1. Dibbell, Julian, “The Unreal Estate Boom,” Wired (01 2003), 108Google Scholar.

2. Not only are people investing what are for them substantial sums in the assets of these fantasy worlds, but companies have also been set up to accumulate and trade these imaginary assets. One such enterprise, BlackSnow Interactive, rented space in Tijuana, bought a bank of computers, and hired three shifts of Mexican laborers at sweatshop wages to play around the clock and accumulate imaginary wealth for the company's owners. Another firm claims to employ more than fifty full-time workers in the United States and Hong Kong. Dibbell, “Unreal Estate Boom”; Paul Tyrrell, “Realities of a Virtual Economy,” Financial Times, U.S. edition, 29 December 2003, 6; Clive Thompson, “Game Theories,” The Walrus Magazine, http://walrusmagazine.com/ (downloaded on 21 May 2004).

3. Edward Castronova, “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier,” CESifo Working Paper 618 (2001), and Castronova, “On Virtual Economies,” CESifo Working Paper 752 (2002).

4. Castronova, “Virtual Economies,” 31–36; Tyrrell, “Realities of a Virtual Economy”; Thompson, “Game Theories.”

5. The phrase Washington Consensus was coined in 1990 by John Williamson, a senior fellow at the Institute for International Economics. See Williamson's, subsequent discussion of the concept in “What Should the World Bank Think about the Washington Consensus?” World Bank Research Observer 15 (08 2000): 251–264CrossRefGoogle Scholar. See also Dani Rodrik, “The Global Governance of Trade as if Development Really Mattered,” United Nations Development Program background paper (2001).

6. Castronova, “Virtual Economies,” 31–33; Dibbell, “Unreal Estate Boom.”

7. Chang, Ha-Joon, Kicking Away the Ladder: Development Strategy in Historical Perspective (London, 2002)Google Scholar. See also Ramo, Joshua Cooper, The Beijing Consensus (London, 2004)Google Scholar.

8. See Chang, Kicking Away the Ladder.

9. For an introduction to the by-now-enormous literature on the “new” institutionalism in economics, see North, Douglass C., Structure and Change in Economic History (New York, 1981)Google Scholar, and Williamson, Oliver, The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (New York, 1985)Google Scholar. For an influential application of these ideas, see Douglass North, C. and Weingast, Barry R., “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” Journal of Economic History 49 (12 1989): 803–832CrossRefGoogle Scholar. Although the “new” institutionalism in economics is only loosely related to the “new” institutionalism in political science, both share a preoccupation with the political preconditions of social change.

10. See, for example, Rosenberg, Nathan and Birdzell, L. E. Jr., How the West Grew Rich: The Economic Transformation of the Industrial World (New York, 1986)Google Scholar. Such a view is also implicit in Willard, James Hurst's classic study, The Legitimacy of the Business Corporation in the Law of the United States, 1780–1970 (Charlottesville, 1970)Google Scholar. The three principal features of corporations—concentrated management, permanence, and limited liability—were not originally standard attributes of the form but only emerged as such over time. See Lamoreaux, Naomi R., “Partnerships, Corporations, and the Limits on Contractual Freedom in U.S. History: An Essay in Economics, Law, and Culture,” in Constructing Corporate America: History, Politics, Culture, ed. Lipartito, Kenneth and Sicilia, David B. (New York, 2004), 29–65CrossRefGoogle Scholar, and Wallis, John, “Market Augmenting Government? The State and the Corporation in Nineteenth-Century America,” in Market Augmenting Government: The Institutional Foundations of Prosperity, ed. Azfar, Omar and Cadwell, Charles (Ann Arbor, 2003), 223–267Google Scholar. Although it was theoretically possible to obtain any of these three features contractually—that is, without securing a corporate charter—there was considerable uncertainty about whether the courts would uphold all the provisions of the contract. See Warren, Edward H., Corporate Advantages without Incorporation (New York, 1929)Google Scholar.

11. For additional examples, see Lamoreaux, Naomi R. and Rosenthal, Jean-Laurent, “Corporate Governance and the Plight of Minority Shareholders in the United States before the Great Depression,” in Corruption and Reform, ed. Glaeser, Edward and Goldin, Claudia (Chicago, forthcoming)Google Scholar. An earlier version of this article is available as NBER Working Paper 10900. The rest of this section draws heavily on this article, as well as on Ruth H. Bloch and Naomi R. Lamoreaux, “The Public-Private Distinction in American History: The Privatization of the Corporation and the Problem of Minority Shareholders,” unpublished paper in author's possession.

