Our Hidden History of Corporations in the United States
How our early colonists tried to control corporations and slowly-finally, unavoidably, failed.
When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country’s founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.
In Europe, charters protected directors and stockholders from liability for debts and harms caused by their corporations. American legislators explicitly rejected this corporate shield. The penalty for abuse or misuse of the charter was not a plea bargain and a fine, but dissolution of the corporation.
Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end. The states also imposed conditions (some of which remain on the books, though unused) like these*:
- Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.
- Corporations could engage only in activities necessary to fulfill their chartered purpose.
- Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.
- Corporations were often terminated if they exceeded their authority or caused public harm.
- Owners and managers were responsible for criminal acts committed on the job.
- Corporations could not make any political or charitable contributions nor spend money to influence law-making.
For 100 years after the American Revolution, legislators maintained tight control of the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.
Citizen authority clauses limited capitalization, debts, land holdings, and sometimes, even profits. They required a company’s accounting books to be turned over to a legislature upon request. The power of large shareholders was limited by scaled voting, so that large and small investors had equal voting rights. Interlocking directorates were outlawed. Shareholders had the right to remove directors at will.
In 1819 the U.S. Supreme Court tried to strip states of this sovereign right by overruling a lower court’s decision that allowed New Hampshire to revoke a charter granted to Dartmouth College by King George III. The Court claimed that since the charter contained no revocation clause, it could not be withdrawn. The Supreme Court’s attack on state sovereignty outraged citizens. Laws were written or re-written and new state constitutional amendments passed to circumvent the (Dartmouth College v Woodward) ruling. Over several decades starting in 1844, nineteen states amended their constitutions to make corporate charters subject to alteration or revocation by their legislatures. As late as 1855 it seemed that the Supreme Court had gotten the people’s message when in Dodge v. Woolsey it reaffirmed state’s powers over “artificial bodies.”
But the men running corporations pressed on. Contests over charter were battles to control labor, resources, community rights, and political sovereignty. More and more frequently, corporations were abusing their charters to become conglomerates and trusts. They converted the nation’s resources and treasures into private fortunes, creating factory systems and company towns. Political power began flowing to absentee owners, rather than community-rooted enterprises.
The industrial age (American Industrial Revolution: 1820-1870) forced a nation of farmers to become wage earners, and they became fearful of unemployment – a new fear that corporations quickly learned to exploit. Company towns arose. and blacklists of labor organizers and workers who spoke up for their rights became common. When workers began to organize, industrialists and bankers hired private armies to keep them in line. They bought newspapers to paint businessmen as heroes and shape public opinion. Corporations bought state legislators, then announced legislators were corrupt and said that they used too much of the public’s resources to scrutinize every charter application and corporate operation.
Government spending during the Civil War brought these corporations fantastic wealth. Corporate executives paid “borers” to infest Congress and state capitals, bribing elected and appointed officials alike. They pried loose an avalanche of government financial largesse. During this time, legislators were persuaded to give corporations limited liability, decreased citizen authority over them, and extended durations of charters.
Attempts were made to keep strong charter laws in place, but with the courts applying legal doctrines that made protection of corporations and corporate property the center of constitutional law, citizen sovereignty was undermined. As corporations grew stronger, government and the courts became easier prey. They freely reinterpreted the U.S. Constitution and transformed common law doctrines.
“I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” – Thomas Jefferson
“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson
“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country … corporations have been enthroned and an era of corruption in high places will follow, and the money of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.” – Abraham Lincoln
“Let me issue and control a nation’s money and I care not who writes the laws.” – Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.
One of the most severe blows to citizen authority arose out of the 1886 Supreme Court case of Santa Clara County v. Southern Pacific Railroad. Though the court did not make a ruling on the question of “corporate personhood,” thanks to misleading notes of a clerk, the decision subsequently was used as precedent to hold that a corporation was a “natural person.” This story was detailed in “The Theft of Human Rights,” a chapter in Thom Hartmann’s recommended book Unequal Protection.
