How Corporate Personhood Came into Being 3/3

by Nomad

In the previous two posts, I have charted the rise of the modern corporation in the United States and, how they quickly collected power into the hands of a few. I also attempted to show how that power was used to eliminate its rivals, namely the Southern Confederacy and to corner the market on America’s most valuable commodity, cotton.

Now it’s time I returned to my original question. How did corporations come to be thought of as equal to human beings, in terms of civil rights? Where did this strange notion that “corporations are people too (my friends)” originate?

To that question, I was offered this single clue, but from an unquestionable source.

Sotomayor’s Remark

A news item about a “provocative” comment during the discussion on the Citizens United decision from one of the dissenting Supreme Court justices, Sonia Maria Sotomayer, recently caught my eye. While debating the issue of corporations, specifically, about imposing limits on political spending, the conservative members of the bench were in agreement about the corporations’ right to freedom of speech. This was based on the supposition that corporations are endowed with the same rights given to citizens, according to earlier precedent rulings. Here is the report of the remark:

The court’s majority conservatives agreed that corporations have broad First Amendment rights and that “recent precedents upholding limits on corporate political spending should be overruled.” However, Sotomayor disagreed, and said the court should reconsider the 19th century rulings that first afforded corporations the same rights as real, live people.

Judges “created corporations as persons, gave birth to corporations as persons,” she said. “There could be an argument made that that was the court’s error to start with…[imbuing] a creature of state law with human characteristics.” [emphasis mine]

The word “provocative” never fails to pique my interest so I began hunting down the 19th century the Justice was referring to. It may surprise you- as it did me- to learn that the judicial scaffolding upon which the Citizens United case is supported is in fact quite flimsy.

The main precedent which has been referred to time and time again when considering corporate personhood dates back to a Supreme Court case in 1886. Santa Clara County v. Southern Pacific Railroad Company, 118 U.S. 394 , was a matter of corporate tax law. Specifically whether, in light of certain changes to the California constitution, a corporation had "the right to deduct the amount of their debts [i.e., mortgages] from the taxable value of their property, a right which was given to individuals."

Fascinating? Well, no, not really.

When the California authorities, namely California Board of Equalization, attempted to impose and to recover the delinquent taxes on the Southern Pacific Railroad, the directors of the corporation blankly refused. It was not a small matter to the county- as well as other counties in similar circumstances with the railroad. Any success at recouping the massive losses in tax revenue stemming from Southern Pacific's refusal to pay would have been a substantial windfall. When the lower courts ruled in favor of the railroad, Santa Clara County filed a writ of error to the federal court and pursued the case all the way to the Supreme Court. It seemed like a wise move for the county; the local courts were tainted with the kind of cozy relationships in which justice is suffocated in its crib.

For example, Charles Crocker had been President of Southern Pacific Railroad prior to this case coming to the courts. Later, while the Central Pacific was still under construction, Crocker and his associates acquired control of the Southern Pacific Railroad in 1868.

Charles Crocker was the younger brother of Edwin B. Crocker, who in 1863 was appointed Justice of the California Supreme Court by the then-governor Leland Stanford (California’s first Republican governor). A year later, Justice Crocker agreed to serve as legal council for Central Pacific. If that doesn’t make a convincing case of conflict of interest, then consider this: When Central Pacific and Southern Pacific became one and the the same, the former governor Stanford would later take over as president of Southern Pacific Company from 1885 until 1890. Later, he served in the United States Senate from 1885 until his death in 1893.

When corporations, politics and the justice system are so tightly interwoven, how could anybody expect a fair decision?

Corporations, Roscoe Conkling and the Fourteenth Amendment

And so the debate moved to the Supreme Court. On one side, S.W. Sanderson, a former judge, who had made a fortune by litigating for the railroads, was matched on the opposing side by Delphin M. Delmas, who, as one source notes, had always worked on behalf of local California governments and, later, as a criminal defense attorney. Incidentally, he had passionately and single-handedly argued pro bono before the California legislature for a law to protect the nation's last remaining redwood forests.

