astounding and overlapped both the for-profit and
government sectors. Although most non-profits were charities, almost any
enterprise, from lenders to military units, could be, and were, organized as
non-profits. Although some Americans feared the power of non-profit
organizations, like that of the Freemasons, relatively free entry meant that unduly
large or powerful groups could be checked via other non-profits, just as the
American Wine Growers Association offset the temperance movement in the 1850s.[3] Non-profits also could be
found on both sides of the colonization and slavery issues. In addition,
intense competition in spiritual services helped to make, and keep, America a
religious nation.[4]
As the
authors of America’s first legal treatise on corporations put it in 1831,
“these associations we not only find scattered throughout every cultivated part
of the United States, but so engaged are they in all the varieties of useful
pursuit, that we see them directing the concentration of mind and capital to
the advancement of religion; to the diffusion of literature, science and the
arts; to the prosecution of plans of internal communication and improvement;
and to the encouragement and extension of the great interests of commerce,
agriculture, and manufactures.”[5] De Tocqueville also
marveled at the “thousand other kinds” of corporations antebellum Americans
formed, “religious, moral, grave, futile, very general and very particular,
immense and very small.”[6]
Some
scholars, deeply imbued with the tenets of statism, have tried to usurp the
Third Sector into their narratives of American state development by casting
voluntary associations as appendages of government. Alas, many non-profits became
wards of the state in the second half of the twentieth century but in
antebellum America the reality was just as John Marshall noted in his Dartmouth
decision, that the corporation “is no more a state instrument, than a natural
person exercising the same powers, would be.”[7] Overall, the decision
re-affirmed the independence of non-profits and the existence of a Third or
Independent Sector distinct from government.[8]
In
fact, for- and non-profit voluntary associations, formally incorporated or not,
were central to the causal web that catapulted America from colonial to
superpower status in the century following adoption of the Constitution. That
frame, as implemented by Alexander Hamilton during his tenure at Treasury, credibly
promised not a frail and worthless fabric but an energetic national government
strong enough to defend Americans’ core rights triad of life, liberty, and
property from foes foreign and domestic, including the national government
itself. Fairly well understood now is the importance of Hamilton’s policies for
basic government stability: a scientifically-based revenue tariff, supported by
a voluntary association known as the Bank of the United States, serviced the
nation’s Revolutionary war debts, including those incurred by the several
states, which Hamilton transformed into easily traded federal bonds that cemented
the interests of bondholders to the still new and hence fragile national
government.[9]
Greatly increased
bond prices provided impartial evidence that the new government’s policies were
functional, rational, and non-predatory. Price collapses in 1791 and 1792 only
returned them to their fundamental value, greatly augmented by Hamilton’s
sundry policies. Prices gathered from newspapers and broker account books show
that they settled at yields generally above those of British Consols and Dutch
bonds, but below those of most other advanced nations, and far below what
holders of Revolutionary War debt had required before passage of the
Constitution and Hamilton’s reforms.
Hamilton’s
bonds were long-term debt obligations, not short-term loans, which the Bank of
the United States provided when necessary. They traded regularly and internationally,
so there is no way to get around the fact that they represented the expectation
that the new republic would not just survive but thrive. Clearly, Hamilton’s
fiscal apparatus impressed investors, but it would have come to naught had the
nation splintered. Ditto the collateral implicit in western lands. The
Constitution’s explicit checks and balances, as brilliantly explicated in the Federalist
Papers, further strengthened the expectation that the new government was
viable in the long-term.[10]
What
scholars have forgotten, however, is the crucial context provided by the Constitution’s
Preamble, which promised a national government that would establish justice,
ensure domestic tranquility, provide for the common defense, promote the general
welfare, AND secure the blessings of liberty to posterity. AND, not OR, secure eternal
liberty. Of course that raises the question of what members of the Founding
generation meant by liberty, a topic that has consumed many a tree and joule. As
an economic historian, I like to operationalize such issues by distilling them
to an empirical essence, as I just did by reducing complex debates about
Hamilton’s fiscal reforms to the path of bond prices and yields.
At its
essence, liberty for early Americans meant the ability to address socioeconomic
problems voluntarily, as individuals, unincorporated assemblies or
associations, or incorporated organizations driven by motives of profit,
service, or both. Local, state, and national governments might also attempt to
ameliorate such problems, to wit to promote the general welfare, but not at the
expense of liberty and its many blessings.
Representational
democracy, the founding generation understood, was fraught due to agency, time
inconsistency, and space inconsistency problems. Representatives may act in
their own interests instead of the interests of their constituencies, whose
preferences are never homogenous and can change, sometimes rapidly, over time
and place. Dates and districts influence election results in profound and
potentially capricious ways. The loudest or richest can drown out the wishes of
the too silent, too busy, or too rationally ignorant majority. Unlike jurors,
those willing and able to serve, especially in national office, are not peers
of the median voter but elites bound, whether they admit it or not, to serve
the interests of other elites. And even when it flawlessly represents the
desires of the majority, representational democracy still threatens to tyrannize
the minority, be they members of a small group of dissenters or an entire race,
religion, or gender. Minorities also face the possibility that government will
neglect their needs, leaving them without organized recourse, unless, that is,
they enjoy the liberty to voluntarily associate.
