Academic journal article Michigan Historical Review

A Legacy of Limitation: Thomas M. Cooley, Public Purpose, and the General Welfare

Academic journal article Michigan Historical Review

A Legacy of Limitation: Thomas M. Cooley, Public Purpose, and the General Welfare

Article excerpt

In 1898 the Missouri Supreme Court ruled that publicly supported need-based college scholarships violated the state and federal constitutions. The court's unanimous opinion found that the scholarship program constituted "paternalism ... a plant that should receive no nourishment upon the soil of Missouri." (1) This opinion was not unusual; other courts had struck down programs to give seeds to poor farmers, provide aid to rebuild burned cities, grant pensions to police officers, help widows of firefighters killed on duty, and offer relief to the indigent blind. In Michigan, state courts invalidated plans to fund the Detroit Museum of Art, drain marshes, and improve the corn crop.

All of these decisions were the intellectual progeny of Michigan Supreme Court Justice Thomas M. Cooley. Shaped by Jacksonian political precepts and Michigan's disastrous rail experience, Cooley advanced a constitutional analysis that prohibited government from assisting or showing favoritism to specific industries. While Cooley looked on approvingly, courts across the country followed Michigan's lead, declaring unconstitutional a wealth of legislative efforts to assist not only industry but also private individuals. These Cooley-inspired rulings would ultimately be employed to limit government's ability to legislate for the common welfare.

Although late-nineteenth-century legal opinion found government financial support of industry unconstitutional, early-nineteenth-century law and practice had been quite different. State governments had actively supported industry: state treasuries became major stockholders in banks and road companies, financial grants to businesses were commonplace, courts interpreted laws to encourage industrial development, and legislatures granted monopoly powers in order to assure returns on capital. (2) Legislatures granted the newly developed legal entity--the economic corporation limited liability rights and perpetual life, and did so to spur investors to hazard scarce capital in pursuit of risky business activities. Because of the extraordinary powers given to corporations, their legislatively approved charters contained specific public responsibilities, with frequent provisions for government oversight. (3)

As capital became more available, however, Americans increasingly questioned the special privileges granted to those corporations and sought to limit monopoly power and its social consequences. Debate over the powers of these special corporations loomed as Michigan's state government first formed in the 1830s. Because it feared corporate dominance, Michigan built and owned its own rail-transportation system. After embarking on an aggressive and ultimately disastrous effort at rail building, the state sold its railroads, constitutionally prohibited state support for internal improvements, and barred legislative grants of privilege to corporations. Instead, the constitution called for general-incorporation laws by which all corporations would freely compete without state support. (4) The legislature granted no special privileges to, and received no offsetting commitments from, these general corporations. By 1850 the state had moved to a Jacksonian notion of equality: there was to be no special treatment of railroads or any other corporate entities.

Scholars typically have not underscored an important fact: the move away from early-nineteenth-century government support of industry occurred simultaneously with the shift from special corporations to general corporations. With special corporations, government actively spurred economic activity by granting special inducements for the corporations to act in the public interest. In practice, this resulted in favoritism and financial subsidies. To avoid these pitfalls, government offered no special encouragement to general corporations. Instead, legislatures provided only a legal framework for entrepreneurship. Just as the state offered no inducements to general corporations, those corporations had no offsetting obligations to act in the public interest. …

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