Wednesday, November 23, 2011

How Corporate Personhood came into Being 2/3

by Nomad
In the last post, we looked at the creation of the modern corporation- something quite different than what had come before. Less regulated and more or less free of government or civil control, the corporation became an empire building tool.  Because of success of the railroad industry, the new corporations quickly became a source of great economic and political power.

The Rise of the Capitalists
With all of the railroads came great wealth and with that wealth came power and the power to corrupt.
As the country's largest sector, the railroads powerfully shaped the flow of material resources and the distribution of wealth throughout the society. They not only funneled resources in the basic industries such as iron and steel leather lumber and coal that supplied their needs, but also drew resources out of the agrarian, mercantile and industrial economies into the finance capital.. The rate of growth was, by any standard, spectacular and by the scale of industry at that time unfathomable.
The centralization of capital guaranteed that the flow of money moved toward the major cities, like New York and Chicago. The cities themselves were being reshaped into an image of the European capitals. The architecture suggested that American had become the new Rome.
..By the time of the Civil War, no railroad of any consequence could be built without Philadelphia, Boston or New York financiers to raise the necessary funds. The great private banking institutions grew into powerful investment houses.
Some of the most powerful financiers of that time, names like James Fisk (who illegally smuggled cotton behind enemy lines, by some reports) Cornelius Vanderbilt, Jason "Jay" Gould all got their starts by investing in railroad earlier in their careers.

Yet all that wealth and all that social change really belonged to a select few. Except, perhaps for our own time, the contrast between rich and poor in the United States was never greater nor more obvious. During the years of 1840 and 1860, while 30,000 miles of railroad track were being laid, bringing ever increasing wealth to the already wealthy, the trickle-down effect was hardly detectable at all. Despite the rise of the upper class, life for the poor actually grew worse during that period. The statistics make grim reading:
Living standards for most Americans remained flat or declined. Life expectancy actually declined during this period and most wage earners spent between 50 and 75 percent of their incomes on food. Conditions in the cities deteriorated. Between 1800 and 1850, New York City’s life expectancy at birth dropped to a mere 24 years. In most American families no more than ½ of the children could be expected to attain maturity. The problem of diseases grew even larger and major epidemics of cholera and malaria, aided by migration, immigration and advances in transportation, continued to plague the nation. Tuberculosis became an even greater problem due to even more overcrowding in the cities... Economic depressions continued to visit the nation every 10 or 15 years and their impact was intensified as more and more citizens became dependent on employment. By 1860 only 55% of the workforce was engaged in agriculture, a dramatic change from just several decades earlier when a great majority of work was agriculture related. The average wage for manufacturing workers is estimated to be slightly less than seven thousand dollars a year in today’s dollars ( 2005).
Corporations, Cotton and Slavery
The first exercise of the new-found power was the elimination of all other competing systems, namely the slave-based labor force of the South.

The railroad system enabled manufacturers or producers to supply factories in the Northeast and upper Midwest. Added to that, the heavy immigration from Europe during the 1840s and 1850s created a cheap labor force for these factories. All that cheap labor- no matter how little they were paid-.could hardly compete with slave labor. The powerful and prospering new industrialists grew impatient with the Southern control of the national politics (the Senate) that prevented favorable legislation for business interests (tariffs and federal funding from something like the Bank of the United States.)

Railroad construction in the South generally lagged behind that of the Northern states and usually linked plantations to ports for shipping. This allowed cotton plantations to bypass the cotton speculators in the North and sell to buyers in Europe directly.

Steam-driven looms of Britain were demanding more reliable sources of cotton. Cotton’s value as a commodity soon became critical to the textile manufacturers in England. As far as the British were concerned, the South had a pair of decidedly attractive advantages, its freer trade policies, which allowed tariff-free trade and its slave labor, which allowed suppliers to “outbid” any other sources. Although England had abolished slavery in 1833 within the British Empire, its merchants were quite willing to deal with nations who engaged in that peculiar institution in the name of free trade.

The rise and wealth and the political power of the South was built on cotton and slavery. The North, on the other hand, was built on manufacturing (which was still relatively primitive compared to British factories) on trade and on financial speculation. The battle lines were being drawn and that battle to the death was probably unavoidable. It was clear to most observers that both systems could not survive in their present forms.

