Management & Organizational History

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The laws of the economy: decriminalizing business

th
transgressions in the late 19 century

Sverre Flaatten

To cite this article: Sverre Flaatten (2019) The laws of the economy: decriminalizing business
th
transgressions in the late 19 century, Management & Organizational History, 14:4, 337-349, DOI:
10.1080/17449359.2019.1702886

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MANAGEMENT & ORGANIZATIONAL HISTORY
2019, VOL. 14, NO. 4, 337–349
https://doi.org/10.1080/17449359.2019.1702886

The laws of the economy: decriminalizing business

transgressions in the late 19th century
Sverre Flaatten
Bachelor’s Studies, Norwegian Police University College, Oslo, Norway

ABSTRACT KEYWORDS
This article examines the relationship between law and business, and Economic action; business
the connection between criminal law and civil law in controlling eco- morals; fraud; white-collar
nomic transgressions. In the late 19th century, governments all over crime; business law
Europe sought to establish new legislation regulating the economy.
This was also the case in Norway. Traditionally, this had been done
through criminal law, but, as argued in this paper, a new understanding
of the economy as a system marked by its own logic moved the control
of business transgressions away from criminal law. Instead, civil law
regulations became the preferred means of control. In effect, this
implied a decriminalization of norm violations in the business commu-
nity. Through this, the symbolic power of law contributed to a changed
view of business morals: economic action was no longer to be under-
stood solely through notions of guilt and personal responsibility.

Introduction
In 1939 the sociologist Edwin Sutherland (1940), president of the American Sociological
Society, coined the concept ‘White Collar Crime’. As a concept ‘White Collar Crime’ caught
attention outside academia, and quickly became a part of vernacular speech. Both the
concept and its reception can be understood as the product of the economic turmoil of
the 1920s and 1930s in the US, marked by muck racking journalism, and the populist
movements critique of Big Business (Hofstadter 1955; Geis 2015). Sutherland’s concept
was an instigator of change, aimed at establishing a new understanding of business
transgressions, and changes to economic ethical practices.
Some years later, Sutherland (1944) wrote the article ‘Is White Collar Crime a Crime?’
whereby Sutherland challenged the consequences of civil law as the main means to control
norm violations of the business community. These norm violations caused social harms that,
according to Sutherland, should be considered as crimes. As crime is not a legal term, but a
term used to condemn certain acts, that usually, but not always, is deemed illegal by criminal
law, Sutherland argued that the label ‘crime’ also should hold for the transgressions of the
business community.
Sutherland’s sociology was moralist (Teupe 2018). Nevertheless, by pinpointing the differ-
ent meanings and consequences adopted by the different kinds of legal breaches, and how
these differences interplay with society and business morals (Teupe 2018), Sutherland also

CONTACT Sverre Flaatten Sverre.flaatten@phs.no Norwegian Police University College, Oslo, Norway
© 2019 Informa UK Limited, trading as Taylor & Francis Group
338 S. FLAATTEN

opened up the field for analyzing historical change, by highlighting the symbolic differences
between different legal systems and what Bourdieu (2012) terms the ‘symbolic power of law’:
Its ability to shape our understanding of society.
Using Norway as the central focus, this paper will describe central tenets of how it came
to be that norm violations in the business community were mostly controlled by civil law,
and not by criminal law. In other words, I will describe the process leading up to the
situation Sutherland criticized when coining the phrase ‘white-collar crime’.
The argument is twofold, commencing with a description of the process leading up to the
enactment of the new bankruptcy law in Norway in 1863 and its consequences. I argue that
the enactment can be interpreted as being part of a wider change in morals as market-based
activity was becoming more accepted and viewed as beneficial to society. A part of this
process was a changing view on economic action. Instead of mainly being understood as part
of civil morals in general, marked-based behavior tended to represent a more separate sphere,
representing the logic of an economic system governed by its own laws.
This differentiated view on economic action, as I will show, is visible in the bankruptcy
cases before the Supreme Court in Norway after the passing of the law. Economic actions
were not necessarily actions where people should be held responsible for the outcome, as
the more autonomous laws of the economy governed it. Put simply; failure was not
necessarily the bankrupts’ fault.
The second part of the paper addresses the process leading up to the enactment of the
Norwegian joint-stock company law of 1910. With this law, the main means of controlling the
business community became civil law. Highlighting the symbolic dimensions of the joint-
stock company law it is argued that the choice of civil law as the means to regulate
transgressions represents a decriminalization process. Decriminalization is here understood
as a multifaceted process where I highlight the symbolic difference between criminal law and
company law. Symbolically criminal law belongs to the moral sphere of justice and guilt.
Company law, by comparison, is marked by the more nondescript language of regulation I
interpret this decriminalization process as part of the wider moral change in society regarding
its understanding of market behavior.
The article concludes with a theoretical discussion on the decriminalization process
described. The decriminalization process gives nuance to the literature on white-collar
crime, arguing that there was a heightening of control from the 1850s and onwards (Robb
2002; Taylor 2018). There was an increase in legal control of commercial activities in Norway
after 1850, but the legal tightening of control was not a process of criminalization, rather it was
a process of decriminalization. It was this process of decriminalization Sutherland worked to
change; he argued that the notion of crime also should hold when business laws were
breached. If one interprets the legal changes through the lenses of society’s wider moral
changes, the change of control, from criminal law to business law, is more than a question of
efficiency, it is a change in what Bourdieu (2012) termed as the symbolic power of the law. The
article concludes with a discussion devoted to this symbolic shift.

