New Works in the Field / Philanthropy and Historical Research

An Economic History Challenge to the History of Philanthropy

Editors’ Note: David Hammack reviews Organizations, Civil Society, and the Roots of Development, edited by Naomi R. Lamoreaux and John Joseph Wallis.

For more than thirty years a growing literature has debated the origins of the market economy and the relation between the market and economic growth. Motivating this debate is the understanding, widely shared by economic historians, that it is the market that has made possible the division of labor and the movement of workers, the application and diffusion of technical knowledge, the raising of capital, and other factors that have, from the early nineteenth century, enabled human societies to produce levels of wealth unimaginable in earlier eras. High levels of prosperity are distributed very unequally among nations and global regions. Economists reason that better understanding of the events that have allowed some places to develop highly productive market economies could help others do the same.

Efforts to understand the historical origins of market economies have recently focused on the roles of government, of law, and of social arrangements, including organizations of all kinds. A new volume, Organizations, Civil Society, and the Roots of Development (2017) represents an unusually ambitious effort in this direction, exploring the role that philanthropy and nonprofit organizations have played in helping to create market economies. Its editors, Naomi Lamoreaux, John Wallis, and their colleagues consider nonprofit organizations (including religious organizations) in the context of business firms and labor organizations. Emphasizing fundamental institutional and power relationships rather than the specific purposes of various associations, charities and nonprofits, they focus not on intentions, charitable or otherwise, but rather on the incentives that shape political decision-makers. They detail the controls over organizations and private actions that governments and courts impose, and they emphasize the advantages and disadvantages that governments assign to all organizations. Their studies suggest that efforts to promote voluntary or “open” qualities in previously “closed” societies have always faced daunting challenges.

Framing the papers in this collection is the proposition that Western Europe and North America in the eighteenth and nineteenth centuries witnessed a transition “from a ‘limited access’ to an ‘open access’ social order.” In work that has become a (debated) touchstone for economic analysts in this field, Douglas North, John Wallis (one of the editors of this volume), and Barry Weingast argued that this transition enabled fortunate nations to escape the “violence trap” that had discouraged sustained economic development throughout human history. As they postulate, local violence of the strong against the weak, violence of rulers against subjects, and violence of invaders against settled populations, had long forced people to subordinate innovation and investment to safety and security, effectively limiting organizational autonomy and discouraging change. To reinforce their own advantages and manage violence, ruling elites had always “strictly control[led] who can form organizations, and for what purposes.” North, Wallis, and Weingast theorized that three “doorstep conditions” allowed a few societies in Western Europe and North America to escape the violence trap and open to innovation, change, and sustained development. These conditions were an agreement of all elites to accept the rule of law; agreement that organizations could be both largely self-governing and persist over time, independently of the wish or whim of a ruler; and acceptance of central (national) control over military force and violence. Under these conditions, autonomous, long-lived business firms and other organizations (including schools and other nonprofits) could develop, compete with one another, and foster sustained economic growth.

Lamoreaux and Wallis write that they  did not set out to show how difficult and rare it has been – and continues to be – to make the transition to open access, but conclude that the explorations reported in this book lead to that conclusion. Through their contributions to this project, Wallis and Weingast admirably go some way to correcting the stylized facts and incomplete histories used in their initial work on the violence trap and open access.

The papers in this volume touch on many fields: political, intellectual, legal, and business history, institutional sociology, and economics as well as the history of philanthropy, charity, and nongovernment organizations. Several of the papers move beyond the profit-seeking corporations more often treated by economic historians to give due consideration to associations and corporations organized for charitable and representative purposes. Each of the papers is worthy of examination. Here, I will emphasize just three of the papers that offer what adds up to a significant consolidation and increase in our knowledge of the development of U.S. law governing corporations and associations, including nonprofits and charities. Until very recently the voluminous, scattered, and idiosyncratic records of state laws and court decisions discouraged systematic study. Two papers in this volume explore newly available databases that make these laws and decisions more accessible. In the first of these, Eric Hilt documents the general unwillingness of the U.S. state and federal governments to grant autonomy to business and nonprofit corporations from the 1780s to the early nineteenth century, then traces the (uneven) proliferation of general incorporation laws, first in banking and manufacturing, then more generally in business and in the fields of religion and education. In the longest and most ambitious paper, Ruth H. Bloch and Naomi Lamoreaux provide considerable new detail on the constraints that state laws imposed on nonprofit as well as business corporations in America from 1750 to 1900.

In a final paper on “Labor, Business, Government, and the National Labor Relations Act,” Margaret Levi, Tania Melo, Barry R. Weingast, and Frances Zlotnick emphasize the ways in which American law denied workers as well as all African-Americans the right to create and use organizations for their own purposes, right through the nineteenth century and much of the twentieth. For workers and African-Americans, for members of other minorities of “color,” and for people in the Southern states, these last two papers concur, the United States was not an “open society.” It may well have been sufficiently open to allow the economic development postulated in the North, Wallis, and Weingast paper used to frame this book, but it was not equally open for everyone.