Testifying in behalf of the railroads was the one of the most powerful politicians of his time for the most powerful state in the Union, Roscoe Conkling. His name may not mean too much today but in his time, Conkling was a man whose name carried weight. I compiled this information from his biography:

Conkling served in both the U.S. House (1859–63 and 1865–67) and the U.S. Senate (1867–81). Conkling twice turned down nominations to the U.S. Supreme Court, including a confirmed nomination in 1882. In the Senate, he fought ferociously for the continuation of political patronage—the system whereby elected officials appoint individuals to positions in the civil service and other areas of governments—and against the civil service reform efforts that would have ended it. It's that crony capitalism Palin talks about. His political machine in New York State was, according to his principal biographer, "one of the wonders of the age."

As he had done in testifying for preceding railroad cases, Conkling attempted to convince the court that railroads should be allowed equal protection under the law as guaranteed by the Fourteenth Amendment. The Equal Protection clause applied, he argued, applied to corporate entities as well as natural persons. The amendment, which had always appeared to have been written in regards to the newly freed slaves, states:

Section 1. All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

This amendment to the Constitution gave the rights of citizenship- with all its protections- to all persons born or naturalization in the United States. Clearly there is no direct mention of corporations. Despite that, The corporation owners, mostly from the railroads, decided that the power that they possessed was too limited. So, according to the theory, they devised a rather remarkable plan to subvert the amendment protecting the rights of the freed slaves. William Meyers in The Santa Clara Blues: Corporate Personhood versus Democracy, gives this excellent summary of the background:

Their lawyers came up with the idea that corporations, which might be said to be groups of persons (though one person might in turn belong to (own stock in) many corporations), should have the same constitutional rights as persons themselves. If they could get the courts to agree that corporations were persons, they could assert that the States, which had chartered the corporations, would then be constrained by the 14th Amendment from exercising power over the corporations.

Beginning in the 1870's corporate lawyers began asserting that corporations were persons with many of the rights of natural persons. It should be understood that the term "artificial person" was already in long use, with no mistake that corporations were claiming to have the rights of natural persons. "Artificial person" was used because there were certain resemblances, in law, between a natural person and corporations. Both could be parties in a lawsuit; both could be taxed; both could be constrained by law. In fact the corporations had been called artificial persons by courts in England as early as the 16th century because lawyers for the corporations had asserted they could not be convicted under the English laws of the time because the laws were worded "No person shall..."

The need to be freed from legislative and judicial constraints, combined with the use of the word "person" in the U.S. Constitution and the concept of the "artificial person," led to the argument that these "artificial persons" were "persons" with an inconsequential "artificial" adjective appended. If it could be made so, if the courts would accept that corporations were among the "persons" talked about by the U.S. Constitution, then the corporations would gain considerably more leverage against legal restraint.

These arguments were made by corporate lawyers at the State level, in court after court, and many judges, being former corporate attorneys and usually at least moderately wealthy themselves, were sympathetic to any argument that would strengthen corporations. There was a national campaign to get the legal establishment to accept that corporations were persons. This culminated in the Santa Clara decision of 1886, which has been used as the precedent for all rulings about corporate personhood since then.

Conkling, in particular, had an unquestionable influence on the court because of his direct involvement in the drafting of the amendment some 20 years earlier in the years following the Civil War. As a congressman, Conkling served on the Joint Committee on Reconstruction which rafted the Fourteenth Amendment to the United States Constitution back in 1868. That committee had been controlled by the Radical Republicans and had required southern states to approve that amendment before being readmitted to representation in Congress.

And this is where suspicious begin to creep in to the story.

To support his claims Conkling even brought what he claimed to be notebooks written by the framers of the amendment. However, in “The ‘Conspiracy Theory’ of the Fourteenth Amendment” in The Yale Law Journal in 1938, Howard Jay Graham wrote that the notebook evidence Conkling offered the court, which purported to show that that the committee had vacillated between the terms “citizen” when referring to the non-economic Privileges or Immunities clause, and “person” in reference to Due Process and Equal Protection. The impression he tried to create in the minds of the judges was that the framers had finally settled on “persons” in an effort to cover corporate “persons.”

