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American business in the age of the modern corporation: Government, infrastructure and the corporation

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  1. Introduction
  2. The development of transportation systems and communication networks
  3. The technological changes and economies of scale
  4. The importance on the corporate institutional structure
  5. The foundation laid by government investment
  6. Early industrial development
  7. Liberation of corporate laws in New Jersey
  8. The socialization of capital and its consequences
  9. Conclusion
  10. Bibliography

When analyzing the history of the American corporation, it is tempting to believe that the cause of the rapid rise of large, hierarchical corporation, in a highly concentrated industry is over determined. Historians have advanced theories that explain this ?corporate revolution? as phenomenon created by a variety of different factors. In this paper, I take two of the most prominent theories, those of Alfred Chandler and William Roy, and integrate them into a theory that focuses on the preconditions necessary for the corporate revolution to occur. I argue that government investment in public and legal infrastructure laid the foundation and provided the impetus for firms to dramatically grow and increase their profitability by adopting the structure of the large hierarchical corporation; the rise of which caused many markets to become highly concentrated. I define infrastructure as, ?the resources required for an activity.?

[...] Additionally, the corporate structure limited the liability of its owners to their invested capital, and indeed changed the definition of ownership; owners did not own the corporation as such, but rather the rights to control the corporation and to collect its profits. Thus, the corporation became more than the property of its owners; it became its own entity, perpetual, but divisible. This divisibility is described by William Roy as the ?socialization of property,? which he characterizes thus, instead of each firm being owned by one or a few individuals, each firm became owned by many individuals, and individual owners in turn typically owned pieces of many firms? (Roy 10- 11). [...]

[...] In 1888, and again in 1889, the state of New Jersey liberalized its corporate laws, ?essentially legalizing the holding-company form of organization.? This change had dramatic consequences for American Business, as by 1901, the majority of large, capital-rich firms were incorporated in New Jersey. The hallmark of this change was the ability for firms to own stock in other firms, but the legislation had other profound consequences (Roy 152). By allowing the free incorporation of any firm, the New Jersey government essentially did away with a corporation's necessity to serve a public purpose. [...]

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