Fast on the heels of the passage and then Supreme Court interpretations of the Fourteenth Amendment, a new type of feudalism emerged in America with the Industrial Revolution; it included women, people of color, and first-generation immigrants. The explosion of factories in the East and the Midwest was so great and so rapid that millions of workers emigrated from Europe to the United States, many of them arriving deeply in debt and indentured to their new employers.
My wife, Louise, and I once bought a truckload of slate from a local quarry to pave an area in front of our home in Vermont. The quarry owner who delivered the stone told us, “This is from a huge pile of seconds that were mined over 150 years ago by indentured Welshmen.” Looking into the history of the quarry industry in New England, I discovered that the incredibly difficult and often deadly job of quarryman was filled for more than a hundred years almost exclusively by indentured men freshly arrived from Wales, Scotland, and Ireland.
It turns out, according to author Peter Kellman, “Roughly half the immigrants to the English colonies were indentured servants. At the time of the War of Independence, three out of four persons in Pennsylvania, Maryland, and Virginia were or had been indentured servants, people who had exchanged a certain number of years of bonded work (usually 4 to 25) for passage to America and/or to reduce family debts or avoid prison back in Europe.”2 Increasing the labor pool with immigrants so that more people were forced to compete for the same jobs reduced the problems of strikes and of workers demanding a living wage.
More than two thousand corporations had been chartered between 1790 and 1860. They helped protect themselves from economic disasters by keeping tight control over the economy and the markets within which they operated. In this they echoed the Federalist ideas of Alexander Hamilton and John Adams.
Many companies deal with competition by working hard to earn our business, just as Adam Smith—whose 1776 book The Wealth of Nations summarized many economic principles for the founders of this nation—envisioned. But others don’t; they feel that the best way to deal with competition is to eliminate it. And, as the East India Company had shown, two ways to do so were by getting the government to grant a monopoly or special tax favors or by crushing or buying out one’s competition.
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Railroads were the leaders in the movement of monopoly grants, convincing lawmakers to use the government’s power of eminent domain to seize land from farmers and settlers and grant it, free, to the railroads, to provide convenient and financially low-risk rights-of-way. In just seven years after 1850, more than 25 million acres of land were given to railroads, and often it was alleged to be the consequence of bribes. For example, the LaCrosse and Milwaukee Railroad in Wisconsin passed out $900,000 worth of stocks and bonds to the governor, thirteen senators, and fifty-nine assemblymen…and soon after received a million acres in free land and freedom from competition.3
Another way of limiting the risk of competition was for large corporations to become even larger. Some did this by buying their competitors, although many states had outlawed such practices in the nineteenth century. An easier method was to form consortia, trade associations, and what were
later called trusts, to muscle upstart entrepreneurs out of the marketplace.
By the time of Santa Clara, the generation that knew the East India Company was dead, and the corporate excesses that would eventually bring about the Great Depression hadn’t yet happened. So most of these associations were quite open and free in declaring their intent to control prices, markets, and competition.
The American Brass Association, for example, came right out and said that its purpose in organizing was “to meet ruinous competition.” Similar language was found in the charters, articles, and publications of trade groups that organized to protect large companies, in business categories as diverse as selling cotton, manufacturing matches, and distributing steel.4
On December 3, 1888, President Grover Cleveland delivered his annual address to Congress. Over the previous twenty years, the equivalent of hundreds of billions of today’s dollars in both cash and land had been given to the railroads, a process initially accelerated by Abraham Lincoln during the Civil War, so that he could more efficiently move around war material, and which continued after the war on the excuse of improving transportation infrastructure to enhance commerce.
The result was that, for the first time in its hundred-year history, the United States of America had seen arise among its citizens individuals whose wealth rivaled that of the “landed gentry” controlling the East India Company against whom the Revolutionary War had been fought. We had our first billionaires (in today’s dollars). Their names were well known to the people of the time: Jay Gould, Edward Harriman, Leland Stanford, and Charles Crocker. Over the next few decades, their numbers would grow to include John Jacob Astor, Andrew Carnegie, Henry Flagler, Cornelius Vanderbilt, and John D. Rockefeller.