However, what Graham discovered was that the word “citizen” had never been used in any of the due process-equal protection drafts, and that “person” had been used throughout. Graham concludes: “This part of Conkling’s argument was a deliberate, brazen forgery” The notebook used in his argument was displayed but never entered into evidence, nor apparently was it shown to anyone, nor was it saved.

On the whole, Conkling’s testimony might have been an interesting one but the court hesitated to take the bait. Unlike the Supreme Court of our times, the court of that day was not quite prepared to go beyond the issues brought before it. (Dissenting judges in the Citizens United case made this charge against the decision.)

In any event, The Court agreed with the railroad that the county had no jurisdiction and cited that the California constitution had denied "railroads and other quasi public corporations" equal protection of laws as guaranteed by the Fourteenth Amendment to the Constitution. They did not wish to debate the details of the amendment on what they considered a matter of tax law.

Nevertheless, the decision-making process was deeply flawed. Up until that time, there had been no ruling formally accepting that corporations would retain Fourteenth Amendment rights. Thus, when Supreme Court Chief Justice Morrison Remick Waite announced orally, (before the arguments were ever even presented) that the Court then unanimously conceded corporations to be persons within the meaning of the Equal Protection Clause, his remark had no legal basis.

The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does.

That’s it. That’s where corporate personhood began.

The matter was apparently never openly discussed. Neither side of the issue was weighed nor fairly represented. It might well have been decided by a toss of a coin for all we know. This crucial point- upon which the whole personhood debate rests- is all merely a matter of a private, undocumented agreement between judges. We must accept, then, that the matter was discussed privately among the justices but there is no record of it.

As Thom Hartmann uncovered in his book, Unequal Protection: The Rise of corporate Dominance and Theft of Human Rights, the task of giving a summary of the decision for the headnotes for the case fell to a man named John Chandler Bancroft Davis. He was no doubt confused about one fine point that had to be included in the headnote.

As Wikipedia informs us:

Preceding every case entry is a headnote, a short summary in which a court reporter summarizes the opinion as well as outlining the main facts and arguments. For example, in United States v. Detroit Timber Lumber Company (1906), headnotes are defined as "not the work of the Court, but are simply the work of the Reporter, giving his understanding of the decision, prepared for the convenience of the profession.

Bancroft Davis asked the Chief justice for clarification from the leader of the court,

"Please let me know whether I correctly caught your words and oblige."

The reply was as remarkable as it was brief. Justice Waite responds:

"I think your mem. in the California Rail Road tax cases expresses with sufficient accuracy what was said before the arguments began. I leave it with you to determine whether anything need be said about it in the report inasmuch as we avoided meeting the Constitutional question in the decision."[emphasis mine]

Thus the matter of corporate personhood left up to the discretion of a minor court reporter writing a summary headnote for a rather unremarkable case.

Later would come other cases to support what corporate lawyers took to be a precedent. Minneapolis & St. Louis Railroad Co. v. Beckwith (1889) Supreme Court ruled a corporation is a “person” for both due process and equal protection, for example, and Noble v. Union River Logging R. Co. (1893) corporations. for the first time, had claim to the Bill of Rights. The 5th Amendment says: “. . . nor be deprived of life, liberty, or property, without due process of law.”And these cases, apparently, like Citizens United, were all based on a non-existent precedent, only referenced in a brief summary by a Court reporter.

