The Transformation of American Law, 1780-1860
Morton J. Horwitz, 1977

When I was a grad student, I read a lot of books for my Comprehensive Exams, which had a fairly extensive take-home written component followed by an oral exam. I got in the habit of making lots of notes for my own purposes, which I continued even after I had passed the exams. Some of this content on Horwitz began life as part of my review of one of the most consequential books I read in grad school.

Horwitz argued a fairly radical case, which may not have received wide enough public recognition due to the subject matter and style. Law students and legal historians read the book, but the message deserves a wider audience. He said “
I seek to show that one of the crucial choices made during the antebellum period was to promote economic growth primarily through the legal, not the tax, system, a choice which had major consequences for the distribution of wealth and power in American society.” This might be slightly expanded to note he also implied that changes were being made to the regulation of businesses that were not debated by legislatures. There was not really any representation of the people's voice, as one might expect in a democracy. Horwitz also had some interesting ideas about legal history, saying “the internal technical life of a field generates autonomous forces that determine its history.” We make a mistake, he was saying, if we fail to account for the activities and interests of lawyers, judges, the legal profession, law schools, etc., when looking at how “the law” influenced history. The same could probably be said, with equally interesting results, for religion, medicine, or the study of history itself.

Horwitz focused on Common Law. Constitutional law, he said, “represents episodic legal intervention buttressed by a rhetorical tradition that is often an unreliable guide to the slower (and often more unconscious) processes of legal change in America.” In other words, although they get more attention, Supreme Court decisions are not the way most change has been affected in our history. Constitutional law also focuses on judicial review, rather than what Horwitz characterized as a very active, constructive, legislative role taken on by nineteenth century jurists. “By 1820,” he said, “the process of common law decision making had taken on many of the qualities of legislation. As judges began to conceive of common law adjudication as a process of making and not merely discovering legal rules, they were led to frame general doctrines based on a self-conscious consideration of social and economic policies.” They knew they were charting new territory and making it up as they went. The ancient tradition of “an eternal set of principles expressed in custom and derived from natural law” gave way to an understanding of law as “an instrument of policy” that could be used “for governing society and promoting socially desirable conduct.” Once this change had been made, the game became one of defining the terms “socially desirable.”

The major examples Horwitz used to illustrate this change surround the competing uses for water (mill power, irrigation, navigation, fishing), which illustrated the problems inherent in “a conception of ownership [including] a commitment to absolute dominion.” Ted Steinberg expanded on this theme in his 1989 dissertation, supervised by Horwitz, Donald Worster, and David Hackett Fisher, which became the book
Nature Incorporated. There was a problem in a newly-settled land, respecting the concept that “first in time is first in right” (in addition to the obvious problem that white settlers were not “first in time”). And resources’ “natural use” came to be seen as a lowest common denominator, that might block socially desirable improvements like the creation and operation of water-powered mills. The problem was, it was a pandora’s box. While it made some sense to grant initial exclusivity to a developer (how many grist mills did a new town need?), Horwitz asked, “can the claims of still greater efficiency through competition be denied?” He didn't fully examine whether the “greater efficiency” ever really produced its claimed social benefits (or even existed, other than as short-term paper gains) -- but maybe the people at the time didn’t ask these questions either. The point is that “By changing the rules and disguising the changes in the complexities of technical legal doctrine, the facade of economic security can be maintained even as new property is allowed to sweep away the old.”

This was Horwitz’s major point. The legal system, he said, was used to not only change the rules of the game to benefit an increasingly elite class, but also to
hide the fact that these changes were being made. This is a great and very radical argument. What it needs to reach a wider audience, I think, is some people in the story to show how it happened and how people reacted, assuming anyone on the short end of the transaction knew it was happening. This raises an interesting question: how do we tell stories about things we now see were happening, but about which people of the time were unaware? Because the evidence was hidden, or they just didn’t see things the way we do.  Especially when people knew something was wrong, but couldn't quite put their finger on it -- or blamed it on the wrong cause?  The story isn’t just about unintended consequences, it’s about misunderstood consequences.