Primary sources
The analysis presented in this article is based on an interpretation of the preparatory writings
addressing the bankruptcy law and joint-stock company law in Norway, legal textbooks
written at that time, verdicts from the Norwegian Supreme Court regarding fraud,
 MANAGEMENT & ORGANIZATIONAL HISTORY 339

embezzlement and bankruptcy in the period between 1860 up until 1910, and the published
protocols from the Nordic meeting for legal Scholars in 1875. This meeting addressed the
regulation of the joint-stock company in the Nordic Countries. All Supreme Court verdicts
used are to be found published in the legal journal Rettstidende. This journal has been the
official outlet for Norwegian Supreme Court verdicts since 1836. The preparatory writings are
today digitalized and available for the public through the use of a search engine. The
protocols from the Nordic Meeting for legal scholars are also published.
In addition to these formal sources produced by representatives of the state, this paper
uses contemporary works of literature to illustrate distinctions between immoral and criminal
behavior. Businessmen were an important theme in Norwegian literature from 1850 onwards,
and writers played an active role in drawing the lines between what was to be seen as
immoral and criminal, and what was to be viewed as moral and professional behavior. This
literature is used to give nuance to the formal sources, as well as to bring the more symbolic
dimensions of control to the fore (Crump, Kostas Amiridis, and Costea 2007; Lepenies 1988).
In addition, this paper draws upon the works by the German academics Max Weber
(1864–1920) and Werner Sombart (1863–1941). Both Weber and Sombart wrote about the
new laws of capitalism on the rise all over Europe. Sombart and Weber play a dual role in
this article, as both source and theoretical orientation. On the one hand, they are historical
actors giving voice to the changing morals of business in the late nineteenth century
Europe. In this sense they are sources. Analytically Weber and Sombart are employed to
highlight the relationship between law, organization and private morals, a theme that can
be said to represent a main core in much of their works. Of special importance is (Weber
[1920] 2010) claim that in the late nineteenth century personal morals were no longer of
essence, as the imperatives of the economy and the power bureaucracy now dominated
man. This paper adopts this view to give depth and nuance to this statement.

The laws of the economy: the rise of the bankruptcy law in norway
In Norway by the 1850s, fraud statutes were the main legal devices used to control business
transgressions (Betænkning angaaend udarbeidelse af lov om aktieselkaber 1883;
Schweigaard 1871). As a device to control the economy, both the more general statutes
concerning fraud, as well as more specialized statutes were in play. The code of 1842 made it
punishable to use means of the estate after declared bankrupt (§ 24), and – if one understood
that one would go bankrupt – continued to use the means of the estate (§ 25). The use of
fraud statutes gave the courts wide discretionary powers in deciding what was punishable as
fraud (Langeland 2005).
Criminal law is defined by its notion of guilt, whilst, the wide understanding of fraud
can be understood to be an expression of a society where economic actions were judged
and controlled by the moral standards of civil society, and its notions of honor. This was
the case in France, Germany, as well as the U.S. (Baleisen 2001, 2017; Suter 2016; Vause
2012). Depictions of (the lack of) business morals were among the Norwegian realistic
literatures main subjects. The play, considered the first realistic play in Norway, was
fittingly enough called ‘The Bankrupt’ (Bjørnson [1875] 1897). Descriptions of the bour-
geoisie’s moral character was a theme followed later by playwright Henrik Ibsen (1828–
1906). As Moretti (2013) has shown, all Ibsen’s realistic plays seemingly appear to involve
some sort of shady economic transaction. Moretti termed this theme of Ibsen ‘the grey
340 S. FLAATTEN