Reactions and Objections

One obvious question is whether Chief Justice Waite’s statement whether it actually was unanimously agreed among the other judges that corporations were considered- according to the Fourteenth Amendment- “persons.” There’s no record of it except for the mention of it in the memo. The text of the decision, itself, refers only the corporations have similar rights as citizens in the matter at hand, property tax law, not in a civil context. It reads:

That the provisions of the constitution and laws of California, in respect to the assessment for taxation of the property of railway corporations operating railroads in more than one county, are in violation of the fourteenth amendment of the constitution, in so far as they require the assessment of their property at its full money value, without making deduction, as in the case of railroads operated in one county, and of other corporations, and of natural persons, for the value of the mortgages covering the property assessed; thus imposing upon the defendant unequal burdens, and to that extent denying to it the equal protection of the laws. [emphasis mine]

Another-perhaps more obvious- point:

If the Reconstruction committee (which had originally drafted the amendment) had wished to include the word "corporations" in their amendment, there was nothing obstructing them from doing so. Such divination might be perfectly acceptable for readings of the ancient texts like the Bible, or in documents that pre-dated the context, like the Constitution, but in this case, all of the members of the committee were familiar with corporations. And yet they did not see fit to mention them while composing the draft. So, there is really no valid reason for attempting to read other meanings into the choice of words, and no need for later re-interpretation.

In fact, as Graham pointed out, John A. Bingham, principle framer, employed these guarantees specifically and in a context which suggested that free Negroes and mulattoes (rather than corporations and business enterprise) unquestionably were the persons' to which he then referred. Whatever the lawyers for the railroad companies might have argued, there is no evidence to support their views.

If one wishes to pick at the amendment and attempt to divine secret messages in the text unnecessarily, it can easily work in the opposite direction. As the amendment states that "All persons born or naturalized.." and that opening definitely calls into question whether corporations were ever intended to be included since corporations are neither born nor naturalized, but chartered and founded. They are, after all, man-made creations made by individuals with individual civil rights. Corporations are not born any more than a foundation or a workers' union is born.

Would Republicans, like Mitt Romney, be willing to argue to a snickering crowd that other human-formed organizations are people.. like unions? The Miner's Union is a person? The Teamsters Union is person? 

So was this a case of conspiracy or merely an failure of the court? The whole matter of leaving a court reporter’s note as the only record of such an important issue seems highly suspicious.

The first direct charge of a conspiracy came in 1927 by historians Charles and Mary Beard in The Rise of the American Civilization. They proposed that, back in 1866, the certain members of the Joint Congressional Committee which drafted the Fourteenth Amendment, namely Ohio Congressman John A. Bingham, had conspired on behalf of corporations and with the careful use of terms has widened the scope well beyond its intended purpose. The evidence is not all that convincing; it is a charge which would certainly involve some impressive long term planning.


Still, it’s worth a closer look. The same people who demanded the harshest possible terms for the South, The Radical Republicans, were in control of the Commission that drafted the amendment. This faction, at least by the records available to us, seem to have been motivated by the highest ideals of abolishing slavery. Thaddeus Stevens, leader of the faction, had defended and supported cases involving various minorities, Native Americans, blacks and women. His out-spoken stand against slavery was well-known to all who knew him. His desire for the emancipation of the slaves, the desire to abolish slavery as a institution in the United Sates was genuine. The history of this movement began some thirty years before as ethical, moral and religious argument.

There is not enough evidence to indicate a conspiracy among the drafters of the amendment, as far as I can detect.

Of course, had they desired to assist corporations, they could easily have been more direct about it. The ambiguity of the amendment might merely represent a method of reaching a majority, conclusive decision or approval by Congress. To the Beard conspiracy theory, I will, therefore, apply the Scottish verdict: Neither Guilty or Innocent, Unproven. There’s no argument that the Fourteenth Amendment- no matter how it might have been abused later- is a noble document.

Not every Supreme Court Justice was so easily convinced that corporation deserves to be considered “persons,” with constitutional citizen rights. For example, Justice Hugo Black, former Alabama senator turned Supreme Court Judge did not mince words about his feelings on this interpretation of the Constitution.

I do not believe the word 'person' in the Fourteenth Amendment includes corporations... This Court has many times changed its interpretations of the Constitution when the conclusion was reached that an improper construction had been adopted...When a statute is declared by this Court to be unconstitutional, the decision until reversed stands as a barrier against the adoption of similar legislation. A constitutional interpretation that is wrong should not stand. I believe this Court should now overrule previous decisions which interpreted the Fourteenth Amendment to include corporations.

