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   THE CORPORATION
& AMERICA

Rewriting history to justify greed

Sam Smith

THIS ORIGINALLY APPEARED IN 'SHADOWS OF HOPE,'
PUBLISHED BY INDIANA UNIVERITY PRESS, 1994

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.

 How states once
controlled corporations

The purposes for which every such corporation shall be established shall be distinctly and definitely specified in the articles of association, and it shall not be lawful for said corporation to appropriate its funds to any other purpose. -- State of Wisconsin, 1864

The charter or acts of association of every corporation hereafter created may be amendable or repealed at the will of the general assembly. -- State of Rhode Island, 1857

[Legislators shall] alter, revoke or annul any charter of a corporate hereafter conferred . . . whenever in their opinion it may be injurious to citizens of the community. -- State of Pennsylvania, constitutional amendment, 1857.

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.