Emanuel Lehman set up
the first New York branch
in 1858

Cotton trade was a not only a means of making money, it was an empire building commodity. For instance, Lehman Brothers originally began as a cotton trading firm in Montgomery, Alabama, before opening offices in Manhattan at 119 Liberty Street in 1858. It later joined the Coffee Exchange and also the New York Stock Exchange but the cotton trade was where the big money could be found.
During the 1850s, cotton was one of the most important crops in the United States. Capitalizing on cotton's high market value, the three brothers began to routinely accept raw cotton from customers as payment for merchandise, eventually beginning a second business trading in cotton. Within a few years this business grew to become the most significant part of their operation.
During the Civil War, Emanuel and Mayer Lehman, brothers of Henry, became blockade runners for the Confederate cause, ferrying cargos of cotton past Union gun ships. Upon moving to New York after the war, the Lehmans joined the Goldman and Sachs families as part of the financial establishment.
In the lead-up to the Civil War, the importance of the cotton industry can hardly be underestimated. At that time, it was also America’s leading export and Britain was its largest importer.And, as one source tells us,
The cotton industry was one of the world’s largest industries, and most of the world supply of cotton came from the American South. This industry, fueled by the labor of slaves on plantations, generated huge sums of money for the United States and influenced the nation’s ability to borrow money in a global market. In many respects, cotton’s financial and political influence in the 19th century can be compared to that of the oil industry in the early 21st century.
That’s not an idle comparison either. If the railroad industry serves as the prototypical corporation, and Durant, the prototypical corrupt corporate head, then the cotton industry can perhaps serve as the prototypical speculative commodity, for which- like oil- nations are made and torn asunder.

The Hostile Takeover Of the Confederate South
The Supreme Court’s controversial Dred Scott decision of 1857- which supported slave-holding economic model- had rendered the Civil War something of an inevitability. (It was every bit as calamitous as the Citizens United case of our time.)

Chief Justice Roger B. Taney, declared that all blacks -- slaves as well as free -- were not and could never become citizens of the United States. Among other implications, this decision meant that slaves were not eligible to vote to support legislation to free themselves. This, in turn, reinforced the idea that slavery was a viable system, worth maintaining. The legislative solution for the abolition of slavery was, from that point on, off the table. For without the right to vote, the peaceful possibilities for change through the ballot box (and through a legislative mandate) were lost.

To the industrialist of the North, this ruling was proof enough that there now was only one solution to the problem of the South- if a peaceful merger was impossible, then a hostile takeover was necessary.

The Supreme Court ruling also emboldened the South, which came to realize that it now had nothing to fear from the North economically unless a move was made to end the system of slavery through force. That, the leaders of the Confederacy felt, was something that the North was not prepared to do. If they were to attempt such a thing, the south would simply secede from the Union and go its own way.
Thaddeus Stevens,
of the Radical Republicans
Furthermore, this decision by the court allowed, in reaction, a loose faction of powerful politicians within the Republican Party, the Radical Republicans, to stir up fears in the North that the slave-holding South would soon impose the slave system on the rest of the country. Wikipedia sheds further light on their views:
The Republicans also argued that slavery was economically inefficient, compared to free labor, and was a deterrent to the long-term modernization of America. Worse, said the Republicans, the Slave Power, deeply entrenched in the "Solid South", was systematically seizing control of the White House, the Congress, and the Supreme Court.
(Some historians might say that this was, in fact, a power grab by the Republicans in disguise.)
Additionally, this court decision triggered the panic of 1857- (which, as I noted above, effectively also put an end to the public corporation) One underlying cause of that particular crisis- one of a periodic series- was the growing realization that admission of new states in the Western territories would be admitted as slave states and many felt it could mean a loss of political dominance for the North. Already, by this time, the battle lines of opinions were being drawn. In A Financial History of the United States, Jerry W. Markham notes that leaders of the North and South had different idea about the causes.
The Panic of 1857 was variously blamed on greed and other factors. President James Buchanan stated that the Panic of 1857 was due "solely from our extravagant and vicious system of paper currency and bank credits, exciting people to wild speculations and gambling in stock. Jefferson Davis charged that New York was bankrupt "by extravagance, by her speculation in railroad stocks and western land."
For whatever reason, the crisis would soon be overshadowed by the drum beats of the coming war. By the time the Civil War broke out, it seemed clear that whoever controlled the cotton production would control the future of the United States.