Neither the history nor the language of the Fourteenth Amendment justifies the belief that corporations are included within its protection.

...Certainly, when the Fourteenth Amendment was submitted for approval, the people were not told that the states of the South were to be denied their normal relationship with the Federal Government unless they ratified an amendment granting new and revolutionary rights to corporations.

As Justice Sotomayor has correctly observed, the decision, which has formed the basis for over a century of corporate law, is questionable, to say the least, being based merely on an answer to a court reporter's summary, on false testimony from an unreliable witness and on contestable court procedure.

The fact that so many other later decisions regarding corporate personhood were based on this decision presents something of a nightmare for the courts.
For example, as author, William Meyers points out,

Corporate personhood is at the root of such Supreme Court rulings as First National Bank of Boston v. Bellotti [435 U.S. 765 (1978)], which equate corporate donations to political campaigns with free speech. They allow corporate money to govern the political process. These rulings can be reversed once the 1886 decision is reversed, since they are directly dependent upon it. Then we should be able to force corporations out of the political process. We could do this through legislation or through the chartering process. Without personhood the corporations are not entitled to First Amendment rights; they will have only what privileges the people, through our government, give them.

We can and should prohibit them from making any kind of contribution to politicians, to lobbying groups, or to campaigns involving referenda. Any advertising that does not sell products — that is, any advertising not presenting factual information about the products or services a corporation offers — should be prohibited.

Decision after decision would have to be revisited but, by repealing corporate personhood it would also allow the government to return to its proper place as protector of living citizens and not the slave of artificial persons.

Just because the same mistake is repeated over and over, it doesn't make it any less wrong. Look where it has led our country, after all. This is an issue that will not go away. It has brought millions out into the streets to protest and millions more will follow them if some kind of just and impartial review of the issue is ignored. This matter threatens to ruin the nation. We have become the very empire our own founding fathers fought and died in an effort to repulse.

I think this will soon become one of the most important issues of our time, given the national or should I say, international revolt against corporate encroachments, against the widespread thoughtless destruction of the environment and against the victimization of weaker but resource-rich nations, including our own, for the sake greater profits for our corporate slave masters.

---------------------------------------

If you’d like more detailed information about this subject, I invite you to read “Unequal Protection: The Rise of Corporate Dominance and Theft of Human rights,” by Thom Hartmann.

Addition information can be found (full text) at The Santa Clara Blues: Corporate Personhood versus Democracy, by William Meyers.

Here's a important (and entertaining) documentary. If you have not yet watched it, I'd highly recommend it.

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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.

According to “The Last of the Imperious Rich: Lehman Brothers, 1844-2008” by Peter Chapman:

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.

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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. http://www.texasobserver.org/cover-story/item/18167-empire-building


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


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How Corporate Personhood Came into Being 1/3

by Nomad

In one of my previous posts, I displayed the rather humiliating video clip of a Presidential candidate standing before a hostile crowd trying to explain why he supported a recent Supreme Court decision. The decision in question was that of the fantastically misguided Citizens United ruling which, in effect, inferred that corporations have rights comparable to citizens. "Corporations are people too, my friends," he pleaded, while the hecklers heckled and others just laughed in his face. Needless to say, it was an exercise in futility. Common sense prevailed, despite Romney's attempts at persuasion.

Sometimes it’s helpful to take a step back in order to figure out how a certain strange contemporary situation developed. How, for example, could the Supreme Court of the United States- a collection of presumed sane and wise judges- have ever decided, against all logic and common sense, that corporations are deserving of equal rights granted to actual breathing human beings? How could these presumed enlightened scholars have ever put their hoary heads together and come up with this?

It’s fairly easy to simply throw up one’s hands and claim that the Koch brothers (or some other multi-national corporation) have infiltrated the courts, just as they have infiltrated the legislative branches and just as they are now attempting to purchase the executive branch. There’s plenty of evidence for this claim, of course.