For the
founding generation, the solution to those and other shortcomings of
representational democracy was to limit the scope of government and rely on relatively
open access voluntary association to ameliorate most socioeconomic problems. Many
agreed that voluntarism constituted a better form of democracy than any type of
representational democracy ever could as it allowed each individual, man,
woman, and child, to decide if, when, how, and to what degree, to support sub-republics
dedicated to addressing specific problems.
Importantly,
corporations, especially non-profit associations, were more fraternal than
paternal. They worked through mutual aid instead of force. “The true idea of
government of the people,” Bostonian Samuel Eliot explained in 1845, “is that
of an association, the members of which are ready to aid each other not merely
in the attainment of those objects in which they have a common interest, but
also to reach such as may be particularly desirable to only one or two of the
number.”[11]
In more
concrete terms, if some people wanted to reduce travel times between A and B,
they might try to use the power of government to tax the people of C and D to
pay for bridges, roads, and so forth, but C and D might do likewise to A and B,
raising everyone’s taxes to create infrastructure improvements of dubious
quality or necessity. Instead, people in A and B could form a corporation and try
to induce investors or donors to voluntarily fund construction of the desired
improvements. If connecting A and B was not merited by economic conditions,
investors or donors would be few and the corporation would dissolve, as many
did. If connecting the two places was inexpensive and would increase commerce,
investment or donations would flow in, perhaps even from C and D and beyond. No
coercion required, or desired. The same logic applied to banks, insurers,
mines, manufacturers and sundry other enterprises clearly commercial, as well
as to cemeteries, libraries, parks, and all other goods not clearly public, by
which I mean nonexcludable and nonrivalrous, in nature. Most contemporaries,
from Adam Smith to Samuel Eliot, believed that voluntary associations were more
efficient than governments across a broad spectrum of activities because
tighter budget constraints required them to be.[12] Unlike governments, they could
not force people to fund them but rather had to persuade them of the
profitability or utility of their activities.
The logic
of voluntarism also held for social problems where pecuniary profit was clearly
not to be had, as in charity and missionary work. In the non-profit realm, organizations
competed for the material resources needed to carry out their missions. Surviving
institutions managed to elicit numerous small donations, the strenuous
exertions of a few devotees, or something in between. They were essentially
voting schemes weighted by dollars, and hence capable of achieving much more
than the simple up or down, yes or no voting schemes used in most
representational democracies.
None of
this is to say that voluntarism worked perfectly. Far from it. Speculators
sometimes bilked investors while worthy supplicants wallowed in want, the wolf
of hunger at their door, because nobody felt moved to aid them. While the
profit motive ensured that few worthy commercial projects went unfunded, free
riding, the incentive to allow someone else to bear the costs of social problem
amelioration, meant that non-profits were not as prolific as they could or
should have been. A strong sense of Christian charity, the relegation of half
of the free adult population to the non-profit corporate sector, and innovative
fundraising techniques, though, served to reduce free riding in the period
before the Civil War.[13]
Due to
the impoverished state of the historiography of the US economic growth miracle,
which wrongly, and wrong-headedly, now attributes growth to slavery, the
opposite of liberty, it may be difficult to persuade listeners that voluntarism
undergirded the sustained increases in real per capita output that America
experienced before the Civil War. But I will try anyway and for details urge
you to read my first ten or so books, or at least my 2017 The Poverty of
Slavery and various article-length summaries of my application of incentive
growth theory to antebellum America.[14]
In a
nutshell, economic growth boils down to individual incentives. What percentage
of the population wakes up thinking “how can I work harder, longer, and
smarter?” compared to the percentage that wakes up thinking “what is the
minimum I have to do today to make it to tomorrow?” compared to the percentage
that wonders “how can I steal resources from other people?” Slaves and white
trash asked the second question, while slaveholders and a small group of
Northern businessmen asked the third. Each of those groups contributed to
economic output, but not to economic growth, not to increased productivity per
person. The third group, in fact, reduced growth by inducing more people to ask
the second question instead of the first.
Antebellum
America grew rich because most white men and women in the North enjoyed
incentives that induced them to ask the first question. Those incentives were
the root of Yankee ingenuity, the vigorous spirit of enterprise, and the
Benevolent Empire upon which so many observers, foreign and domestic, remarked.
Northerners rightly believed that limited governments would protect their
rights triad so if they made physical or mental exertions that increased their
incomes or utility, they would be able to reap, and keep, just their just
rewards. Many tried, and most failed, but a few came up with the right
contraption or innovation at the right time and are now household names or at
least extolled in the pantheons of business and non-profit history. And even
those who failed provided valuable information about what not to do. Many made
multiple attempts before achieving a modest competency that, in aggregate,
added up to productivity increases that exceeded those of business history
heroes like Evans, Fulton, McCormick, Vanderbilt, or Whitney, or non-profit
heroes like Douglass, Everett, Mott, or Stanton.