With their enormous fortunes—made always through the use of the corporation—came enormous power. The only Democrat to be elected president during the Gilded Age was Grover Cleveland, and in that 1888 State of the Union address5 he noted,
The Government itself is under bond to the American People…that no condition in life shall give rise to discrimination in the treatment of the people by their Government.
The citizen of our Republic in its early days rigidly insisted upon full compliance with the letter of this bond…[and therefore] combinations, monopolies, and aggregations of capital were either avoided or sternly regulated and restrained. But no longer. That bond between government and its people had become frayed as the result of the sudden rise of a new wealthy aristocracy.
“A century has passed,” Cleveland noted in the same speech, on the ninety-ninth anniversary of the ratification of the U.S. Constitution, and “our business men are madly striving in the race for riches, and immense aggregations of capital outrun theimagination in the magnitude of their undertakings.”
And it wasn’t that these men were getting rich because they were good or smart businessmen. Instead they were buying politicians, corrupting the Constitution, and brazenly destroying their smaller business competitors.
President Cleveland continued:
We discover that the fortunes realized by our manufacturers are no longer solely the reward of sturdy industry and enlightened foresight, but that they result from the discriminating favor of the Government and are largely based on undue exactions from the masses of our people. The gulf between employers and the employed is constantly widening, and classes are rapidly forming, one comprising the very rich and powerful, while in another are found the toiling poor.
As we view the achievements of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel. Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.
Somebody had finally said it out loud. In particular, and—for the time— shockingly, a president had finally said it out loud. The newspapers and the early union movements were both loudly protesting the “iron heel” of the corporate behemoths and the wealthy men who ran them. Equal protection under the law had become vastly unequal over a period of just a few short decades.
“This flagrant injustice and this breach of faith and obligation…,” the president told Congress, “is not equality before the law. The existing situation is injurious to the health of our entire body politic. It stifles in those for whose benefit it is permitted all patriotic love of country, and substitutes in its place selfish greed and grasping avarice.”
And the men who had amassed these fortunes through creating mega- corporations were shameless in their brazenness (back then they weren’t “mergers and acquisitions” but instead were called “combinations” when one corporation bought dozens or hundreds of others to control entire markets). They dictated terms to politicians, bought off Supreme Court justices like Field, exploited the working class to the point that much of America was experiencing riots and strikes, and flaunted their wealth.
“The arrogance of this assumption is unconcealed,” President Cleveland said in that 1888 State of the Union address.
It appears in the sordid disregard of all but personal interests, in the refusal to abate for the benefit of others one iota of selfish advantage, and in combinations to perpetuate such advantages through efforts to control legislation and improperly influence the suffrages of the people….
Our workingmen, enfranchised from all delusions and no longer frightened… [were getting restive and] will reasonably demand through such revision steadier employment, cheaper means of living in their homes, freedom for themselves and their children from the doom of perpetual servitude, and an open door to their advancement beyond the limits of a laboring class.
A new danger was arising in America, as the writings of Karl Marx were becoming widespread—they would soon lead to a revolution in Russia—and were viewed by many Americans as a way to challenge the Robber Barons.
“Communism is a hateful thing and a menace to peace and organized government,” Cleveland noted, “but the communism of combined wealth and capital, the outgrowth of overweening cupidity and selfishness, which insidiously undermines the justice and integrity of free institutions, is not less dangerous than the communism of oppressed poverty and toil, which, exasperated by injustice and discontent, attacks with wild disorder the citadel of rule.”
One of the arguments put forward by the Robber Barons for their continued riches was that if the wealthy weren’t protected in their wealth, they wouldn’t create jobs for laborers, and that with their spending benefits would not trickle down to the working poor.
Cleveland wasn’t buying it: “He mocks the people who proposes that the Government shall protect the rich and that they in turn will care for the laboring poor,” he told Congress bluntly. Trickle-down economics was, he said, “a glittering delusion.”