From that point on, the 14th Amendment, enacted to protect rights of freed slaves, was used routinely to grant corporations constitutional “personhood.” Justices have since struck down hundreds of local, state and federal laws enacted to protect people from corporate harm based on this illegitimate premise. Armed with these “rights,” corporations increased control over resources, jobs, commerce, politicians, even judges and the law.
A United States Congressional committee concluded in 1941, “The principal instrument of the concentration of economic power and wealth has been the corporate charter with unlimited power….”
We are indebted to our friends at the Program on Corporations, Law and Democracy (POCLAD) for their research, adapted with permission for this article. Sources include:
- Taking Care of Business: Citizenship and the Charter of Incorporation by Richard L. Grossman and Frank T. Adams (published by POCLAD) was a primary source
- The Transformation of American Law, Volume I & Volume II by Morton J. Horwitz
A change of opinion
For reasons that were never recorded, moments before the Supreme Court was to render its decision in the now infamous Santa Clara County v. Southern Pacific Railroad Company case, Chief Justice Waite turned his attention to Delmas and the other attorneys present.
As railroad attorney Sanderson and his two colleagues watched, Waite told Delmas and his two colleagues that: ‘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 of the opinion that it does.’
He then turned to Justice Harlan who delivered the court’s opinion in the case.
In the written record of the case, the court recorder noted: ‘The defendant corporations are persons within the intent of the clause in section 1 of the Fourteenth Amendment to the Constitution of the United States, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws.’
This written statement, that corporations were ‘persons’ rather than ‘artificial persons,’ with an equal footing under the Bill of Rights as humans, was not a formal ruling of the court, but was reportedly a simple statement by its Chief Justice, recorded by the court recorder.
There was no Supreme Court decision to the effect that corporations are equal to natural persons and not artificial persons.
There were no opinions issued to that effect, and therefore no dissenting opinions on this immensely important constitutional issue.
There was no public debate of the issue among the justices, and no discussion in open court.
The written record, as excerpted above, simply assumed corporate personhood without any explanation why. The only explanation provided was the court recorder’s reference to something he says Waite said, which essentially says, ‘that’s just our opinion’ without providing legal argument.
In these two sentences (according to the conventional wisdom), Waite weakened the kind of democratic republic the original authors of the Constitution had envisioned, and set the stage for the future worldwide damage of our environmental, governmental, and cultural commons. The plutocracy that had arisen with the East India Company in 1600, and been fought back by America’s Founders, had gained a tool that was to allow them, in the coming decades, to once again gain control of most of North America, and then the world. Ironically, of the 307 Fourteenth Amendment cases brought before the Supreme Court in the years between his proclamation and 1910, only 19 dealt with African Americans: 288 were suits brought by corporations seeking the rights of natural persons.
Supreme Court Justice Hugo Black pointed out, fifty years later, ‘I do not believe the word ‘person’ in the Fourteenth Amendment includes corporations. ‘ Neither the history nor the language of the Fourteenth Amendment justifies the belief that corporations are included within its protection.’
Sixty years later, Supreme Court Justice William O. Douglas made the same point, writing that, ‘There was no history, logic or reason given to support that view [that corporations are legally ‘persons’].’
There was no change in legislation, and President Grover Cleveland had not issued a proclamation that corporations should be considered the same as natural persons. The U.S. Constitution does not even contain the word ‘corporation,’ and has never been amended to contain it, because the Founders wanted corporations to be regulated as close to home as possible, by the states, so they could be kept on a short leash – presumably so nothing like the East India Company would ever again arise to threaten the entrepreneurs of America.
‘But wait a minute,’ many legal scholars have said over the years. Why would Waite say, before arguments about corporations being persons, that the court had already decided the issue – and then allow Delmas and Sanderson to argue the point anyway?
Or, alternately, why would he say such a thing after arguments were already made? By all accounts he was rational and a capable Justice, so it wouldn’t make sense that he’d do that.
What really happened?
‘What does this mean?’
He looked it over and said, ‘It’s just headnotes.’
‘Headnotes? What are headnotes?’
