Saturday, October 11, 2008


Sam Smith, Shadows of Hope, 1993 - Encomiums to the wonders of market forces fill speeches and media reports. One National Public Radio reporter even went so far as to describe a form of government called market democracy, apparently a blend of the Bill of Rights and the Wall Street Journal editorial page.

In fact, most free workers in this country were self-employed well into the 19th century. They were thus economic as well as political citizens. Further, until the last decades of the 19th century, Americans believed in a degree of fair distribution of wealth that would shock many today. James L. Huston writes in the American Historical Review: "Americans believed that if property were concentrated in the hands of a few in a republic, those few would use their wealth to control other citizens, seize political power, and warp the republic into an oligarchy. Thus to avoid descent into despotism or oligarchy, republics had to possess an equitable distribution of wealth."

Such a distribution, in theory at least, came from enjoying the "fruits of one's labor" but no more. Businesses that sprung up didn't flourish on competition because there generally wasn't any and, besides, cooperation worked better. You didn't need two banks or two drug stores in the average town. Prices and business ethics were not regulated by the marketplace but by a complicated cultural code and the fact that the banker went to church with his depositors.

Although the practice was centuries old, the term capitalism -- and thus the religion -- didn't even exist until the middle of the 19th century. Americans were intensely commercial, but this spirit was propelled not by Reaganesque fantasies about competition but by the freedom that engaging in business provided from the hierarchical social and economic system of the monarchy. Business, including the exchange as well as the making of goods, was seen as a natural state allowing a community and individuals to get ahead and to prosper without the blessing of nobility.

In the beginning, if you wanted to form a corporation you needed a state charter and had to prove it was in the public interest, convenience and necessity. During the entire colonial period only about a half-dozen business corporations were chartered; between the end of the Revolution and 1795 this rose to about a 150. Jefferson to the end opposed liberal grants of corporate charters and argued that states should be allowed to intervene in corporate matters or take back a charter if necessary.

With the pressure for more commerce and indications that corporate grants were becoming a form of patronage, states began passing free incorporation laws and before long Massachusetts had thirty times as many corporations as there were in all of Europe. Still it wasn't until after the Civil War that economic conditions turned sharply in favor of the large corporation.

These corporations, says Huston: . . . "killed the republican theory of the distribution of wealth and probably ended whatever was left of the political theory of republicanism as well. . . .[The] corporation brought about a new form of dependency. Instead of industry, frugality, and initiatives producing fruits, underlings in the corporate hierarchy had to be aware of style, manners, office politics, and choice of patrons -- very reminiscent of the Old Whig corruption in England at the time of the revolution -- what is today called 'corporate culture'."

Concludes Huston: "The rise of Big Business generated the most important transformation of American life that North America has ever experienced."

By the end of the last century the Supreme Court had declared corporations to be persons under the 14th Amendment, entitled to the same protections as human beings. As Morton Mintz pointed out in the National Law Journal, this 1888 case ignored the fact that "the only 'person' Congress had in mind when it adopted the 14th Amendment in 1866 was the newly freed slave." Justice Black observed in the 1930s that in the first fifty years following the adoption of the 14th Amendment, "less than one-half of 1 percent [of Supreme Court cases] invoked it in protection of the Negro race, and more than 50 percent asked that its benefits be extended to corporations."

During this period the courts moved to limit democratic power in other ways as well. For example, the Supreme Court restricted the common law right of juries to nullify a wrongful law; other courts erected barriers against third parties such as banning fusion slates. It was during this same time that the myth of competitive virtue sprouted, helping to justify one of the great rapacious periods of American business. It was a time when J.P. Morgan would come to own half the railroad mileage in the country -- the same J. P. Morgan who got his start during the Civil War by buying defective rifles for $3.50 each from an army arsenal and then selling them to a general in the field for $22 apiece.

The founding principles of what we now proudly call the "American free market system" flowered in an era of enormous bribes, massive legislative corruption, and the creation of great anti-competitive cartels. It was a time when the government, in a precursor to industrial policy, gave two railroad companies 21 million acres of free land. And it was also the time that American workers, who had once used commerce to free themselves from the economic and social straitjacket of the monarchy, found themselves servants of a new rigid hierarchy, that of the modern corporation.

The political movement of populism, which Jonathan Rowe calls the "last spasm of economic freedom in an American context," did battle with the new corporations but lost, as did the eurocentric socialists who followed. Save during the depression, generations of Americans would come to accept the myth of the free markets and free enterprise.


At October 12, 2008 9:29 AM, Anonymous Anonymous said...

Amazing! This article encapsulates what really happened. The only factor which Sam didn't bring into scope is how the modern notion of "progress" was woven into the fabric: That we must endure these inhumane new forms of social control (i.e competition, "the marketplace", etc.) because we get "progress" into the bargain. Thus, for example, as we get more Ipods and satellite radio, we get less and less locally created and genuine music. Even Rap, which is the modern equivalent in many ways of the Spirituals of the cotton fields in its being authentic, has been co-opted, processed and shrink-wrapped by the corporation. That's progress. Learn to love it. "Ka-ching" (sound of the cash register).

At October 12, 2008 3:39 PM, Anonymous Anonymous said...

Obamba = Socialism, be careful what you wish for, you just might get it. i.e.:

-Community Reinvestment Act
-Affordable housing program
-Section 8 rent subsidies
-Earned Income Tax Credit
-Social Security Disability Insurance
-Fannie Mae and Freddie Mac
-Emergency Economic Stabilization Act of 2008

At October 12, 2008 8:12 PM, Blogger Zap said...

Those are the *good* things. ACORN was very effective fighting the predatory lending that created this mess, CRE loans are *not* the ones defaulting en masse, because they were made under sensible banking rules, and would you prefer the disabled simply die on streetcorners? Many of them were disabled working for the 'free markets' for little pay and no health insurance.

Nor were Fannie and Freddie responsible--they're collateral damage. This whole thing was created by the *unregulated private sector.*

A little socialism is *exactly* what we need. Maybe even a lot of it. The markets certainly aren't doing it. The countries that have it are doing a whole lot better than we are.

At December 5, 2008 9:48 AM, Blogger kouk said...

Are you intentionally misdirecting or is it because you believe what you are saying? J.P. Morgan resold re-machined rifles, i.e. not defective anymore, to a military that knew what it needed and was getting. The rest of the article is likewise more or less a distortion, but even where it is not a distortion (i.e. about J.P. Morgan's later monopoly status) the conclusion is just wrong: Any corporation or businessman that has gained all his own enterpreneurial powers can give him will at one point or the other use the state in order to get more power without actually creating the corresponding value in the market. The politician of course always obliges because he can neither know or have reason to care about the "public good", even though that is what he must use to justify his patronage to big business. This state of affairs is called corporatism and of course it exists in the US as it exists in France, Italy and Germany, not because of innate features of capitalism nor because of liberal ideology but because of "progressive" ideologies like populism, socialism, communism and even fascism (which we've forgotten how 'progressive' it seemed to most people) which permitted exactly the use of the 'public good' as a justification of political patronage of business. It is not capitalism that permits business to become huge and monopolistic, it is the expanding government and populist mentality. That said, the US is much less a corporatist state than other countries, like France. Just take into account that government ownership or control of a corporation is little different than private corporations "in business" with the government, since instead of a businessman it is the bureaucracy and it's interests that run the show as politicians are democraticaly rotated in and out of power. In many ways a private corporation, as big as it might ever be, will never be so smug about it's position and exercise that much control as a huge bureaucracy.


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