At some point the US diverged from its common law ancestor, the English system, and the respective divergences came to be known as the American and English rules. The American rule is that parties bear their own legal costs while the English rule is that generally, the losing party pays. When and how did this divergence come about?
According to the Attorney's Fees in Public Interest Litigation1 from 1981:
It has traditionally been the practice in federal court not to award attorney's fees to the prevailing party under the doctrine known as the American rule. This is different from the practice in English courts where the prevailing litigant has always been awarded the expense of his counsel fees. There are several possible reasons for the development of this American rule including "a public mistrust of lawyers, the American belief that every man should pay his own way as well as the expenses for defending himself, and the possibility of historical accident"
The American rule can be traced as far back as 1796, when the Supreme Court in Arcambel v. Wiseman concluded that the American system of jurisprudence did not permit the award of attorney's fees to the successful litigant as a matter of course. Numerous later cases also followed this proposition.
Several reasons have been given in support of the rule. One is that the rule gives free access to the courts without the threat of having to pay the fees of the adversary's attorney. Another reason commonly given is that the rule limits the possible abuse in the awarding of fees.' However, the rule can act as a deterrent by restraining those parties who cannot afford attorney's fees from bringing an action supported by good cause.
(The article goes on to discuss off-topic exceptions etc)
1 Quiner, David Mark (1981) "Attorney's Fees in Public Interest Litigation," Land & Water Law Review: Vol. 16 : Iss. 2 , pp. 727 - 745.