He smiled and leaned back in his chair. ‘Lawyers are trained to beware of headnotes because they’re not written by judges or justices, but are usually put in by a commentator or by the book’s publisher.’
‘Are they legal? I mean, are they the law or anything like that?’
‘Headnotes don’t have the value of the formal decision,’ Jim said. ‘They’re not law. They’re just a comment, by somebody who doesn’t have the power to make or determine or decide law.’
‘In other words, these headnotes by court reporter J.C. Bancroft Davis, which say that Waite said corporations are persons, are meaningless?’
Jim nodded his head. ‘Legally, yes. They’re meaningless. They’re not the decision or a part of the decision.’
‘But they contradict what the decision itself says,’ I said, probably sounding a bit hysterical.
‘In that case,’ Jim said, ‘you’ve found one of those mistakes that so often creep into law books.’
‘But other cases have been based on the headnotes’ commentary in this case.’
‘A mistake compounding a mistake,’ Jim said. ‘But ask a lawyer who knows this kind of law. It’s not my area of specialty.’
So I called Deborah Markowitz, Vermont’s Secretary of State and one very bright attorney, and described what I’d found. She pointed out that even if the decision had been wrongly cited down through the years, it’s now ‘part of our law, even if there was a mistake.’
I said that I understood that (it was dawning on me by then), and that I was hoping to have some remedies for that mistake in my book, but just out of curiosity, ‘What is the legal status of headnotes?’
She said, ‘Headnotes are not precedential,’ confirming what Jim Ritvo had told me. They are not the precedent. They are not the law. They’re just a comment, with no legal status.
So how did it come that Court Reporter J.C. Bancroft Davis wrote that corporations are persons in his headnotes? And why have a hundred years of American – and, now, worldwide – law been based on them?
Here are the main theories that have been advanced regarding what happened:
The Republican conspiracy theory that empowered FDR
In the early 1930s, the stock market had collapsed and the world was beginning a long and dark slide into the Great Depression and eventually to World War II. Millions were out of work in the United States, and the questions on many people’s mind were, ‘Why did this happen? Who is responsible?’
The teetering towers of wealth created by American industrialists during the late 1800s and early 1900s were largely thought to have contributed to or caused the stock market crash and ensuing Depression. In less than a hundred years, corporations had gone from being an obscure legal fiction used to establish colleges and trading companies, to standing as the single most powerful force in American politics.
Many working people felt that corporations had seized control of the political agenda, capturing Senators, Congressmen, the Supreme Court, and even recent Presidents in the magnetic force of their great wealth. Proof of this takeover could be found in the Supreme Court decisions of the 1908-1914 era, when the Supreme Court, often citing corporate personhood, struck down minimum wage laws, workmen’s compensation laws, utility regulation, and child labor laws – every kind of law that a people might institute to protect its citizenry from abuses.
Unions and union members were the victims of violence from private corporate armies and had been declared ‘criminal conspiracies’ by both business leaders and politicians. It seemed that corporations had staged a coup, seizing the lives of American workers – the majority of voters – as well as the elected officials who were supposed to represent them. And this was in direct contradiction of the spirit expressed by the founders of the country.
It was in this milieu that an American history book first published in 1927, but largely ignored, suddenly became a hot topic. In The Rise of American Civilization, Columbia history professor Charles Beard and woman’s suffrage movement activist Mary Beard suggested that the rise of corporations on the American landscape was the result of a grand conspiracy that reached from the boardrooms of the nation’s railroads all the way to the Supreme Court.
They fingered two Republicans: former Senator (and railroad lawyer) Roscoe Conkling; and former Congressman (and railroad lawyer) John A. Bingham. The theory, in short form, was that Conkling, when he was part of the Senate committee that wrote the Fourteenth Amendment back in 1868, had intentionally inserted the word ‘person’ instead of the correct legal phrase ‘natural person’ to describe who would get the protections of the Amendment. Bingham similarly worked in the House of Representatives to get the language passed.