He complained about how agents of the wealthy were writing appropriation bills themselves, giving themselves more and more of the government’s money and protections. It had become an open secret that the very wealthy had brought under their control Congress itself.
“Appropriation bills for the support of the Government are defaced by items and provisions to meet private ends,” Cleveland said, “and it is freely asserted by responsible and experienced parties that a bill appropriating money for public internal improvement would fail to meet with favor unless it contained items more for local and private advantage than for public benefit.”
Cleveland said that he now carried “the sacred trust they [the people] have confided to my charge; to heal the wounds of the Constitution and to preserve it from further violation” inflicted on it “by powerful monopolies and aristocratical establishments…”
It was a nice speech, and a year later Congress would actually take on the “combinations and trusts” Cleveland saw as a threat to democracy.
The Earliest “Private Equity” Firms
The railroads made possible the rapid growth of other industries that previously had been hampered by an inability to quickly and easily transport their raw materials or finished goods. After the Civil War, this growth took on explosive proportions. Entrepreneurs of every stripe were starting and building companies, and the competition was cutthroat.
To deal with this excessive competition, companies joined together within industries to fix prices and control markets.
By 1889 there were at least fifty of these consortia operating in the United States; most were called trusts. They were essentially the same as what are today called corporate mergers, with each participating company selling its company to the trust in exchange for stock in the larger entity. This method would allow 8, 10, or 20 companies to become a single company, with the attendant benefits of larger economies of scale, joint purchasing, and the ability to control a large market while crushing smaller competitors.
A committee of the New York State Senate noted on March 6, 1888, “That combination [anticompetitive collusion] is the natural result of excessive competition there can be no doubt. The history of the Copper Trust, the Sugar Trust, the Standard Oil Trust, the American Cotton Oil Trust, the combination of railroads to fix the rates of freight and passenger transportation, all prove beyond question or dispute that combination grows out of and is a natural development of competition…”6
When that New York Senate committee pursued their investigation in 1888, they called witnesses from trusts representing meat, milk, oil, sugar, cottonseed oil, oilcloth, and glass, among others. They learned that in just the six years since its creation in 1882, John D. Rockefeller’s Standard Oil Trust increased the value of its holdings to the point where dividends paid out to trustees in 1888 were more than $50 million (more than $100 billion in today’s dollars). Simultaneously, the trust drove thousands of small oil and kerosene dealers out of business. The Sugar Trust had caused the price of sugar to soar nationally, and the Bagging Trust had doubled the price of bags in the previous decade. The Copper Trust had succeeded in raising the cost of copper from 12 to 17 cents per pound, making all the copper companies profitable but hitting small businesses and consumers hard.7
The revelations of the trusts’ wild profits hit the newspapers as a big story, and the U.S. House of Representatives began its own investigation of trusts in April 1888, under the leadership of Representative Henry Bacon of New York.
Testimony before Congress showed that the trusts played hardball with entrepreneurs and small businesses that tried to compete with them. Unrelated trusts even cooperated with one another to wipe out small businesses in each other’s markets.
A small businessman named Harlan Dow testified before Congress that when he tried to market kerosene in West Virginia in competition with Rock- efeller’s Standard Oil Trust, the railroads raised their prices to him for transporting his product. He tried to survive by shipping his kerosene in his own horse-drawn wagon, but in response to this the Standard Oil Trust cut its price to consumers for kerosene in the areas where Dow was trying to sell it. “I stopped the wagon and it has been idle in the stable ever since,” Dow told the investigating committee.8
One of Standard’s distributors, a man named F. D. Carley, even corroborated Dow’s testimony, bragging about how he had been able to destroy every small competitor who tried to enter the marketplace or stay in business. “For instance,” Carley said, “a man named Pettit got on some [oil] tanks at New Orleans…I dropped the price on him pretty lively.”9 In the absence of competition and free choice, giant corporations have the power to do this, and consumers have nowhere else to go.
