Advanced Search
MyIDEAS: Login

Constitutions, Corporations, and Corruption: American States and Constitutional Change

Contents:

Author Info

  • John Joseph Wallis
Registered author(s):

    Abstract

    During the 1840s, twelve American states adopted new constitutions. Eleven of the twelve states adopted new procedures for issuing government debt and for chartering corporations through general incorporation acts. These institutional innovations were American inventions, and today hard budget constraints and transparent corporate forms with secure stockholder rights are important institutional determinants of successful economies. This paper investigates how and why these two important institutional reforms occurred at precisely the same time. The link is the public finance implications of chartering corporations and investing in large infrastructure projects in finance and transportation. States borrowed almost $200 million between 1820 and 1840 to invest in canals, railroads, and banks. Electoral pressure to provide these important government investments was counter-balanced by the difficulty of providing geographically specific projects and paying for them with geographically widespread taxation. States responded with several innovative schemes for financing canals and banks in the 1820s and 1830s. Some schemes involved taxless finance:' construction of canals and banks used borrowed funds and privileges for private corporations so that current taxes did not rise, but required a contingent commitment by taxpayers to service bonds in case of the project's failure. Other schemes involved benefit taxation:' coordinating the tax costs of projects with the geographic benefits of canal and bank construction through the property tax. When a fiscal crisis hit states in the early 1840s, they responded by changing their constitutions, and thereby economic institutions, to eliminate the possibility of taxless finance in the future.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.nber.org/papers/w10451.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10451.

    as in new window
    Length:
    Date of creation: Apr 2004
    Date of revision:
    Publication status: published as Wallis, John Joseph. "Constitutions, Corporations, And Corruption: American States And Constitutional Change, 1842 To 1852," Journal of Economic History, 2005, v65(1,Mar), 211-256.
    Handle: RePEc:nbr:nberwo:10451

    Note: DAE
    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Edward L. Glaeser & Andrei Shleifer, 2001. "Legal Origins," Harvard Institute of Economic Research Working Papers 1920, Harvard - Institute of Economic Research.
    2. Thorsten Beck & Ross Levine, 2003. "Legal institutions and financial development," Policy Research Working Paper Series 3136, The World Bank.
    3. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
    4. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    5. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
    6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    7. Handlin, Oscar & Handlin, Mary F., 1945. "Origins of the American Business Corporation," The Journal of Economic History, Cambridge University Press, vol. 5(01), pages 1-23, May.
    8. Thorsten Beck & Ross Levine & Norman Loayza, 1999. "Financial Intermediation and Growth: Causality and Causes," Working Papers Central Bank of Chile 56, Central Bank of Chile.
    9. Rolnick, Arthur J & Weber, Warren E, 1983. "New Evidence on the Free Banking Era," American Economic Review, American Economic Association, vol. 73(5), pages 1080-91, December.
    10. La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
    11. Bodenhorn, Howard, 2002. "State Banking in Early America: A New Economic History," OUP Catalogue, Oxford University Press, number 9780195147766, Octomber.
    12. Cole, Arthur H., 1970. "The Committee on Research in Economic History: An Historical Sketch," The Journal of Economic History, Cambridge University Press, vol. 30(04), pages 723-741, December.
    13. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
    14. Daniel Berkowitz & Karina Pistor & Jean-Francois Richard, 2001. "Economic Development, Legality, and the Transplant Effect," William Davidson Institute Working Papers Series 410, William Davidson Institute at the University of Michigan.
    15. Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2004. "Legal Regime and Business's Organizational Choice: A Comparison of France and the United States," NBER Working Papers 10288, National Bureau of Economic Research, Inc.
    16. Inman, Robert P & Fitts, Michael A, 1990. "Political Institutions and Fiscal Policy: Evidence from the U.S. Historical Record," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(0), pages 79-132.
    17. Bodenhorn,Howard, 2000. "A History of Banking in Antebellum America," Cambridge Books, Cambridge University Press, number 9780521669993, October.
    18. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
    19. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
    20. Rockoff, Hugh, 1974. "The Free Banking Era: A Reexamination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 141-67, May.
    21. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," NBER Working Papers 8460, National Bureau of Economic Research, Inc.
    22. Mahoney, Paul G, 2001. "The Common Law and Economic Growth: Hayek Might Be Right," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 503-25, Part I Ju.
    23. John Joseph Wallis, 2000. "American Government Finance in the Long Run: 1790 to 1990," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 61-82, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Liu, Lili & Waibel, Michael, 2010. "Managing subnational credit and default risks," Policy Research Working Paper Series 5362, The World Bank.
    2. Liu, Lili & Waibel, Michael, 2008. "Subnational insolvency : cross-country experiences and lessons," Policy Research Working Paper Series 4496, The World Bank.
    3. John Joseph Wallis, 2004. "The Concept of Systematic Corruption in American Political and Economic History," NBER Working Papers 10952, National Bureau of Economic Research, Inc.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10451. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.