The Roots of American Economic Growth
|Transforming American Law||Previous||Next|
|Digital History ID 3511|
The growth of an industrial economy in the United States required a shift in American law. At the beginning of the 19th century, American law was rooted in concepts that reflected the values of a slowly changing, agricultural society. The law presumed that goods and services had a just price, independent of supply and demand. Courts forbade many forms of competition and innovation in the name of a stable society. Courts and judges legally protected monopolies and prevented lenders from charging "usurous" rates of interest. The law allowed property owners to sue for damages if a mill was built upstream and it flooded their land or impeded their water supply. After 1815, however, the American legal system favored economic growth, profit, and entrepreneurial enterprise.
By the 1820s, courts, particularly in the Northeast, had begun to abandon many traditional legal doctrines that stood in the way of a competitive market economy. Courts dropped older doctrines that assumed that goods and services had an objective price, independent of supply and demand. Courts rejected many usury laws, which limited interest rates, and struck down legal rules that prevented tenants from making alterations on a piece of land, including the addition of a building or clearing of trees. Courts increasingly held that only the market could determine interest rates or prices or the equity of a contract.
To promote rapid economic growth, courts and state legislatures gave new powers and privileges to private firms. Companies building roads, bridges, canals, and other public works were given the power to appropriate land; private firms were allowed to avoid legal penalties for fires, floods, or noise they caused on the grounds that the companies served a public purpose. Courts also reduced the liability of companies for injuries to their own employees, ruling that an injured party had to prove negligence or carelessness on the part of an employer in order to collect damages. The legal barriers to economic expansion had been struck down.