This book invites closer attention not only to the relation of the structures of American civil society to inequality, but also to British uses of its national church in its colonies, and to religious aspects and religious uses of corporation law under the post-Revolution separation of church and state, a complex and contested topic. Several papers in this volume acknowledge Protestant bias in the legal treatment of religious (and other) organizations in both Britain and the U.S. But the volume does not engage the significant efforts of some Protestants to dominate others. During the colonial period, imperial authorities had sought to use the Church of England to reinforce rule from London. Though Anglican institutions in the colonies rarely received adequate material support, they did enjoy advantages of incorporation and formal government that the British government withheld from Congregationalist, Presbyterian, Dutch Reformed, Quaker, and other non-Church of England churches, schools, and charities. A royal charter, for instance, significantly increased the powers used to advance the Anglican church by the Society for Promoting the Gospel in Foreign Parts. After the American Revolution, rival Protestant groups in Connecticut, Massachusetts, and Virginia quickly sought incorporation, and engaged in well-studied efforts to limit one another’s corporate rights. As historian Anthony Roeber has shown in detail, in Pennsylvania and several other states rival Protestant communities “engaged in bitter controversy over educational, charity, and language schemes” before concluding “that partisan and sectarian disagreements prohibited” adoption of specific government policies to support any particular religious agenda.

The editors and contributors to this volume are well aware of the legal disadvantages that prevented women from making much use of incorporated organizations right through the nineteenth century. But their book also invites additional attention to the uses women did make of corporations, as well as to their difficulties in doing so. The omission of a reference to Suzanne Lebsock’s Free Women of Petersburg is surprising. It should be added that when the essays in this book consider the question of an “escape” from the “violence trap,” they accept the idea that such an escape occurred in the U.S. without considering the relevance for economic theory of the limited success of American governments in monopolizing the use of violent force – or the degree to which the U.S. relied on armed citizens to seize and hold vast territories in the South as well as the West.

The history of philanthropy, of nonprofit organizations, and of civil society in the United States fascinates because it is so complex: it engages fundamental intellectual, cultural and religious beliefs, the aims of education and socialization, the setting of norms. But it cannot be limited to the study of competing ideals. Because philanthropic and nonprofit organizations shape notions of legitimacy, they are always subject to political and governmental scrutiny and to legal control. From the Revolution, the United States has eschewed an established church, but the roles of religious institutions and the relationship between church and state have provided decisive contexts for civil society. The institutional arrangements that have enabled Enlightenment ideals to flourish in the United States have also afforded many opportunities to their opponents. And because religious, educational, scientific, and human activities of all kinds require material resources, the history of philanthropy and civil society is necessarily also an economic history.

Organizations, Civil Society, and the Roots of Development is an introduction to work that should be of great interest to historians of philanthropy. It brings philanthropy and philanthropic organizations into a clear account of society as a whole, and especially into the general history of corporations and associations. It calls attention to the political, legal, and institutional constraints that have governed the range of permissible organizational purposes, philanthropic or profit-seeking. It suggests that the history of philanthropy is inescapably part of the history of both the open society and of economic development and growth. Lamoreaux, Wallis, and their colleagues make clear that civil society has an important economic role. Altogether, this volume deserves high praise for raising so many important questions for future study.

-David C. Hammack

David C. Hammack is Haydn Professor of History Emeritus at Case Western Reserve University and a past president of the Association for Research on Nonprofit Organizations and Voluntary Action. His books include Making the Nonprofit Sector in the United States: A Reader (1998, 2000), A Versatile American Institute: The Changing Ideals and Realities of Philanthropic Foundations (2013), with Helmut Anheier, and American Philanthropic Foundations: Regional Difference and Change (2018), co-edited with Steven Rathgeb Smith. 

REFERENCES

This review draws on a number of well-developed scholarly debates.

ON THE ECONOMICS OF NONPROFIT ORGANIZATIONS: Susan Rose-Ackerman, The Economics of Nonprofit Institutions (1986); Burton A. Weisbrod, The Nonprofit Economy (2009); David C. Hammack and Dennis R. Young, Nonprofit Organizations in a Market Economy (1993).

ON THE CIVIL CONDITIONS THAT FOSTER ECONOMIC GROWTH: D’Maris Coffman, A. Leonard, and Larry Neal, Questioning Credible Commitment: Perspectives on the Rise of Financial Capitalism (2013); Sheilagh Ogilvie and André W. Carus, “Institutions and economic growth in historical perspective,” in Handbook of Economic Growth, vol. 2, (2014), pp. 403-513; Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (2009).

ON STATE REGULATION OF NONPROFIT AND OTHER CORPORATIONS:  Elisabeth Clemens, “The Encounter of Civil Society and the States: Legislation, Law, and Association, 1900-1920” (2000). Bloch and Lamoreaux cite the Readex “Archive of Americana”: Early American Imprints, Series I, Evans, 1639-1800: Early American Imprints, Series II: Shaw and Shoemaker (1810-1825), and the HeinOnline Session Laws Library; Kenneth Lipartito and David B. Sicilia, Constructing Corporate America: History, Politics, Culture (2004).

ON ENGLISH REGULATION OF CORPORATIONS FOR BUSINESS, RELIGION, AND CHARITY: David Stasavage, “Partisan Politics and Public Debt: The importance of the ‘Whig Supremacy’ for Britain’s Financial Revolution,” European Review of Economic History (2007); James B. Bell, A War of Religion: Dissenters, Anglicans, and the American Revolution (2008); Travis Glasson, Mastering Christianity: Missionary Anglicanism and Slavery in the Atlantic World (2012).

ON PROTESTANT CONFLICT IN THE U.S. AFTER THE REVOLUTION: R. J. Purcell, Connecticut in Transition, 1775-1818 (1918); W. G. McLoughlin, New England Dissent, 1630-1833 (1971); Thomas E. Buckley, Church and State in Revolutionary Virginia, 1776-1787 (1977); Anthony G. Roeber, “J. H. C. Helmuth, Evangelical Charity, and the Public Sphere in Pennsylvania, 1793-1800,” The Pennsylvania Magazine of History and Biography (1997).

 

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