As newspapers nationwide screamed headlines about how the fat cats of industry were raking in millions while wiping out small businesses and fixing prices, the states got into the act. Although most states already had laws or constitutional prohibitions against restraint of trade, the years from 1887 to 1896 saw dozens of new laws enacted. The first were in 1887 in Texas, then 1889 in Idaho, Kansas, Tennessee, and Michigan; by 1892 virtually every state had passed some sort of legislation, with one of the most powerful being passed in New York that year. The corporate charters of the Standard Oil Trust in California and the Sugar Trust in New York were both revoked in this early wave of reaction.
Senator Sherman Tries to Protect Small Businesses and Entrepreneurs
Both of the major political parties denounced trusts in the 1888 Cleveland- Harrison presidential campaigns, and on December 4, 1889, Senator John Sherman of Ohio submitted Senate Bill No. 1, “A bill to declare unlawful, trusts and combinations in restraint of trade and production.” In promoting his bill, Sherman said that the people “are feeling the power and grasp of these combinations, and are demanding from every legislature and of Congress a remedy for this evil….Society is now disturbed by forces never felt before.”10
The bill was championed by Senators James Z. George of Mississippi, George F. Edmunds of Vermont, and George F. Hoar of Massachusetts. It passed by an almost unanimous vote and was signed into law by President Benjamin Harrison in 1890. The Sherman Antitrust Act of 1890, in its entirety, says:
Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding ten million dollars if a corporation, or, if any other person, three hundred and fifty thousand dollars, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding ten million dollars if a corporation, or, if any other person, three hundred and fifty thousand dollars or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
The Standard Oil Trust was clearly in violation of the new law and of state laws that mirrored it. Six days after the state of Ohio ruled his trust an anti-competitive monopoly that violated the law, John D. Rockefeller announced on March 10, 1892, that his Standard Oil Trust would be dissolved into separate companies. By then federal and state prosecutions of trusts were under way nationwide.
But They’re Still Persons
But although the trusts were now under attack, one of the ways they fought back was by making “contributions” to politicians and their campaigns. In response, Republican President Theodore Roosevelt proposed campaign finance reform legislation in his annual address to Congress on December 3, 1906, saying, “I again recommend a law prohibiting all corporations from contributing to the campaign expenses of any party….Let individuals contribute as they desire; but let us prohibit in effective fashion all corporations from making contributions for any political purpose, directly or indirectly.”11
Teddy Roosevelt made another run at trying to rein in the new corporate “persons” a year later, when in December 1907 he addressed Congress and said,
The fortunes amassed through corporate organization are now so large, and vest such power in those that wield them, as to make it a matter of necessity to give to the sovereign—that is, to the Government, which represents the people as a whole—some effective power of supervision over their corporate use. In order to ensure a healthy social and industrial life, every big corporation should be held responsible by, and be accountable to, some sovereign strong enough to control its conduct.12
The result was the Tillman Act of 1907, the first law to bar (in a very limited fashion) corporate money from political campaigns. The Tillman Act (still on the books but highly modified over the years) says, unambiguously:
That it shall be unlawful for any national bank, or any corporation organized by authority of any laws of Congress, to make a money contribution in connection with any election to any political office. It shall also be unlawful for any corporation whatever to make a money contribution in connection with any election at which Presidential and Vice-Presidential electors or a Representative in Congress…or any election…of a United States Senator.
The Tillman Act also said that “every officer or director of any corporation who shall consent to any contribution by the corporation” shall be fined or punished “by imprisonment for a term of not more than one year, or both fine and imprisonment at the discretion of the court.”
The Republican Roosevelt followed this by building a popular reputation as “the trustbuster” through his aggressive enforcement of the Sherman Antitrust Act, using it to break up more than forty large corporations during his presidency.
From 1909 to 1913, President William Howard Taft continued Teddy Roosevelt’s tradition by further breaking up John D. Rockefeller’s Standard Oil Trust into thirty-three separate companies as well as breaking up American Tobacco. Working people loved him for it, as did entrepreneurs who again had opportunities in the newly freed marketplace.