area’. Moretti’s point is that in the late nineteenth century Norway, the bourgeoisie were
more and more understood not only as the social class bringing progress to society but
also as a class with questionable morals. If one reads Ibsen’s plays in the light of the fraud
statutes of the day, it becomes apparent to the reader that what is being depicted is a
fraudulent social class.
However, the use of criminal law as a means of controlling business behavior was not solely
a question of morals, it was also a matter of available legal means. In mid nineteenth century
Norway, there existed no business law governing modern commerce, including issues of
bankruptcy, which was governed by rules and regulations from the eighteenth century
(Schweigaard 1871).
As industrialization gained ground in Norway during the nineteenth century the need
for new laws and regulations relating to commercial activity gained political momentum
(Michalsen 2011: 378ff). As part of establishing a new law regulating credit, an initiative
was made for a new bankruptcy law (Indst. 0. No. 85,). In 1846 member of Parliament
Motzfeldt, supreme court attorney Dunker and Amtmann (county governor) and civil
servant Thomle were commissioned by parliament to draft a new bankruptcy law in
Norway. Behind the initiative was a change in business conduct. During the 19th century,
the problem of insolvency grew in the business community (Schweigaard 1871). However,
there were no laws regulating this kind of insolvencies. Facing the lack of formal law, the
courts combined the use of old regulation with principles from Roman law to solve cases
brought for the court (Schweigaard 1871). The bankruptcy draft legislation was set up to
solve problems rising because of the lack of formal law.
French Code de Commerce of 1808 inspired the draft they produced. Code de Commerce
supplanted the old commercial laws, which were based on the idea of a merchant class, with a
functional description of the merchant, i.e. those who were involved in trade (Flume 2014).
The Norwegian bankruptcy proposal followed suit incorporating a description of what it
meant to be a merchant according to their commercial activity.
The Norwegian bankruptcy draft also suggested that creditors could demand that a
merchant declare bankruptcy if debt payments had stopped for 8 days. Bankruptcy was
according to the old laws first and foremost an institution that could be used after a debtor
died (Schweigaard 1871). It now transpired that bankruptcy could be considered a part of
normal business conduct, and that a creditor could claim bankruptcy after 8 days. This
suggestion implied a major power shift, empowering the creditor. When reading the statutes
and the preparatory works, it is evident that the new law was set out to protect the creditor.
The change to the existing bankruptcy laws in order to become an integral part of business
and protect creditor were considered a radical proposal; bankruptcy was now perceived to be
normal banking practice as well as representing a shift of power from debtor to creditor. The
bankruptcy law draft, however, was never passed as Parliament found that the time was not
ripe for such drastic regulations. This would change 13 years later.
The year 1857 was marked by a series of global financial crises (Rosenberg 1974). The crises
began in the U.S. with an insurance company going bankrupt (Rosenberg 1974, 117ff). The
bankruptcy started a panic that moved across the nation and traveled over the Atlantic
reaching London. After reaching L9ondon it spread out all over the European Continent.
Transatlantic panics were not new (Lepler 2013). However, the 1857 crises was experienced as
particularly bad, hitting the European economy and all its sectors as a whole (Rosenberg 1974).
 MANAGEMENT & ORGANIZATIONAL HISTORY 341