12. Dunlavy, Colleen A., “From Citizens to Plutocrats: Nineteenth-Century Shareholder Voting Rights and Theories,” in Constructing Corporate Boundaries, ed. Lipartito, and Sicilia, , 66–93Google Scholar. For the shift from special to general incorporation laws, see Hurst, Legitimacy of the Business Corporation, and Maier, Pauline, “The Revolutionary Origins of the American Corporation,” William and Mary Quarterly 50 (01 1993): 51–84CrossRefGoogle Scholar. On the shift to general incorporation within individual states, see Handlin, Oscar and Handlin, Mary Flug, Commonwealth: A Study of the Role of Government in the American Economy—Massachusetts, 1774–1861 (Cambridge, Mass., 1947; rev. ed., 1969)Google Scholar; Hartz, Louis, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (Cambridge, Mass., 1948)CrossRefGoogle Scholar; Cadman, John W. Jr., The Corporation in New Jersey: Business and Politics, 1791–1875 (Cambridge, Mass., 1949)CrossRefGoogle Scholar; and Seavoy, Ronald E., The Origins of the American Business Corporation, 1784–1855: Broadening the Concept of Public Service during Industrialization (Westport, Conn., 1982)Google Scholar.

13. Benintendi v. Kenton Hotel, 294 N. Y. 118 (1945). For a discussion of similar cases, see Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom,” and Lamoreaux, Naomi R. and Rosenthal, Jean-Laurent, “Legal Regime and Contractual Flexibility: A Comparison of Business's Organizational Choices in France and the United States during the Era of Industrialization,” American Law and Economics Review 7 (Spring 2005): 28–61CrossRefGoogle Scholar.

14. Although corporations have always been considered legal persons in the eyes of the law, they were never treated as equivalent to human persons and never accorded a full panoply of constitutional rights. Supreme Court decisions granting corporations Fourteenth Amendment protections have been particularly subject to misunderstanding. On this point, see Mark, Gregory A., “The Personification of the Business Corporation in American Law,” University of Chicago Law Review 54 (Fall 1987): 1447–1455CrossRefGoogle Scholar; Horwitz, Morton J., Transformation of American Law, 1870–1960: The Crisis of Legal Orthodoxy (New York, 1992), 66–70Google Scholar; and Lamoreaux, “Partnerships, Corporations, and the Limits on Contractual Freedom.”

15. Smith v. Hurd, 53 Mass. 371 (1847). There was nothing new about this principle. Indeed, it had provided the foundation for the famous decision of Chief Justice John Marshall of the U.S. Supreme Court in Dartmouth College v. Woodward (17 U.S. 518 [1819]). What was new during the late 1840s was the avidity with which minority shareholders sought out legal remedies to limit the depredations of majority shareholders.

16. Equity courts, like common law courts, had their origins in Great Britain during the early modern period. Common law courts were staffed by judges who were supposed to render their judgments exclusively on precedent; the equity court, in contrast, was headed by a Chancellor empowered to base his decisions on considerations of fairness as well as precedent. After the War of Independence, some states—for example, New York—created both common law courts and an equity court. Because many Americans in the early republic associated the equity court with aristocratic privilege, several states, including Massachusetts, created only one court system and allowed common law judges to sit as a court of equity in limited, legislatively regulated circumstances. On the British court system, see Harris, Ron, Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844 (Cambridge, 2000)CrossRefGoogle Scholar. On the controversy over equity courts, see Hall, Peter Dobkin, “What Merchants Did with Their Money: Charitable and Testamentary Trusts in Massachusetts, 1780–1880,” in Entrepreneurs: The Boston Business Community, 1700–1850, ed. Wright, Conrad Edick and Viens, Katheryn P. (Boston, 1997), 365–421Google Scholar. On the later development of equity courts in the United States, see Simpson, Sidney Post, “Fifty Years of American Equity,” Harvard Law Review 50 (12 1936): 171–251CrossRefGoogle Scholar.

17. Robinson v. Smith, 3 Paige 222 (1832).

18. Dunphy v. Traveller Newspaper Assoc., 146 Mass. 495, 496 (1888).

19. See, for example, Hodges v. New England Screw Co., 1 R.I. 312 (1850); Abbott v. Merriam, 62 Mass. 588 (1851); Smith v. Poor, 40 Me. 415 (1855); and Peabody v. Flint, 88 Mass. 52 (1863). The Supreme Court gave the precedent a more expansive interpretation in 1856 in the case Dodge v. Woolsey, declaring that courts of equity “have a jurisdiction over corporations, at the instance of one or more of their members”—that is, shareholders—and could issue injunctions to restrain the officers and directors of corporations from taking any action in violation of their charters or to “prevent any misapplication of their capitals or profits” that might lessen the dividends of stockholders, or the value of their shares, if the action would result in “what is in the law denominated a breach of trust” (59 U.S. 331, 341 [1856]). Yet, as is discussed below, the Supreme Court soon retreated from this expansive interpretation of minority shareholder rights.