But I am more interested in seeing how this strange state of affairs could have ever gotten to this peculiar point. How did a corporation- essentially a legal construct- become a person, equal under the constitution, to any American citizen?

Conception

The majority of historians cite the British East Indian Company as the first modern corporation.
Writer Stephen D. Foster explains:

The East India Company was the largest corporation of its day and its dominance of trade angered the colonists so much, that they dumped the tea products it had on a ship into Boston Harbor which today is universally known as the Boston Tea Party. At the time, in Britain, large corporations funded elections generously and its stock was owned by nearly everyone in parliament. The founding fathers did not think much of these corporations that had great wealth and great influence in government. And that is precisely why they put restrictions upon them after the government was organized under the Constitution.

However, mostly for the sake of discussion, I would prefer to think of the East Indian Company as a tool of the British Empire, rather than as the corporation, that we define them today.

It’s true, of course, that corporations have often served similar purposes in American foreign policy. In the British example, government- or rather, the Crown- remained in control of the corporation, at least on the surface. In the later American model, that was much less true and corporations tended to look out completely for their own self-interest, irrespective of government policy. Thom Hartman writes in his book, “Unequal Protection”,

Trade-dominance by the East India Company aroused the greatest passions of America’s Founders – every schoolboy knows how they dumped the Company’s tea into Boston harbour. At the time in Britain virtually all members of parliament were stockholders, a tenth had made their fortunes through the Company, and the Company funded parliamentary elections generously.

As a side note: It is perhaps ironic that the Occupy Wall street protesters objections to corporate over-reach are much more reminiscent of the Boston Tea Party than the modern-day Koch-funded sponsored Tea Party movement.

In any case, let’s move past that and hover our time machine over America of the mid to late 1800s..

Pangs of Corporate Birth
The rise of the corporation from its early forms into what it has now become is important for our understanding of our own time. First of all, it is important to note that corporations were once private, or semi-private entities, specific and carefully regulated enterprises. As one source tells us:

After the nation’s founding, corporations were granted charters by the state as they are today. Unlike today, however, corporations were only permitted to exist 20 or 30 years and could only deal in one commodity, could not hold stock in other companies, and their property holdings were limited to what they needed to accomplish their business goals. And perhaps the most important facet of all this is that most states in the early days of the nation had laws on the books that made any political contribution by corporations a criminal offense.

In the book, Socializing Capital: The Rise of the Large Industrial Corporation in America, Author William G. Roy observes:

The corporation.. has not always been a private institution. Corporations were originally chartered by governments to accomplish public tasks, to build roads, construct canals, explore and settle new lands, conduct banking and other tasks governments felt could not or should not be conducted privately. Contrary to the notion that corporations autonomously developed because they competed more efficiently or effectively in the market, governments created the corporation form to do things that rational businessmen would not do because they were too risky, too expensive, too unprofitable or too public, that is, to perform tasks that would not have gotten done if left to the efficient operations of markets. Corporations were developed to undertake jobs that were not rational or not appropriate from the perspective of the individual businessman.

In the early industrial age of America, the task of building an effective infrastructure was left up to chartered corporations. Virginia Rasmussen from Program on Corporations, Law and Democracy (POCLAD) points out:

The charter of the corporation was given by state legislatures and state legislators were the only figures in government actually elected by the people. That's where they placed the chartering of corporations and those charters were very specific in their content. The purpose of the corporation was made clear: a corporation could not suddenly start doing something outside of that purpose. They were liable for harms done; their records had to be open to the public at any time; they were subject to trial by jury; they could not own stock in other corporations; they were limited to a certain size and they could be brought before a legislature or state courts and have their charter revoked when they violated this publicly granted agreement.

After the government contracted work had been achieved, the project would then be sold off to the private sector at a shared profit to both the corporation and the government. Roy adds this:

..From a perspective of the early nineteenth century, private ownership and control of corporations were not viewed as inevitable. The nation's largest bank was federal. Most infrastructure was mixed ownership... Only the late entrant, the railroad, which waited until the 1830s to begin, became privately owned.

