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09/27/2012

Early Corporate America: The Largest Industries and Companies before 1860


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Second Bank of the United States
Philadelphia, PA, Credit: Wikimedia Commons

Although the United States drew on European precedents to guide much of its early financial maturation, in one area it led the way: the development of the corporation as an important form of competitive business enterprise. Early European corporations were few, far between, and usually monopolies. Examples include the Bank of England, which had a monopoly of corporate banking in England and Wales into the 1850s, and the East India Company, which enjoyed a monopoly of British trade with India until well into the 19th century.

When Britain began in 1844 to register joint-stock companies (which did not even enjoy limited liability), fewer than a thousand registering companies reported having existed before that date. In 1856, when Britain finally allowed limited liability, companies that immediately qualified were still fewer than a thousand. France chartered only 642 corporations before 1867. Prussia, the principal German state before modern Germany emerged in 1871, had even fewer corporations than Britain and France.

In contrast, our recent research documents that the United States chartered more than 13,000 corporations by 1850, and at least twice that many by 1860. Not all of these corporations survived, of course, but probably at least a third of them did. If so, the US had many more corporations in operation than any other country by the mid-19th century, and perhaps more than all other countries put together. The US was the first “corporation nation,” and the comparatively easy access American entrepreneurs had to the corporate form likely contributed greatly to the country’s rapid economic growth after 1790.

Most early US corporations were created by individual acts of state legislatures. Two, the first and second Banks of the United States, were created by acts of Congress. With grants from the National Science Foundation and others, we supervised a team of research assistants who went through the thousands of pages of state session laws to create a database of all the corporations that states chartered. Among other details, the database contains each company’s state and date of incorporation, its line of business, and its minimum and maximum authorized capital.

We found that the states had chartered 22,419 corporations by special legislative acts before 1861, and several thousand more, mostly in the 1840s and 1850s, under general acts that allowed corporations to be formed in the modern way, by applying to an administrative officer of state government instead of inducing the legislature to pass a special act.

One recent use of our database was to write a blog post on the “Fortune 500” of 1812, timed to appear around the time of Fortune magazine’s “Fortune 500” issue of 2012.1 Since 1955, Fortune has reported each year on the 500 largest American companies ranked by revenue.

Lacking information on revenues, we used authorized capitalization to come up with our 1812 rankings. For that year, 23 of the 25 largest corporations were banks. The other two were John Jacob Astor’s American Fur Company and the New York Manufacturing Company. In all, by 1812, the US had chartered 1,440 corporations.

The overwhelming importance of banks 200 years ago is an indication of the success of the US financial revolution launched two decades earlier by Alexander Hamilton and the Federalists during the first Washington administration. Besides encouraging banking and corporate development, the financial revolution also restructured the national debt on a solid basis, confirmed the specie dollar as the country’s monetary base, founded the first central bank and saw the emergence of modern securities markets and stock exchanges in major cities. The finance sector (banks and insurance companies) dominated the entire 1812 list, making up 44% of the 500 largest companies and 72% of all authorized capital. US economic growth was fueled from the start by a modern financial system that made short- and long-term credit widely available to American entrepreneurs.

Here we report on America’s 500 largest corporations at three dates: 1816, 1836, and 1856. These snapshots of corporate America two decades apart in the antebellum era give us an indication of how the US economy was changing over time. For each date, we report the top 25 corporations ranked by the minimum capital authorized in their respective legislative charters. Another set of tables shows at each of the three dates the industrial distribution of the 500 largest companies and the total and average capital, both minimum and maximum, authorized by charters. The table below shows the top 10 states ranked by the number of corporations in the listing of the 500 largest companies at each date.

Ranking of States with the Most Chartered Corporations in the Top 500: 1816, 1836, and 1856

1816 1836 1856
State Rank No. of corps.
Rank No. of corps. Rank No. of corps.
MA 1 170 2 68 7 31
NY 2 68 1 80 5 36
PA 3 81 3 59 2 44
MD 4 51 4 51 4 43
VA 5 19 8 17 9 27
NJ 6 17



 
RI
7 17



 
CT
8 13



  
OH
9 12
5
37
3
 44
NC
10 6



 
GA


6
23
6
31
LA


7
21
10
22
AL
    9
17

 
SC


10
14

 
 KY




1
 47
MO



8
29
Total

474

387

354
% of 500

95%

77%

71%

Click here for more information about the top US corporations.

