Edited by author 02-20-2003 08:40 PM
Q. What exactly is the significance of M. J. Horwitz's Transformation of the American Law? I have that it is instrumentalism and that the courts make laws according to the needs of the times...but I don't remember/understand what that means in terms of creating corporations...

A. Horwitz describes a process under which corporations stop being defined by the old precedent of "serving the public good" and become private enterprises with no necessary public benefit other than serving the stockholders.

In the colonial and early national periods, corporations, being bodies (schools, hospitals, turnpikes, bridge companies, etc.) that served the public interest, they had to have their charters approved by the community at large (in the form of state legislatures). Likewise, under the old precedents and the Christian tradition of a "just price," their contracts could be modified if they didn't serve the public good (usually the so-called equity courts did this), and laborers preserved traditional guild-related rights. Under the old system, rights and contractual benefits that damaged other parties were subject to renegotiation. The classic traditional example is of mill owners, whose control of water could not harm the interests of those downstream.

Horwitz argues that to meet the needs of an emerging capitalist commercial society, courts rejected the old precedents as an impossible hindrance on modernization and adopted an instrumental approach to corporate legal rights. In decisions such as Dartmouth College, Gibbons v. Ogden and the Charles River Bridge Case, the U.S. Supreme Court (along with with a myriad of widely cited cases from Massachusetts, New York, and Pennsylvania) established a new system of private enterprise in which corporations (a) served private rather than public interests (b) bound all parties to ironclad conditions ("sanctity of contracts,") (c) established the rule of "caveat emptor" ("let the buyer beware") and outlawed labor organizations as illegal conspiracies (though this latter would change). Corporations stopped requiring legislative acts to be created and could be established simply by filing the appropriate paperwork with state governments.

All of these changes, he argues, were justified for "instrumental" reasons (based on logic inherent to the instrument) rather than on traditional legal precedents. Hence the term "instrumentalism."