But in the first year of the administration of President Woodrow Wilson, the corporations reacted by trying to use the same law—the Sherman Anti-trust Act—to get unions outlawed. They essentially argued that if it was illegal for corporate persons to conspire or form monopolies for their own benefit, it should be equally illegal for human persons to do the same in the form of unions.
When corporations started using the Sherman Act against unions, going against the spirit of a law that was passed to protect the average person from excessive corporate power, the U.S. Congress passed the Clayton Antitrust Act of 1914 at the urging of President Wilson. It specifically outlawed tying together multiple products, price discrimination, corporate mergers, and interlocking boards of directors. The Clayton Act also mandated the creation of the Federal Trade Commission (FTC). The FTC’s original job was to control corporate wrongdoing, and it still carries that mission.
Through the Roaring Twenties, little was done to enforce these various acts by the corporate-friendly administrations of Warren Harding, Calvin Coolidge (“the business of America is business”), and Herbert Hoover. Seven years after the onset of the Republican Great Depression, however, Franklin D. Roosevelt again began to enforce the Sherman Act, and it was pretty much the law of the land from that time until Ronald Reagan was elected president, and he stopped enforcing it in 1981.
Other Attempts to Put Humans First Fail
On the one hand, legislation was being pushed through state legislatures right and left, granting corporations human and superhuman powers. In the state of Ohio, for example, Senate Bill No. 8 “became effective on March 8, 1927, amending over 70 statutes and enacting more than 50 others.” It repealed the “single purpose” requirement of incorporation, streamlined the processes, insulated corporate owners and managers from personal liability for corporate wrongdoing, and, in a sweepingly phrased provision, enabled Ohio corporations to “perform all acts,” both within and outside the state, that could be performed by a natural person.13
In 1936 the Robinson-Patman Act was passed, which made price discrimination illegal in an attempt to revive the Sherman Antitrust Act;* it is still law, yet it is largely ignored today. And in 1950 the Celler-Kefauver Antimerger Act (another attempt to update and re-empower the Sherman Antitrust Act) was passed; it too is still law, yet since Reagan it is now largely ignored.
Since 1950 no legislation of any consequence has passed that would put corporate power or personhood under the control of the people and their democratically elected governments, and most of the earlier laws have been watered down substantially.
For example, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, itself a watering down of the Sherman Antitrust Act, was amended during the 2000 term of Congress through passage of the Commerce-State-Justice appropriations bill, to reduce by about half the number of corporate mergers that would come under FTC review. Other mergers could proceed without such regulation—and have.
The Working Class Tests the Fourteenth Amendment
Between the Civil War and the Great Depression, workers tried many times to gain equal rights with corporations and thus bargain on a level playing field for fair wages and decent working conditions. Carl Sandburg, in his biography of Lincoln, points out that the word strike was so new during the Civil War era that newspapers put it in quotes in their headlines. And, Sandburg notes, Lincoln was the first U.S. president to explicitly defend the rights of strikers, intervening in several situations where local governments were planning to use police or militia to break strikes and preventing the local governments from cooperating with the local corporate powers.14
Nonetheless, from the time of Lincoln’s death to the era of the Great Depression and Franklin D. Roosevelt, strikes were most often brutally put down, and corporations sometimes used intimidation, violence, and even murder to keep their workers in line. Probably the biggest turning point in the union movement, however, happened on February 11, 1937, when striking workers at General Motors won recognition for their union in the Great Sit- down Strike in Flint, Michigan.
After the Great Depression, in the three years between 1937 and 1940, union membership more than tripled in the United States and the American working class became, for the first time since the Jefferson-Madison-Monroe era, a class with some powers of self-determination. Along with it, however, came the exploitation of some workers by their own union bosses. All forms of organized business activity where there is money or power at stake, it seems, are equally susceptible to these corrupting forces, although unions never achieved as much power as corporations because more laws were passed to limit union behaviors—and they never achieved personhood status under the Fourteenth Amendment.
