Taxing Conditions: The Fiscal Interest of the State and the Rise of Modern Corporate Law in America
Abstract
In 1896 New Jersey passed the first modern corporate law, enabling capitalists to reduce ruinous competition by consolidating industries. Existing sociological explanations of the transformation of corporate law argue that the actions of powerful interests interacted with historically specific events, including bad public infrastructure investments, anticorporate agitation, and depressions, creating a critical juncture that privatized the corporation and from which the law developed path-dependently. But these conditions did not occur in New Jersey. To understand why modern corporate law still emerged there, this article examines a longitudinal sample of 28 failed and successful attempts to change its corporate law. Combining original datasets of laws, legislative bills, votes, and corporations, with existing tax data, this article shows that corporate law changed less because of historically specific conditions than because of how the law served the interests of political and economic incumbents. Corporate law was more contested than previously recognized, but attempts to change the law that ran counter to economic incumbents’ interests only succeeded when political incumbents were not invested in those laws through the tax revenue they provided. The fiscal consequences of corporate laws connect the political and economic fields and operationalize the conditions for path-dependency.
Draft [under review]
Capitalists, Farmers, and Politicians: Explaining the Adoption of Permissive and Restrictive Corporate Laws in the U.S.
Abstract
What makes states pass laws favoring one economic class or actor over another? Using data on the passage of permissive and restrictive corporate laws in American states from 1888 to 1910, this article tests the hypotheses that states passed laws serving capitalists’, farmers’ and politicians’ interests. Event history analysis finds that states with a large share of farmers were more likely to pass the restrictive antitrust laws they advocated, regardless of their organization into social movements or representation in populist parties. In contrast to the hypothesized effect, capitalist interests made states more likely to pass restrictive antitrust laws, indicating that these were a reaction to capitalists efforts to limit competition. But capitalists’ interests also made states more likely to pass permissive laws allowing corporations to own each other, while farmers had no effect on these laws. In the core states of the Midwest and Northeast, revenues from taxing business made states less likely to pass restrictive laws and in the entire US more likely to pass permissive laws, confirming the hypothesis that these revenues made politicians invested in permissive laws. But that business taxes made peripheral states more likely to adopt antitrust laws indicates that the fiscal mechanism should be understood in a wider context. I conclude by discussing potential explanations for the regional differences in the fiscal mechanism.
[in preparation]