The logic of these crises paved the way for a new understanding of the Economy. As
the crises affected all sectors of the global economy, the Economy become to be under-
stood more as a system following its own rules, than as result of individual action and its
consequences (Schumpeter 1954, 738ff).
Norway was not hit as bad as was feared by bankruptcies in relation to the 1857 crises
(Herzberg and Rygg 1907). Nevertheless, a year later the government in Norway commis-
sioned a revision of the 1846 bankruptcy draft, and set Supreme Court attorney Dunker to
the task. When arguing for the need of a new law this time around, Dunker highlighted
two aspects (O. No. 7. 1859). There was a need for a common European understanding of
bankruptcy and therefore, a new law was necessary in Norway. This need for a common
European business law, Dunker argued, was a part of the rise of European free trade with
the integration of markets and stakeholders. If one allows oneself to read between the
lines, it is reasonable to add that the reality of European marked integration had proven
itself through the threat of bankruptcies involving parties across borders following the
1857 crises.
In addition to the need for harmonization, a problem with the old bankruptcy regula-
tion in Norway, according to Dunkers proposal, was that it in effect made criminal
proceedings difficult; to be charged with fraud in relationship with bankruptcy one had
to have declared oneself bankrupt. This prerequisite to bankruptcy made it in the debtor’s
interest to not declare oneself bankrupt so as to avoid criminal charges. The new draft did
not make it incumbent upon the debtor to declare bankruptcy; according to the draft, a
creditor could demand bankruptcy of the debtor if there had been a failure to pay any
debts for 8 days; subsequently, the proposed draft could now be seen to pave the way for
criminal charges to be employed in cases of fraud.
Dunker’s proposal was criticized for going too far in protecting creditors, as well as not
being suitable for a preponderant agrarian Norwegian economy (Indst 0. No. 54 1863). In
agrarian economy expectations concerning paying one's debt followed the relationship
between expectations and the influence of the four seasons. The critics though did not
stop the new law being enacted. With some adjustments, the bill was, passed in 1863,
giving Norway its first modern bankruptcy law.

Bankruptcies before the supreme court: business cycles before the court of law
As always when new bills are passed, new questions arise. Among the questions asked in
court following the new bankruptcy law, was when criminal responsibility arose in bankruptcy
cases. In the two verdicts presented below, this was debated. In both cases, the bankrupt is
accused of committing a crime. In one verdict, the accused is acquitted, in the other he is
found guilty. Both verdicts entail passages were it possible to see how the Supreme Court
viewed the act of bankruptcy in light of more general morals. The verdicts are chosen as they
are ‘ideal typical’ (Weber 1978) in the sense that they make visible the morals of bankruptcy as
viewed by the courts after the passing of the bankruptcy bill in 1863.
In 1879, a 56-year-old man from the city of Trondheim stood trial accused of not
settling his debts in impartial manner, knowing that he was going bankrupt (§ 25). He was
also accused of deceiving other people for personal gain (§ 1), in short, fraud. In 1882, the
case went to the Supreme Court with the defendant being questioned about his knowl-
edge of his impending bankruptcy (Rettstidende 1880, 220ff).
342 S. FLAATTEN