Horwitz says the Massachusetts decision in Cary v. Daniels, a landmark case regarding the use of rivers that is seen as a turning point in US property law, was “premised on the desirability of maximizing economic development even at the cost of equal distribution.” This opened the door for the courts to direct business toward their idea of the public good and “enabled common law judges to choose the direction of American economic development,” at least when it came into contact with older legal ideas of property and equity. I wonder how people at the time responded to these changes; maybe one place to look would be at the “storm of bitter protest” Horwitz described, caused by the “extension of the mill act to manufacturing establishments.” Apparently there were people who saw through the claimed similarities in the use of water power from old-fashioned grist mills to textile factories and argued that while early mills had been almost communal in nature, “manufacturing establishments were private institutions.” Citizens distrusted the law’s provisions for relief, arguing “Generally, the mills and mill seats are in the hands of the active and wealthy -- able to make the sufferers repent, if they resort to the law.”

One of the state’s main economic development tools was eminent domain. But tied up with it were the ideas of chartered monopoly and of limited liability. A State grant is no good if “the grantee cannot exercise it without being subject to ruinous damages, so as to swell the cost of their enterprise” beyond its ability to make a profit, one commentator warned at the time. Rather than examining whether these social costs really should have prevented the businesses going forward (which would have been especially interesting in the case of railroads in the 1840s-60s), Horwitz said the courts socialized “consequential damages.” This enabled them to disqualify them, under the legal justification that “The law gives no
private remedy for anything but a private wrong” (quoting Blackstone). So the costs were socialized (in economic terms, externalized) at the same time the benefits were privatized in the form of corporate profits. Horwitz didn’t say much about decisions to do projects like canals and railroads in the private rather than the public sector, but it would be interesting to understand how this choice was made in America.

Over the course of the nineteenth century, Horwitz said the basic “attitude toward legal liability” became “based on the assumption that the ‘quiet citizen must keep out of the way of the exuberantly active one.’" He continued, "Indeed, the law of negligence became a leading means by which the dynamic and growing forces in American society were able to challenge and eventually overwhelm the weak...After 1840 the principal that one could not be held liable for socially useful activity exercised with due care became a commonplace in American law.” The effect of this change was “to create immunities from legal liability and thereby to provide substantial subsidies” to developers. “Change brought about through technical legal doctrine,” Horwitz said, “can more easily disguise underlying political choices [than] Subsidy through the tax system.” Horwitz said “there is reason to suppose” that this “was not simply an abstract effort to avoid political contention but that it entailed more conscious decisions about who would bear the burdens of economic growth.” This is a really interesting claim, which I'm inclined to believe. To convince the part of the world that's not pre-disposed to think this way, it needs to be backed up, I think, with some evidence that actual people made this decision at the time. A smoking gun of some sort.

“In every state after 1790,” Horwitz said, “a political decision to avoid promoting economic growth primarily through taxing seems to have crystallized.” Shays's Rebellion and the Whiskey Rebellion probably helped that crystallization, as well as recognition that there wasn’t really a whole lot of money out there to
get through taxing beyond that of the wealthy. Horwitz continued, “By 1800 a pattern of private ownership of banks, insurance companies, and transportation facilities had become dominant in America.” Again, the question is why? Attributing the change in definition of corporations (from quasi-public institutions fulfilling public needs to private, for-profit businesses) to an individualist spirit seems to put the cart before the horse, since early corporations “continued to argue both that their charters were grants of exclusive property interests and that economic rivalry was, in effect, a private law nuisance to property.” This seems like a blatantly opportunistic attempt to have your cake and eat it too: the corporations were capitalizing on their status as something in between public and private, with the benefits of both. But the question is, how did corporations get from the 18th century definition of a public body (like a municipal school or hospital) working for the public good, to the 19th century definition of a private company doing business to produce profit for its investors?