As we have learned in numerous recent examples, war can be very expensive. The American Civil war was no exception. Both sides of the conflict borrowed heavily from foreign sources.
In the South, Confederate diplomats were successful in raising large sums for the war effort in Britain and Europe, through the sale of what was called the Confederate Cotton Bond. According to historian Tom Sebrell,
We know for a fact that in the first year of the Cotton Bond being on the London market, it raised over 3 million pounds. Today that is the equivalent of 135 million pounds. The equivalent of 215 million US dollars from, among others, two future Prime Ministers, the money was used to buy weapons, uniforms, even ships. Throughout the war, Abraham Lincoln made use of his own diplomats in London to successfully keep Britain at bay.
In fact, British involvement in the war, at one early point in the conflict, threatened to erupt into a three sided war when a U.S. naval officer took control of a British mail ship and seized two Confederate diplomats.

Cassius Clay, the United States Minister in Russia, stated, “I saw at a glance where the feeling of England was. They hoped for our ruin! They are jealous of our power. They care neither for the South nor the North. They hate both.”

That would have been only natural. British policy-makers surely had understood by this time that the United States would soon be a formidable rival in its own global ambitions.

According to the one source, some British newspapers even observed that the Confederacy had as much justification to secede as the original thirteen colonies had from the British Empire years before.

Also, according to The Illustrated University History, written after the war in 1878, British agents swarmed the southern states and conspired with local politicians to sow rebellion.

After the surrender of the South, during In the investigation of the Lincoln assassination, it came out that one British citizen, Godfrey Joseph Hyams, had conspired with an American doctor, Luke Pryor Blackburn, to carry out terrorist attacks on the North. (Incidentally Blackburn was later elected the 28th governor of Kentucky) These plots included an attempt to poison the water supply of New York City, to firebomb hospitals and military installations, and to create an epidemic of Yellow Fever, by delivering trunks of clothes from infected patients in Bermuda. (They hadn't understood at that time it was spread by mosquitoes.) Whether this story was true, or war hysteria or a pretext for a harsh policy for the defeated South, it's difficult to know.

Of course, the Union side had an excellent card to play to keep the British neutral. In "The Economics of British Neutrality during the American Civil War," Eli Ginzberg points out:
War was unlikely in any event, for the U.S. was providing Britain with over 40% of its wheat ("corn") imports during the war years, and suspension would have caused massive famine because Britain imported about 25-30% of its grain, and poor crops during 1861 and 1862 in France made Britain even more dependent on shiploads from New York.
Jay Cooke, the financier of the Union
The financing of the Union side came from the private banking house of Jay Cooke & Company. On January 1, 1861, just months before the start of the Civil War, Cooke opened the private banking house in Philadelphia. (An interesting timeline. After the Lincoln's election, but before he took office, seven cotton states declared their secession and joined to form the Confederate States of America. Hostilities began on April 12, 1861, when Confederate forces attacked a U.S. military installation at Fort Sumter in South Carolina. But then the confederate attack on Ft. Sumter that started the war was probably only a matter of time.)

Cooke's firm had gained favor with Secretary of the Treasury Salmon P. Chase, who asked Jay Cooke & Co. to serve as financial agent for government loans and bonds in September 1861. This new firm would float a war loan for $3,000,000, paid for by the issuance of Union bonds.