During his trial, the defendant had presented a written statement from a priest stating
that, until this very day, he had been a man of honor, highly regarded in his community
and with an exemplary marriage and family history. He had also amongst other things,
been a member of the school commission and the local savings bank. Regarding his
financial state of affairs he had a deed of property, entitling him to the farm he lived on,
and had all the necessary means for himself and his family.
In addition, he ran a fishing business company, and that was the enterprise that had
brought him into financial trouble. This company had been losing money over the years,
and subsequently, he had placed his estate into private administration. However, when
his creditors discovered the state of the company, they advised him to file for bankruptcy,
which he did. The defendant claimed that he was unaware of the seriousness of his
financial state and trusted that his fortunes would improve in time, but had no particular
reason to believe that his situation would change for the better.
It is in this situation that he chose to relieve one of his creditors. In connection with an
inheritance, one of the heirs (his stepson), was interested in collecting the debts of the
deceased, and the man from Trondheim agreed. For this down payment, he was charged
with impartial down payments (§ 25). The Supreme Court acquitted him of these charges
on a technicality. In this case, there was no agreement stating when the debt should be
paid. This, states the Supreme Court, makes it impossible to use § 25. This technicality,
though, did not necessarily imply that he was off the hook. The question remained; is this
a case of fraud in general (§ 1)? The Supreme Court found that not to be the case. They
saw no reason why he should not have paid down his debts to his stepson, given the fact
that he himself was not under the impression that he was going bankrupt. Furthermore,
the court comments that it is not uncommon that a businessperson understands his
financial position differently before and after bankruptcy, and had the market gone his
way again, one must suspect that the honorable man from Trondheim would have ended
up in a completely different position. Adding to this, since he is a respectable man of
means, he had also good reason to believe that a down payment agreement with his
creditors without bankruptcy would be possible.
It is possible to interpret the Supreme Court verdict in light of changing morals. Bankruptcy
in France was seen as a question of personal morals (Vause 2012). Suter (2016) described how
bankruptcy was defined by one’s social status during the nineteenth century and not by the
letter of the law. In Norway, men of letters described bankruptcy as a moral issue (Bjørnson
[1875] 1897; Ibsen [1896] 2014). These non-criminal criteria were evident in the abovemen-
tioned case but nonetheless, bankruptcy was demonstrated to be not specifically a moral
issue. The Supreme Court referred to the vagaries of the money market as something beyond
one’s control, where ups and downs are the normal state. In other words, the Norwegian
Supreme Court judged the man from Trondheim in light of what today is called ‘business
cycles’ where financial ups and downs are an expected state of the economy (Schumpeter
1983). Levy (2012, 19), in his book on risk and capitalism in the U.S., has argued that there is an
element of risk inherent to the financial market that can provide any economic action with an
existential dimension. In the verdict above, the Norwegian Supreme Court acknowledged
these risks with the rider, that risks are often unpredictable and are recognized feature of
market behavior.
However, the Supreme Court of Norway did not deem all risks unforeseen and all bank-
rupts to be blameless. An example of such behavior was demonstrated by a wholesaler who
 MANAGEMENT & ORGANIZATIONAL HISTORY 343

failed to pay his debts and did not maintain his financial records in an approved manner and
was charged under an 1874 statute of the Bankruptcy Act with having demonstrated a
‘grossly neglected or disordered’ bookkeeping. Whilst the failure to maintain accurate finan-
cial records was not in question, the legal challenge for the Supreme Court was to determine if
the wholesaler was indeed a merchant (Retstidende 1879, 218). This last point would
determine if the wholesaler was to be judged upon the financial size of the business and
accordingly face criminal charges if found to have been running a business of substance. The
wholesaler accordingly was found guilty due to a failure to maintain his accounts in an
approved manner.
The legal question that the Supreme Court in this verdict had to answer was not so much
that the wholesaler’s bookkeeping was negligent and disordered. That was quite clear. The
question was whether the wholesaler could be defined as a merchant. In the statute
prohibiting disordered books, it was stated that insignificant businesses were not obliged
to keep books. The question then for the Supreme Court was, was this wholesaler business to
be regarded as insignificant? This was one of the major issues in the process leading up to the
passing of the bankruptcy bill, as its critics feared the proposed law would reach too far (Indst.
0. No. 85). Viewed in light of this debate, the verdict was to decide on an important legal issue.
The court found the business was sufficient enough for criminal charges to be brought.
The wholesaler was sentenced by the Supreme Court to prison for 10 days on bread and
water because his accounting books were in gross disorder. The Supreme Court had now
defined a ‘significant business’ to include social expectations of appropriate financial
practices, as well as obligating small businesses, to maintain accurate financial records,
thereby ensuring that accountancy became integral to a modern economy. As well, small
businesses were now obligated to be cognizant of potential financial pitfalls and to have a
duty of care in their financial activities. Ignorance of these obligations was now no longer
an accepted legal defense against financial misdeeds.
This move by the Supreme Court could be said to have caused business norms to move
away from guilt, its preoccupation with the past, and toward future risks. This develop-
ment coincides with developments in Tort law. Traditionally in Norway, liability had been
closely connected to criminal law’s notion of guilt (Stang 1919). In the later part of the
nineteenth century, this was changing. Liability in Norway changed in the nineteenth
century to incorporate a business person’s responsibility in understanding that any
potential monetary losses were to be measured against the current state of the financial
market (Stang 1919).
Summing up: In the late nineteenthth century the Norwegian Supreme Court can be
interpreted as moving toward legal judgments informed by marked logic when con-
fronted with bankruptcies. This tendency lends support to, as well as from, one of Max
Weber [1920] 2010 claims: During the late nineteenth century economic actions became
more and more dominated by systemic demands.