Note that
incentives were the key, not gender, race, religion, or section. Poor whites
and slaves were not inherently dumb or lazy, as those who managed to escape to
the North repeatedly showed. Some Northerners with access to government
subsidies, limited as they were at the time, were just as intent on stealing
the labor of others as any slaveholder. Indians working on their own account
labored just as mightily and ingeniously as any Boston mechanic or Philadelphia
shopkeeper until it became clear that national and state governments would not
protect their rights triad, inducing them to ask question 2 or 3 instead of 1.
Northern
whites, though, rightly felt protected by their racial privilege as well as the
assumption of limited government embedded in the liberty of voluntary
association promised in the Constitution, including its Preamble. Taxes might
increase due to wars, territorial acquisitions, or the few other clear
responsibilities of the federal government, but they knew the burden would be
spread, using the tools of Hamiltonian finance, over decades. With the domestic
price level tied to international gold and silver prices, a sustained bout of
inflation like that suffered in the colonial and Revolutionary periods also
seemed unlikely. Any attempts at overreach, like the Alien and Sedition Acts or
the American System, would be quickly squelched by the First Amendment and
elections, and, in the breach, by the Second Amendment.
Personal
and familial responsibility remained virtues but large, complex problems were
best met by voluntary association. Commercial problems regarding credit or
manufacturing could be ameliorated by for-profit corporations, while
non-profits combated social ills like ignorance, insobriety, and poverty in
equally localized and nuanced ways. The world remained imperfect but only
because of the nature of reality, not the incapacity of government, as shown by
its inability to improve much, if at all, on the efforts of voluntary
associations in most realms as Americans ceded their original liberty to
government by degrees during each of its major wars, beginning with the uncivil
one that transformed chattel into modern slavery.[15]
Thank you!
Notes
[1] Robert E. Wright, “For-
and Non-Profit Special Corporations in America, 1608-1860,” in Harwell Wells,
ed., Research Handbook on the History of
Corporate and Company Law (Northampton, MA: Edward Elgar Press, 2018):
480-509.
[2] Kevin Butterfield, The Making of Tocqueville’s America: Law and
Association in the Early United States (Chicago: University of Chicago
Press, 2015).
[3] Jed Dannenbaum, Drink
and Disorder: Temperance Reform in Cincinnati from the Washington Revival to
the WCTU (Chicago: University of Illinois Press, 1984), 135-36, 147.
[4] Robert E. Wright, “Godly
Nonprofits: Extending the Porterfield Thesis,” in Anthony R. Cross and Greg
Forster, eds., Human Flourishing (Wipf and Stock, 2020), forthcoming.
[5] Joseph K. Angell and
Samuel Ames, A Treatise on the Law of Private Corporations Aggregate
(Boston: 1832), iii.
[6] Alexis de Tocqueville,
trans. Harvey C. Mansfield and Delba Winthrop, Democracy in America
(Chicago: Chicago University Press, 2000), 489.
[7] Trustees of Dartmouth
College v. Woodward, 17 US 4 Wheaton, 518 (1819), at 636.
[8] Robert E. Wright,
“Corporate Social Responsibility and the Rise of the Non-profit Sector in
America,” in Will Pettigrew and David Smith, eds., A History of Socially Responsible Business, c. 1600-1950 (New York:
Palgrave Macmillan, 2017), 117-36.
[9] Robert E. Wright, One
Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe (New
York: McGraw-Hill, 2008); Richard Sylla, Alexander Hamilton: The Illustrated
Biography (New York: Sterling, 2016); Kate Brown, Alexander Hamilton and
the Development of American Law (Lawrence: University Press of Kansas,
2017).
[10] Wright, One Nation;
Sylla, Alexander Hamilton.
[11] Samuel Atkins Eliot,
“Public and Private Charities in Boston,” North American Review (1845):
139.
[12] Adam Smith, Wealth of
Nations, Book V, Chap. 1, Part II, Article 1 “Of Public Works and
Institutions Which Are Necessary for Facilitating Particular Branches of
Commerce”; Eliot, “Charities,” 149.
[13] Wright, “Godly
Nonprofits.”
[14] Robert E. Wright, The Poverty
of Slavery: How Unfree Labor Pollutes the Economy (Cham, Switz.: Palgrave,
2017); Robert E. Wright, “Economy and Economic Policy,” in Christopher Bates,
ed., Encyclopedia of the Early Republic and Antebellum America (New
York: M.E. Sharpe, 2010), 1:13-22; Robert E. Wright, “Financing U.S. Economic
Growth, 1790-1860: Corporations, Markets, and the Real Economy,” in Peter
Rousseau and Paul Wachtel, eds. Financial
Systems and Economic Growth: Credit, Crises, and Regulation from the 19th
Century to the Present (New York: Cambridge University Press, 2017),
76-104.
[15] Robert Higgs, Crisis
and Leviathan: Critical Episodes in the Growth of American Government, 25th
Anniversary Ed. (Oakland: Independent Institute, 2012).