Chartermongering and the Race to the Bottom, ca. 1900
As we’ve seen, throughout most of the eighteenth and nineteenth centuries, states were moving to restrict corporate activities by placing limits on the term, activities, and powers a corporation could take in its charter. When Ohio broke up the Standard Oil Trust in 1892, Rockefeller and other corporate giants with similar problems began looking for states in which they could recharter their corporations without all of the restrictions that Ohio and most other states had placed on them.
New Jersey was the first state to engage in what was then called “charter- mongering”—changing its corporate charter rules to satisfy the desires of the nation’s largest businesses. In 1875 its legislature abolished maximum capitalization limits, and in 1888 the New Jersey legislature took a huge and dramatic step by authorizing—for the first time in the history of the United States— companies to hold stock in other companies.
In 1912 New Jersey Governor Woodrow Wilson was alarmed by the behavior of corporations in his state, and “pressed through changes [that took effect in 1913] intended to make New Jersey’s corporations less favorable to concentrated financial power.”15
As New Jersey began to pull back from chartermongering, Delaware stepped into the fray by passing in 1915 laws similar to but even more liberal for corporations than New Jersey’s. Delaware continued that liberal stance to corporations, and thus, as the state of Delaware says today, “More than 850,000 business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 63% of the Fortune 500. Businesses choose Delaware because we provide a complete package of incorporation services including modern and flexible corporate laws, our highly-respected Court of Chancery, a business-friendly State Government, and the customer service oriented Staff of the Delaware Division of Corporations.”16
As New Jersey and then Delaware threw out old restrictions on corporate behavior, allowing corporations to have interlocking boards, to live forever, to define themselves for “any legal purpose,” to own stock in other corporations, and so on, corporations began to move both their corporate charters and, in some cases, their headquarters to the chartermongering states. By 1900 trusts for everything from ribbons to bread to cement to alcohol had moved to Delaware or New Jersey, leaving twenty-six corporate trusts controlling, from those states, more than 80 percent of production in their markets.17
Chartermongering Goes National, Then International
To remain competitive, between 1900 and 1970 nearly all U.S. states rolled back their constitutions or laws to make it easier for large corporations to do business in their states without having to answer to the citizens for what they do or how they do it. At the same time, America’s largest corporations—including the burgeoning defense industry—began to look overseas and see a whole new frontier of minerals and wood and raw materials owned by poor or powerless people; they saw great new places to build factories because the people would work for extremely low wages compared with workers in the United States, who were trying to maintain a middle-class lifestyle. Not to mention all those potential customers for their products.
The race to the bottom of costs, regulation, taxes, and prices was under way and would bring with it a race to the top in wealth for a few hundred multinational corporations and the politicians and media commentators they supported.
And soon that race would turn worldwide.
This is how the FTC defines price discrimination:
A seller charging competing buyers different prices for the same “commodity” or discriminating in the provision of “allowances”—compensation for advertising and other services—may be violating the Robinson-Patman Act. This kind of price discrimination may hurt competition by giving favored customers an edge in the market that has nothing to do with the superior efficiency of those customers….Price discrimination also might be used as a predatory pricing tactic—setting prices below cost to certain customers—to harm competition at the supplier’s level.
2. Peter Kellman, Building Unions: Past, Present, and Future (New York: Apex Press, 2001).
5. Grover Cleveland, fourth annual message to Congress, December 3, 1888, http://www .presidency.ucsb.edu/ws/index.php?pid=29529&st=cleveland&st1=. All of Cleveland’s quotations in this section are from this speech.
11. Theodore Roosevelt, sixth annual message to Congress, December 3, 1906, http:// www.presidency.ucsb.edu/ws/index.php?pid=29547.
12. Theodore Roosevelt, seventh annual message to Congress, December 3, 1907, http://www.presidency.ucsb.edu/ws/index.php?pid=29548.
16. State of Delaware Web site at http://corp.delaware.gov/default.shtml.
This material is not covered under Creative Commons license and cannot be published without the permission of the author and Berrett-Koehler Publishers.
Copyright Thom Hartmann and Mythical Research, Inc.