Regulating the Norwegian joint-stock company

When the new bankruptcy law was passed, it can be said to symbolize a new industrial
future for Norway. However, the Norwegian state required economic assistance with the
financing of new infrastructure to become an industrialized economy (Sandvik 2018). In
keeping with much of Europe, the Norwegian state generated capital through the use of
344 S. FLAATTEN

joint-stock companies. As in much of Europe the Norwegian state therefor mobilized

capital through the use of the joint-stock companies (Mitchie 2008; Sandvik 2018). In
1910, Norway was among the countries in Europe with the most joint-stock companies
per capita in Europe (Hannah 2015; Espeli forthcoming)
The raising of capital for railways became a blueprint for the evolution of modern white-
collar crime (Robb 2002). The manipulation of stocks and shares as well as prospects in the
ability to extort business capital afforded individuals many opportunities for fraudulent
behavior. Ultimately, public concerns with the apparent lack of financial regulation impelled
the Norwegian Government in 1881 to consider a new joint-stock company law. The
Norwegian government commissioned a report. The report (Betænkning angaaend udarbei-
delse af lov om aktieselkaber 1883) stated that the apparent lack of regulatory control was
peculiar to Norway (and Denmark), as other European countries had long ago implemented
laws regarding capital use, third party rights, and the make up of company boards. Norwegian
criminal law fraud statutes were impotent in enforcing the law, due to the uncertainty of what
was meant by legal and illegal actions, as well as a need to prove criminal intent, as opposed
to negligence. The existing criminal laws were regarded generally as being incapable of
providing control of the financial market. The lack of law and understanding of what a
joint-stock company implied regarding investments also made it hard to ‘lock in capital’ in
the company. Locking in capital means the individual investor cannot extract capital without
the approval of the Board (Blair 2003). Locking in capital is an important trait, as it promotes
the interest of the investors as a group (Blair 2003).
In Norway, the only law regulating the joint-stock company was a law enacted in 1874,
demanding public registration of the names of the company. If it was not publically stated
that one was a joint-stock company, one was to be regarded as personally responsible. In
other words: in order to achieve limited liability one had to publically announce that one
was a joint-stock company. One also risked being fined if one did not live up to the
standards of the law. However this law, the commission stated, was a failure in regards to
control, and a new law regulating the joint-stock company was thus considered necessary
(Betænkning angaaend udarbeidelse af lov om aktieselkaber 1883).
The Norwegian committee concluded its deliberation by stating that this system,
where a stock company could be established solely through private agreements, was
unsatisfying. According to the commission, it was known in Europe that a modern joint-
stock company law is best regulated through a wide-reaching and strict joint company
law, that demands publicity regarding the company that affects the third party. This
includes the establishment of the company, its capital and dispositions, as well as its
stockholders. This law is meant to hinder fraud. In effect, the commission’s conclusion
showed a need for heightened control, but a control that implies a decriminalization,
through a shift in legal regimes.

Nordic background to the Norwegian joint-stock company law: moving

toward decriminalization
Prior to the Norwegian commission of 1881 the state of the Nordic joint-stock company
was debated at the ‘Nordic Meeting for legal scholars’, that was held in 1875 in Stockholm,
Sweden, attended by Government officials and academics from the Nordic Countries
(Førhandlingar vid andra nordiska juristmötet i Stockholm den 26–28 augusti 1875). This
 MANAGEMENT & ORGANIZATIONAL HISTORY 345