The state governments would issue investment bonds to pay for the projects, as well as supplying land and labor. But many investors were soon to realize that the bonds could easily be rendered valueless by unregulated speculation. The stock market crashes of 1837 and 1857 caused one state after another to default on loans for projects.

Illinois, for example, picked the inopportune year of 1837 to create a major internal improvement project authorizing the sale of $8 million in bonds to finance seven railroads and navigable river. The crash and the depression that followed caused its complete failure and the state default on its loan.

The resulting economic crisis effectively put an end to European investment for years afterward. The government was blamed for the disaster and the backlash that resulted caused a major re-evaluation of government supervised corporations. As Meyer Weinberg in A Short History of American Capitalism explains:

Until the second quarter of the 19th century, state charters of incorporation were passed singly by the legislature. After a time, a movement began to enact a general incorporation statute which required only an administrative application and payment of a modest fee.

By 1840, the model of the public tightly- restricted corporation was quickly becoming obsolete. And by 1850, the past form was gone altogether, replaced by an aggressive new form of corporation in which government played the role of tax-collector and legislative facilitator.

As an article from Citizenwork.org. notes:

As industrialization began reshaping America, great fortunes began accumulating in the hands of canal owners and financiers and later railroad and steel magnates. And as great fortunes accumulated, a new wealthy class began influencing policy-making, changing the rules governing the corporations they owned. Charters grew longer and less restrictive. The doctrine of limited liability – allowing corporate owners and managers to avoid responsibility for harm and losses caused by the corporation– began to appear in state corporate laws. Charter revocation became less frequent, and government functions shifted from keeping a close watch on corporations to encouraging their growth. For example,between 1861 and 1871, railroads received nearly $100 million in financial aid, and 200 million acres of land.

The scope of the power corporations might have expanded but the oversight by regulators could not keep up and in fact, decreased.

As corporations grew in size and influence, however, their accounting structure remained the same. For a small corporation driven by investors, it made sense to measure corporate performance by measuring financial profits and losses. But for a corporation with thousands of employees and millions of customers, a corporation that was receiving public subsidies and encroaching on communities, a more extensive reporting system that measured the impact of the corporation on people’s lives might have made sense.

Eventually the bottom line became the most important factor. And that meant immediate profits to give investors a bankable return and this remained the dominant driving force behind corporations.

Laying of the Transcontinental Railway

The First Great Corporation

Of all of the chartered corporate projects of the 19th century, none had a more powerful long term impact than the construction and utilization of the railroad system. Its success guaranteed the further development of the corporation.

In the span of a little more than a generation, this new form of corporation, unshackled by government authority, with the seemingly limitless reservoir of natural resources- untapped continent at its disposal, the corporation had taken up that challenge and transformed a nation.

With the advent of the railroad, the means of moving resources to the centers of manufacturing or shipping quickly transformed the nation of unexplored frontiers into an up-and-coming world power, a rival to the European empires.

With the industrial revolution transforming the nations of the world, machine-driven manufacturing required a constant flow of raw materials. And in that, the railroad was the ideal vehicle. Had the United States relied solely on its system of roads and canals, the history of the nation might well have been quite different.

The railroad network and the prototypical corporation of the mid 19th century- grew from being merely a large scale government development project into a venture of enormous profit potential. The promise of this new type of corporation was the creation of vast wealth for the shareholders of the railway monopolies who were able to charge what fee they wished for transport. When the owners of the railroads also became the owners of steel mills and coal mines, there seemed to be no end to the power they could wield.
As the lands beyond the Mississippi opened up, revealing new sources of wealth in the frontier, railroads became a dominant corporate power. As Roy notes:

No economic sector was as important to the rise of the large American business corporations as the railroads. Indeed, until the end of the nineteenth century, railroad companies and large corporations were synonymous. For example nearly all corporate securities traded on the stock market were railroad securities. Corporate law was primarily railroad law.