1816

The financial sector continued to dominate in 1816, when the total number of corporations chartered reached 2,087. More than half of the top 500 companies (280) were in this sector, and they had an even larger share (71%) of authorized capital. Manufacturing was the next largest sector, with 141 companies (28% of the top 500), but a decidedly smaller share of minimum authorized capital (18%). The embargo of 1808 and the War of 1812 had made it difficult for Americans to import manufactures from Europe. That encouraged many American entrepreneurs to launch manufacturing startups, mostly in two states. Massachusetts had 91 of the 141 manufacturing firms, and New York had 34.

Massachusetts and New York also ranked first and second in terms of total corporations in the top 500, with 170 and 88 corporations, respectively. Thus, more than half of the largest US corporations in 1816 were in these two states. Two more states were well represented: Pennsylvania with 88 of the top 500 and Maryland with 51. Nearly 4 out of 5 of the largest companies were in these four states.


Museum of American Finance


Focusing on the 25 largest companies in 1816, we find the financial sector’s striking dominance. On the list are 23 banks, one insurance company, and one manufacturing enterprise. The largest company in 1816 has a name familiar today: Bank of America. But that is misleading because the 1816 company was a New York bank chartered in 1812; it is not an ancestor of the company with the same name in 2012. That is not the case, however, with two other companies in the top 25. The third largest company is the City Bank of New York, which is the ancestor of today’s Citibank/Citigroup. Also founded in 1812, Citibank is celebrating its 200th anniversary this year. Both of these New York banks were founded to replace the banking facilities lost when Congress refused in 1811 to re-charter the Bank of the United States, which had a large branch in New York City. The fifth largest company in 1816, the Manhattan Company, is the oldest ancestor of today’s JPMorgan Chase Bank.

Interestingly, the “Fortune 500” of 2012 shows that both JPMorgan Chase and Citigroup remain in the top 25 largest US corporations.

1836

The big change from 1816 in the top 500 companies of 1836 is that the transportation sector pulled even with finance. Finance continued to be a major sector of the corporate economy, but the railroad age had arrived and a lot of corporate capital had also been invested by canal companies. Of the top 500 companies, 213 were in finance and 203 in transportation, so these two sectors represented about five-sixths of the largest corporations. Each sector had about 43–44% of the total capital of the top 500, implying that about 7 of every 8 dollars of capital invested in America’s largest companies went to finance and transportation enterprises.

There were only 51 manufacturing enterprises in the top 500 in 1836, as compared with 141 in 1816. Yet we know that America’s industrialization was better established by 1836 than it had been in 1816. Is this a puzzle? Not really. The average capital (minimum authorized) of a top 500 company in 1816 was only $331,000; by 1836, it was $1.16 million. Most manufacturing firms did not require as much capital as canals and railroads did. So when large transportation enterprises began to enter the top 500 in the two decades from 1816 to 1836, they displaced the smaller manufacturing firms. Large-scale enterprises in manufacturing would not arrive in America until after the Civil War.

The four states with the most corporations in the top 500 were the same in 1836 as in 1816. New York, with 80 companies, replaced Massachusetts (68) as the leader, followed by Pennsylvania (59) and Maryland (51). But the share of these leading states declined, from nearly 80% of the top 500 in 1816 to just over half of the top 500 in 1836. The number of US states was increasing, and all of them needed transportation companies to move their products to markets. By 1836, the US states had chartered a total of 7,463 companies.

Turning to the top 25 corporations in 1836, the overwhelming importance of finance and transportation is evident, as is the balance of the two leading sectors. Banks make up 12 of the top 25, railroads 10, and canal companies 2. The only non-bank, non-transportation enterprise on the list is the Missouri Iron Company, a manufacturing concern that had just been chartered in 1836.

495px-Andrew_Jackson
Andrew Jackson
Credit: Wikimedia Commons

By far the largest enterprise in the country was the second Bank of the United States, which had been chartered by Congress in 1816. Andrew Jackson vetoed Congress’s attempt to renew the bank’s charter in 1832, so in 1836 it was in the process of converting itself to a Pennsylvania chartered bank. The second and fourth largest companies were Louisiana banks, an indication of the importance of the cotton economy of the South and rivalry between the ports of New Orleans and New York. The third largest company was the Erie Railroad, later to become famous as the “Scarlet Woman of Wall Street” after it had been taken over, and its stock manipulated, by Daniel Drew, Jay Gould, and Jim Fiske.

Another interesting feature of the top 25 companies is the presence of what might be called three hybrids: Louisiana’s New Orleans Gas Light and Banking Company; South Carolina’s South-Western Rail Road Bank; and Texas’s Texas Rail Road, Navigation and Banking Company. These hybrids indicate that states with less-developed banking systems and capital markets than, say, New York, Pennsylvania, and Massachusetts, overcame that disadvantage by conferring banking privileges on utility and railroad corporations. Limited access to external financing was alleviated by building a bank into a corporation that had other purposes. There could hardly be a better demonstration of the fundamental importance of finance in economic development.