meeting provided the impetus for the Norwegian Government’s 1881 initiative in the
creation of a new joint-stock company law. Many of Norway’s parliamentary members
were also legal academics and members of the judiciary and these members carried
significant influence into the direction of the Government’s law-making (Myhre 2009;
Slagstad 1998).
In 1875 in Stockholm a Swedish Supreme court lawyer, Hindenburg, argued for the need
for Nordic regulation of the joint-stock and that stockholders should legally be entitled to
accurate information about the true status of the company (Førhandlingar vid andra nordiska
juristmötet i Stockholm den 26–28 augusti 1875). Hindenburg was influenced by the English
legislation of 1862 that governed joint-stock companies but emphasized that government
control should not dictate the running of the company, but rather ensure the provision of
informed consent for the stockholders. Previously, stock market interactions were largely
based upon a system of personal trust between the sellers and buyers of stocks but
Hindenburg also believed that harsh criminal penalties for fraudulent behavior were inap-
propriate–a monetary penalty system would be suitable. He further argued that tight govern-
ment control or stricter criminal laws were unnecessary and suggested that the Nordic
countries adopt joint-stock company laws that reflect the best interests of all stakeholders,
that is, a system of control but with minimum State interference. Hindenburg argued against
an honor-based stock market, secured by interpersonal trust. He deemed it necessary to
establish a system where trust in morals and honor should no longer be a necessary trait in
economic action.
Responding to Hindenburg’s claims in Norway was a professor L. M. Aubert. Aubert also
proposed a new law regulating stock companies (Førhandlingar vid andra nordiska
juristmötet i Stockholm den 26–28 augusti 1875). The need for control, according to Aubert,
grows out of the nature of stock companies – with its principle of limited liability – as it makes
it possible to erase one’s personal responsibilities. In Norway, he states, it is even possible to
make part of one’s fortune into a private stock company, and thereby protect one’s money
from creditors. Aubert argues that the evaporation of personal responsibility gives incentives
regarding immoral behavior and the transgression of norms. However, Aubert assumes that
people of high society would have misgivings about using criminal law. Therefore, a company
law regulating the relationship between the parties would be more fitting.
At the meeting, Professor William Scharling, represented Denmark. Scharling had
doubts about the need for a new joint-stock company law. Scharling believed that civil
law regulation of stock companies would in fact encourage company directors to seek
ways of legally exploiting these laws, as happened with the securities laws in Germany–
Scharling argued against moving financial law from criminal law to civil law. Scharling
went on to cautiously claim that there was a need for some regulation that would enable
increased profit margins, but to be aware that joint-stock company law would encourage
the rorting of a company as a means of ensuring maximum profit returns. The willingness
by dealers to actively seek ways of maximizing profits via manipulation of financial
regulations is currently described as ‘stitching on the edge’ (Thiemann and Matthias
2017) or ‘whiter than white-collar crime’ (McBarnet 1991). Both concepts point to business
models where profits are made by purposely operating in the gray area between the legal
and the illegal.
The meeting of 1875 identified financial investment not just as risk-taking, under-
pinned by honorable and interpersonal trust between dealers, but also that financial
346 S. FLAATTEN

markets offered opportunities for immoral and criminal activities. The legal profession
vociferously expressed the view that honor above all should be the foundation of all
business activity. However, in the emerging financial world, this had not proven to be
sufficient, and so financial laws were now required to offer investors transparency. These
laws were necessary to offset the inherent problems of self-regulation. Equally, these laws
would provide a transparency of the company’s activities, whilst offering legal parameters
for the company’s operation. The laws now governing a company’s activities would see
any transgressions being punished via the joint-stock company law, rather than crim-
inal law.

Conclusion
Although the first draft for the joint-stock company was first proposed in Norway in 1883,
it was not until 1910 that the bill became law. During these years, the bill faced strong
opposition from the powerful lobby of shipowners who believed that secrecy in business
was the only way of protecting individual companies from competition (Platou 1911, 23).
According to Platou, this was a deliberate obstruction of the notion of transparency, and
showed a reluctance to relinquish long-term privileges.
Platou’s textbook from 1911 can be read as a testimony of the victorious. Among the
most prominent jurist of his generation, Platou wrote his dissertation on company law. In
this dissertation, he criticized the Norwegian Supreme Court on its views on liability
regarding third party (1875). The Supreme Court defended the personal liability as the
general norm. The dissertation both won wide acclaim as well as critique. In 1881 Platou
was among the members in the commission, described above, arguing for the need to
regulate the joint-stock company, and later was part of the committee commissioned to
draft a new joint-stock company law. In the end, Platou wrote the authoritative textbook
describing the new state of affairs.
The period between 1840 and 1880 was marked by a series of new laws in Norway
being enacted, the bankruptcy law being one of the most important. Traditionally, this
transition period from the mid nineteenth century to 1910 has been perceived as high-
lighting the need for control, and how the business community responded to this control
(Reich 1969) – in what Edelman and Suchman (1997) termed the ‘material perspective’.
In the political debate following the proposal and its many delays, this holds true (Platou
1911). The Norwegian shipping industry in particular fought these attempts at regulation. In
the debate in Stockholm in 1875, the problem was portrayed as protecting business from the
state on one hand, and protecting business partners from each other on the other hand. This
way of casting the problem, as Lamoreaux (2009) has pointed out, was like choosing between
Scylla and Charybdis.
In contrast, I have argued a different case. Instead of focusing on the political squabbling
between society’s elite in deciding between Scylla and Charabdies, I have highlighted how
interpersonal morals no longer were understood as sufficient means of control in economic
transaction., causing a turn toward formal law. One could no longer assume, as Sombart
[1913] 1923 had argued, that behind the bourgeoisie stood the ‘Bürger’, carrying a set of
virtues. The logic of business cycles no longer made this feasible. The system of formal law
therefore pushed forward a system which, as Max Weber [1920] 2010 argued, at the same
time created an economy no longer dependent on bourgeoisie personal morals. This did not
 MANAGEMENT & ORGANIZATIONAL HISTORY 347