However, the unleashed corporation found its first victims, the North American continent’s indigenous people. The West was ripe for the taking and who ever stood in its way, would suffer the consequences. As one historical study states:

Westward construction proceeded very quickly over the open terrain of the Great Plains. Soon, however, they entered Indian-held lands. The Native Americans saw the railroad as a violation of their treaties with the United States. War parties began to raid the labor camps along the line. Union Pacific responded by increasing security and by hiring marksmen to kill Bison (commonly known as American buffalo) which were both a physical threat to trains and the primary food source for the Plains Indians....

And the misgivings of the Native Americans were proven absolutely accurate.

The rail line gave the hunters convenient access to markets, and soon there was a widening gap in the bison herd as the hunt progressed outward from the rails. Estimates put the population of bison at the beginning of the 19th century at 30 to 100 million over all of North America. By the mid 1880's the population was down to a few hundred.

As if the destruction of their land and their culture wasn't bad enough, later, still worse was to follow. When the surviving generations of Native American, essentially refugees on their own land were officially promised their own state, that is, an independent state within the nation. Unfortunately the land would found to harbor petroleum and the plan would be scrapped for a the sake of the oil corporations.

Dr. Durant - Prototype of CEOs to Come

Even as late as May 10, 1869, the First Transcontinental Railroad, which connected both continental coasts, could not have been done without government assistance. The corporation responsible for the construction, The Union Pacific Railroad, was incorporated on July 1, 1862 under an act of congress and approved by President Abraham Lincoln- initially as a part of the war effort.

As one historical source remarks:

The construction and operation of the line was authorized by the Pacific Railroad Acts of 1862 and 1864 during the American Civil War. Congress supported it with 30-year U.S. government bonds and extensive land grants of government-owned land. Completion of the railroad was the culmination of a decades-long movement to build such a line. It was one of the crowning achievements in the crossing of plains and high mountains westward by the Union Pacific and eastward by the Central Pacific.

In addition to labor and materials, the railroads obviously needed large amounts of capital. Since the federal and state governments saw the railroads as a boon to national and local economic prospects, they were willing to underwrite much of the cost by distributing to the railroads the one commodity which they held in abundance: land. Across the vast open spaces in the West were millions of acres of arable land. That resource, however, could not be converted into profitable farming land without some means for the farmers to get their produce to market.

Thomas Clark Durant

However, the chief stockholder in that railroad corporation, “Dr.” Thomas Clark Durant, was to set a pattern of ruthlessness and illegality that would be the legacy of so many corporations to come.

Like every bubble, excessive and sudden infusions of money from speculators caused abnormal growth in the industry. The government regulators were swamped (or bribed) by this agitation in the market. One of those ready, willing and eager to profit from this lack of oversight was Thomas Clark Durant.

In order to dodge the regulations, Durant found improper means to avoid the government prohibition against concentrated ownership and meanwhile, manipulated the stock market price of his shares in the company by issuing false claims. Additionally, by overcharging on each mile of track and laying unnecessary extra track, he cheated the government- which was too preoccupied with the Civil War to address oversight of rail line construction. To top all of this, Durant managed to make a fortune by smuggling contraband cotton from the Confederate States

Credit Mobilier Scandal 1872

All of his dirty dealings would end in tears with the scandal of Credit Mobilier, exposed in 1872. The corruption involved very high government officials, complicated corporate structures to hide ownership and illegal conflicts of interest. According to Wikipedia, “Durant covered his tracks by having various politicians, including future President James Garfield, as limited stockholders.”

To complete this sordid tale of an early corrupt corporate head, Durant lost most of his wealth in the panic of 1873 and spent his remaining years fighting lawsuits. Chalk it up to ignoble end to an unethical career.

The true legacy of Durant was the new corporate means of conducting business, divorced from its parent and benefactor, the United States government, the determination to use whatever means it took, legal or otherwise, to muster and retain power; the power it needed to remain in control of its destiny.

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In the next post, I will be exploring how this new type of corporation- unregulated and ambitious, would use its power for the sake of profit, and tear a nation apart.