1856

The trend toward the increasing importance of transportation evident from 1816 to 1836 continued during the next two decades. In the top 500 of 1856, a year when the total number of corporate charters reached 19,511, transportation dominated the list as finance had in 1816. Transportation enterprises, mostly railroads, made up 341 of the top 500 companies, 68% of the total, and they had an even larger share of top 500 authorized capital, about 80%. Finance now became a distant second, with 90 (18%) of the top 500 firms, and an even smaller share, 11–13%, of top 500 capital. The extractive sector, mostly mining companies, replaced manufacturing as the third largest sector in the top 500, with 5% of the companies and 4% of top 500 capital. Manufacturing enterprises by 1856 were only 23 of the top 500, and they had but 2% of top 500 capital.

In 1856, the average minimum authorized capital of a top 500 corporation had risen to nearly $3 million, up from just over $1 million in 1836 and $0.33 million in 1816. The majority of the top 500 were railroads, and it took a lot of money to build a railroad.

The rankings of states with the most corporations also changed markedly. The top three states in 1856 were Kentucky (47 companies), Pennsylvania (44), and Ohio (44). These were states centrally located between the East and the West, and between the North and the South. They were the home states of railroads that linked the regions of the US. Massachusetts and New York, which led the nation in top 500 corporations in 1816 and 1836, slipped to seventh (31 companies) and fifth (36), respectively, by 1856. But no state stood out—the corporate form of business organization had spread fairly evenly over the American state landscape before 1860.

Of the 25 largest corporations in 1856, 17 were railroads, two were hybrid railroad and banking companies, four were banks, one was a hybrid utility and bank and one was a canal company. The three largest companies were recently-launched railroads, each of which had “Pacific” in its name. By 1856, the continental US had attained its present boundaries, and plans were underway to link the West and East Coasts, and places in between. For Americans, the corporation was the obvious choice to raise the financing to accomplish that goal.

CONCLUSION

The US led the world in developing the corporation as the dominant form of modern business organization. It was in 1856, the year this story ends, that Britain at last allowed more than a few of its companies to become corporations with limited liability. By that time, US states had chartered nearly 20,000 corporations, most with limited liability, and still more were being organized under general incorporation laws. Utilizing the corporate form more than any other country, the US by the 1850s was well on its way to becoming the world’s largest economy, a status it would reach a few decades later. This new database is helping us to understand the role of corporations in the rise of the US economy during the 19th century.

-Richard Sylla and Robert E. Wright

Dr. Richard Sylla is the Henry Kaufman Professor of the History of Financial Institutions and Markets and a professor of economics, entrepreneurship, and innovation at the New York University Stern School of Business. He is the author of several books, including The American Capital Market and A History of Interest Rates. He is the Chairman of the Museum of American Finance.

Dr. Robert E. Wright is the Nef Family Chair of Political Economy at Augustana College (SD), where he teaches courses in business, economic, financial, and policy history. He is the author or co-author of 14 books and the editor or co-editor of 21 volumes, and he is a member of Financial History’s editorial board.

The authors wish to thank the Stern School of Business, New York University; Stern’s Berkley Center for Entrepreneurial Studies; and the National Science Foundation for support of this research under Grant No. 0751577, “U.S. Corporate Development, 1801-1860.”

NOTE

1. See http://www.bloomberg.com/news/2012- 04-10/-fortune-500-of-1812-shows-u-s-banks-early-influence.html.

RESOURCES

Davis, Joseph Stancliffe. Essays in the Earlier History of American Corporations. Cambridge, MA: Harvard University Press, 1917.

Sylla, Richard, and Robert E. Wright, “Corporation Formation in the United States, 1790–1860: Law and Politics in Comparative Contexts,” Working Paper, 2012.

Wright, Robert E., “Rise of the Corporation Nation,” in Douglas Irwin and Richard Sylla, eds., Founding Choices: American Economic Policy in the 1790s (Chicago: University of Chicago Press, 2011), 217–58.

Wright, Robert E., and Richard Sylla, “Corporate Governance and Stockholder/ Stakeholder Activism in the United States, 1790–1860: New Data and Perspectives,” in Jonathan Koppell, ed., Origins of Shareholder Advocacy (New York: Palgrave Macmillan, 2011), 231–51.

This article originally appeared in the Summer 2012 issue of Financial History a publication of the Museum of American Finance.

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