20. Brewer v. Boston Theatre, 104 Mass. 378, 386–87 (1870).

21. Dunphy v. Traveller Newspaper Assoc., 146 Mass. at 497.

22. Flint & Pere Marquette Railway Company v. Dewey, 14 Mich. 477, 487 (1866).

23. Wardell v. Railroad Company, 103 U.S. 651, 658 (1880).

24. For example, Flint and Pere Marquette Railway v. Dewey was brought by a corporation whose directors had ratified a contract proposed by the company's president without knowing that the president stood to profit from the arrangement. In its decision, the court raised the possibility that the contract might possibly be construed as binding if it had been ratified by the board “after a full explanation and knowledge of their interest and of all the circumstances” (487).

25. Hodges v. New England Screw Company, 1 R. I. at 343.

26. Hawes v. Oakland, 104 U.S. 450, 460 (1881).

27. Dunphy v. Traveller Newspaper Assoc., 146 Mass. at 497.

28. Hodges v. New England Screw Company, 1 R. I. at 343–44.

29. Fauds v. Yates, 57 Ill. 416, 421 (1870).

30. Burden v. Burden, 159 N.Y. 287, 306 (1899).

31. Leslie v. Lorillard, 110 N.Y. 519, 532 (1888).

32. Brewer v. Boston Theatre, 104 Mass. 378.

33. Flint & Pere Marquette Railway Company v. Dewey, 14 Mich. at 488. Marsh, Harold Jr.“Are Directors Trustees?” Conflict of Interest and Corporate Morality,“ Business Lawyer 22 (11 1966): 35–76Google Scholar; Gregory A. Mark, “A Tentative History of the Law Governing Managerial Discretion: The Concern with Conflicts of Interest,” unpublished paper in author's possession. See also Berle, Adolf A. Jr. and Means, Gardiner C., The Modern Corporation and Private Property (New York, 1933)Google Scholar.

34. On the creation of the SEC, see McCraw, Thomas K., Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn (Cambridge, Mass., 1984)Google Scholar.

35. Marsh, “Are Directors Trustees?” and Mark, “A Tentative History of the Law Governing Managerial Discretion.”

36. O'Neal, F. Hodge, “Close Corporations: Existing Legislation and Recommended Reform,” Business Lawyer 33 (01 1978): 873–880Google Scholar; Hillman, Robert W., “The Dissatisfied Participant in the Solvent Business Venture: A Consideration of the Relative Permanence of Partnerships and Close Corporations,” Minnesota Law Review 67 (10 1982): 38–55Google Scholar; Mitchell, Lawrence E., “The Death of Fiduciary Duty in Close Corporations,” University of Pennsylvania Law Review 138 (06 1990): 1680–1681CrossRefGoogle Scholar.

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38. Mary O'Sullivan, “What Drove the U.S. Stock Market in the Last Century?” unpublished paper in author's possession.

39. This point is developed more fully with the help of a formal model in Lamoreaux and Rosenthal, “Corporate Governance and the Plight of Minority Shareholders.”

40. Lamoreaux, Naomi R. and Sokoloff, Kenneth L., “Intermediaries in the U.S. Market for Technology, 1870–1920,” in Finance, Intermediaries, and Economic Development, ed. Engerman, Stanley L. et al. (New York, 2003), 209–246CrossRefGoogle Scholar, and Sokoloff, Lamoreaux, “The Market for Technology and the Organization of Invention in U.S. History,” in Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Market Economies, ed. Baumol, William and Sheshinski, Eytan (Princeton, forthcoming)Google Scholar.

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42. David, Paul A. and Wright, Gavin, “Increasing Returns and the Genesis of American Resource Abundance,” Industrial and Corporate Change 6 (03 1997): 203–245CrossRefGoogle Scholar.

43. David and Wright make the intriguing argument that the very inability of the federal government to enforce property rights over the vast expanse of the West explained its policy of permitting open access to mineral resources on public lands. The “entire historical epoch,” they speculate, could be seen as a “gigantic illustration” of “excessive resource depletion in a common-property setting, augmented by the urgency of a race to drain a non-renewable common pool.” David and Wright, “Increasing Returns and the Genesis of American Resource Abundance.”

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45. Kenneth L. Sokoloff, “Economic Development In and Out of the Tropics,” unpublished paper in author's possession.

46. Castronova, “Virtual Economies,” 31–36. Players have increasingly asserted their rights as citizens of these virtual worlds and have even issued a “Declaration of the Rights of Avatars.”