Horwitz further said “eighteenth century...contract law was essentially antagonistic to the interests of commercial classes,” because it sought to judge the underlying fairness or justice of the exchange in question. But ironically, the argument for judging contracts objectively on their terms was based on a claim that value was subjective and circumstantial. Promissory notes were being increasingly used in place of cash, and “in order to make notes negotiable a subsequent endorsee [must] be allowed to recover on the note regardless of the consideration between the original parties.” This removed any other terms or conditions from exchange aside from price, because the other potential obligations couldn't be easily transferred. The same-as-cash nature of the note enabled “merchants to exclude the question of the equality of a bargain by transacting their business through promissory notes,” and excluded the courts from playing a role in judging the fairness of a transaction. The dollar-denominated contract became an authority unto itself, and was no longer seen as part of a tradition of dealings based on just prices or practices. 
This is a missing link in the market transition story -- many historians assume the change required a move to a cash-based, spot market. Horwitz showed the market could be depersonalized and objectified even before it stopped being based on long-term, credit relationships.

Contract law changed the laborers’ world through the “doctrine of ‘assumption of risk,’ [in which] contract ideology...emasculated all prior conceptions of substantive justice.” Patricia Limerick would later have a lot to say about assumption of risk in western employment agreements between mine owners and workers. The fiction of “equal bargaining power inevitably became established as the inarticulate major premise of all legal and economic analysis. The circle was completed: the law had come simply to ratify those forms of inequality that the market system produced.” Actually, though, it's worse than that. A “Free Market” might not have been able to produce all this inequality if it had been truly free. The fact that some people had a leg up over their competitors and critics through the law probably had a lot to do with creating the results we now imagine as inevitable.

Returning to the issue of negotiable notes, Horwitz pointed out that common law not only established rules allowing “subsequent innocent purchasers” to collect on the notes regardless of any defects in the original deal, but it allowed “the legal system [to] sanction private arrangements whose effect was to increase the supply of money by allowing individuals to agree to substitute their own notes for currency designated by the state.” This has interesting implications for the pace and distribution of economic development. After Andrew Jackson’s specie circular, for example, currency was in short supply and high demand. Growth would have been much slower and demand for state money creation would have been more urgent, if people like the upstate New York merchants whom I studied in my dissertation had not been able to do business using notes. But I wonder, how much was “the law”
making policy? Couldn’t it also be argued that these people were making policy, and “the law” was just trying to keep up with them? Who actually had the agency -- who was in the driver’s seat -- seems to be a major unanswered question here.  Massachusetts Chief Justice Theophilus Parsons’ 1808 remarks seem the suggest the law was following rather than leading. “The circulation of negotiable paper,” he said, “is extremely useful to trade, as it multiplies commercial credit, and the notes pass form man to man as cash. Any rule of law, tending unnecessarily to suppress this circulation, is therefore against public policy.”

Horwitz concluded his book by describing the “rise of legal formalism” in the 1840s and 50s. “If a flexible, instrumental conception of law was necessary” to promote economic development, “it was no longer needed once the major beneficiaries...had obtained the bulk of their objectives,” he said. In fact, just the opposite. The law needed to become
and be seen as “self-contained, apolitical, and inexorable;” built on scientific logic and practiced by professionals. Having used it to get to power, Horwitz said, the ruling class used legal formalism as a way of “disguising and suppressing the inevitably political and redistributive functions of law.” This is a startling conclusion, if a reader came to this book thinking the law was actually ever apolitical or objective. Horwitz showed how an emerging elite used and changed the law to facilitate its own rise, although unfortunately he left the names and faces out of the story. Horwitz believed recent historians had been “more concerned with finding evidence of governmental intervention than they were in asking in whose interest these regulations were forged.” His book suggests whom some of the targets of further inquiry should be. It would be interesting to explore whether it can be proved these people acted consciously, and how they and society at large understood their actions and the changes that resulted.