In 1863, Cooke was singled out by a leading newspaper, not for his patriotism but for his self-aggrandizement. The New York World questioned his exceedingly profitable financial arrangements with the government, and made this observation that could easily have been lifted from any modern newspaper from 2008:
Our people seem to delight in being cheated... The serenity with which they swallow the false statements of the success of our arms.. the repudiations and cunning contrivances of the Treasury Department leave little doubt that the luxury of being humbugged is only equaled by that of being imprisoned without law, wasted by war and impoverished by taxes.
The war-profiteering that went on during the war enriched some pockets while others, especially those that held commodity contracts they could no longer fulfill were destroyed. Overall, it was clear that the war, with its sizable costs all based on borrowed money, could not last long.
By October of 1865, the debt of the United States was $2.8 billion.. Direct and indirect costs of the Civil War to both sides were estimated as being as much as $9 billion. Historian have estimated that the North spentas much as 43 billion in direct costs to defeat the Confederacy. The widespread destruction and disruption of industry, particularly in the South, would lead historians to debate whether that conflict retarded or spurred American economic growth.
Following the disastrous Civil war, the industrialists and financial speculators of the North, through carpetbagging agents and led by the Radical Republicans, seized - or destroyed- much of the assets of the South in order to control both ends of the supply and demand structure. While Lincoln had opposed the harsh terms of any reconstruction of the South, the administration that took over after his assassination took an altogether harder line. After Lincoln’s death, Andrew Johnson succeeded to the presidency, and immediately began arguing with the Republican congress about the proper path to reconstruction. The Radical Republicans won more seats in November of 1865, and conducted an elaborate inquiry looking for cause to impeach and remove President Johnson from office. While the plan did not succeed, it was enough to intimidate the new president into submission.

During the conflict, the Radicals had demanded a more aggressive prosecution of the war, a faster end to slavery and total destruction of the Confederacy. After the war the Radicals controlled the Joint Committee on Reconstruction. One of the achievements of that committee was the draft of the Fourteenth Amendment to the United States Constitution, and required southern states to approve that amendment before being readmitted to representation in Congress.
According to the victors of the Industrialized North, the outcome of the Civil war, coupled with the opening of the Western frontiers, couldn't have been more satisfactory. It meant, for the corporations, an unobstructed horizon. The abolition of slavery, as well as the conquered destitute survivors in the South, created a vast pool of extremely cheap labor. Given the enormous profits to be made by Northern industrialists (who, now in effect, controlled everything), a labor force that had to be financially rewarded (although exploited in every way as badly as the slaves for the South) was literally a small price to pay.

Of course, it's unfair to say that the Civil War was wholly a war of corporate conquest. The drive to free slaves had had long roots in the ethos of the North. Religious leaders with genuine conviction had decried the evils of slavery for a generation. Some of the greatest minds of that day advocated reform. The corporation theory, however, need not be exclusive, in any case. It is quite possible that the super wealthy leaders of the corporate world made good use of the movements of the day and appropriated them for their own ends. (Take Halliburton and the War on Terror as an example in our own age.)

The transformation from exploited slave of the South into the freed but exploited worker of the Industrialists is represented in folklore in the legend of John Henry.
John Henry's heroism is associated with several elements: his strength and grit as a working class common man, his status as a hero to African American laborers, and his allegorical depiction of the "the tragedy of man versus machine" and other aspects of modernization...

When the owner of the railroad buys a steam-powered hammer to do the work of his mostly black steel-driving crew, to save his job and the jobs of his men, John Henry challenges the owner to a contest: Henry will race the steam-powered hammer. John Henry beats the machine, but exhausted, collapses and dies.
As far as a parable about the place of man against the rise of the new form of corporations, all of the elements are there. The black steel-driver with impressive physical attributes, the feverish expansion of the corporate railroad, the exploitative competition pitting cheap labor against the tools of machine age- a steam-powered hammer. With John Henry’s victory comes death “with a hammer in his hand,” the victory of the human worker was a hollow one.

The steam-driven corporate engine was now poised to challenge all human rivals, surpass the limits placed on it by government and carry society into a new brilliant age of the American empire. The pre-war days of ever-increasing wealth and growth were only a trial run for the Gilded Age. It would, however, also lead to the unrelenting corruption of government institutions which has, in tidal ebbs and flows, continued to the present day.

There was, however, still one last task for the corporations and their armies of attorneys and their troops of "sponsored" politicians. It had yet to "shore up" its power, to protect it from outsiders- namely the government reformers and trust-busters. And to do this, it would have to find a way to circumvent or somehow to use the Constitution -a document formerly aimed at freeing citizens from a tyrannical rule of kings and queens- to serve its own interests. And to do that was no small feat but there was one more ace in the deck and, by 1886, the corporations were ready to play it.

In the final part of this series, I want to explore briefly the story of the Fourteenth Amendment, demanded by the Radical Republicans as a condition of surrender of the Confederacy and how it was later to be used by corporations in a strange surprising way.

Also h/t to Paradigm Shift for this interesting tie-in link to the history of the Koch Family.

Click here to view How Corporate Personhood came into Being 1/3 

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