necessarily imply that morals were in decline in regards to business behavior, but rather, that
they were changing. The case of bankruptcy tells the story: From being considered a ques-
tionable act in general, now, as shown in the discussion above on the Supreme Court verdicts,
additional criteria had to be added in order to be deemed immoral.
The push toward demoralization, though, was not a one-way street. A European counter
push also found place, seeking to reduce the damaging effects of the economic system
(Weber [1919–1920] 2013, 538–539). This counter push also found place in Norway, where a
number of laws were enacted to hinder damaging effects of market behavior (Sandvik 2018).
The realist literature in Norway is one example of where bankruptcies remained a morally
contested issue. Changing perceptions of the market in other words marked the period. The
change toward a more systemic view on the economy being one of them.
Weber’s view of law, as has been noted by Pierre Bourdieu (2012), places too strong an
emphasis on the brute force of the law. Understanding the rise of bankruptcy laws and
company law solely as a heightening of control misses this symbolic side of the law, which
in this case in effect formally decriminalized business failure by moving the control away
from criminal law and over to civil law.
This symbolic decriminalization of business failure should not be understood as a way of
reducing legal control. Quite the contrary, it can be viewed as enabling legal action through
juridification. The old system was based on freedom of contract; a freedom whose limits were
regulated through fraud statutes. This system was now replaced with new laws, the bank-
ruptcy law and company law being among them. Civil laws regulating business grew out of
the experienced lacunas of criminal law. Ironically then, symbolic decriminalization was a
response to a penal law unable to protect market participants against wrongful actions with
fraud statutes.
Taylor (2018) argues that criminalization should be understood as a process, and that
through the late 19th century, in Britain, the public sphere came to understand modern
business transgressions as crimes, and that during this period enforcement increased. In
Norway, at the same time, there also seemed to be moral concerns amongst government
officials, academics and literates. However, this concern and demand for control led to the
use of civil law as the preferred means of control. Criminal law was still in use, but it was no
longer the general mean of legal control in regards to control the business community.
The use of civil law removes the control from the more heroic notions of guilt and justice
embedded in the language of criminal law. This change of law, as Sutherland (1944) later
elaborated, symbolically destigmatises transgressions by businessmen, and socializes them
into a community where norm violations are not necessarily seen as wrong. Failure in
business, in not being able to foresee the future when putting other people’s money at risk,
is now not necessarily a moral failure; it is simply a part of the laws of the economy.

Acknowledgments
For comments, I would like to thank the participants at the workshop “Business and the Law.
Historical Perspectives on Legal Change” held at University of Bayreuth on June 21st–23rd, 2018;
special thanks to the organisers Sebastian Teupe and Lois Phalow. I would also like to thank Geir
Rønning for his comments on the manuscript, as well as the anonymous reviewers.
348 S. FLAATTEN

Disclosure statement
No potential conflict of interest was reported by the author.

Notes on contributor
Sverre Flaatten is Associate Professor at the Norwegian Police University College in Oslo. He is
currently working on a research project on capital control and white-collar crime. Dr. Flaatten has
published extensively on the legal history and sociology of the Norwegian criminal law.

ORCID
Sverre Flaatten http://orcid.org/0000-0001-7911-7110

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