Once that time bomb was put into place, Conkling and Bingham left elective office to join in litigating on behalf of the railroads, with the goal of exploding their carefully worded amendment in the face of the Supreme Court.
Thus ‘Republican lawmakers,’ the Beards said, conspired in advance to give full human constitutional rights to corporate legal fictions. ‘By a few words skillfully chosen,’ they wrote, ‘every act of every state and local government which touched adversely the rights of [corporate] persons and property was made subject to review and liable to annulment by the Supreme Court at Washington.’
Oddly, this conspiracy theory was widely accepted because the supposed conspirators themselves had said, very publicly, ‘We did it!’
Earlier, in an 1882 case pitting the railroads against San Mateo County, Conkling testified (as a paid witness for the railroads) that he’d slipped the ‘person’ language into the amendment to ensure that corporations would one day receive the same civil rights Congress was giving to freed slaves. Bingham made similar assertions when appropriate during his turns as a paid witness for the railroads. As a result of these assertions, through the late years of the 1800s both were the well-off darlings of the railroads, basking in the light of their successful appropriation of human rights for corporations.
When the Beards’ book was widely read in the early 1930s, it gave names and faces to the villains who had turned control of America over to what were then called the ‘Robber Barons’ of industry.
Conkling, Bingham, and Justice Waite were all dead by the time of the Great Depression, and all judged guilty by the American public of pulling off the biggest con in the history of the new republic.
The firestorm of indignation that swept the country helped set the stage for Franklin D. Roosevelt’s New Deal, using legislative means and packing the Supreme Court to turn back the corporate takeover – at least in part – and returning to average working citizens some of the rights and benefits they felt had been stolen from them in 1886.
It was widely accepted that Conkling and Bingham had pulled off this trick successfully, purposefully saying ‘person’ instead of ‘natural person’ or ‘citizen’ when they helped write the Fourteenth Amendment, and corporate personhood was a fait accompli. It was done, and couldn’t be undone. The Supreme Court, confronted with the reality of the language of the Fourteenth Amendment, had been forced to recognize that corporations were persons under the US Constitution because of the precedent of the 1886 Santa Clara case.
Supreme Court Justice Field and court reporter Davis both ‘suck up’ to the railroads
Graham’s conspiracy theory
In Everyman’s Constitution, Howard Jay Graham suggests that if there was an error made on the part of the court Reporter J. C. Bancroft Davis – as the record seems to show was clear – it was probably the result of efforts by Supreme Court Justice Stephen J. Field.
Field was very much an outsider on the court, and despised by Waite. As Graham notes, “Field had repeatedly embarrassed Waite and the Court by close association with the Southern Pacific proprietors and by zeal and bias in their behalf.” … Field had presidential ambitions, and was relying on the railroads to back him.
the record appears to show that Waite did his best to be a truly impartial Chief Justice during his tenure, eventually literally working himself to death.
But Field was a grandstander, who served on the Ninth Circuit Court of Appeals of California at the same time he was a Justice of the Supreme Court of the United States. It was often his ‘corporations are a person’ decisions in California cases that led them to reappear before the U.S. Supreme Court – no accident on Field’s part – including the San Mateo case in 1882 and the Santa Clara County case in 1886.
And when the justices did not decide … that constitutional issues were involved in the Santa Clara County v. Southern Pacific Railroad case, Justice Field was incensed. In his concurring opinion to the Santa Clara case, even though he’s agreeing with the finding that fence posts should have a different tax rate than railroad land, he’s clearly upset that the issue of corporate personhood was not addressed or answered in the case. He wrote:
[The court had failed in] its duty to decide the important constitution questions involved, and particularly the one which was so fully considered in the Circuit Court [where Field was also the judge], and elaborately argued here, that in the assessment, upon which the taxes claimed were levied, an unlawful and unjust discrimination was made and to that extent depriving it [the railroad ‘person’] of the equal protection of the laws.
And looking through the records of the City of Newburgh, New York, where Davis once lived, the Orange County New York Directory of 1878-9 lists the following note about one of that city’s distinguished citizens:
‘The Newburgh and New York Railroad Company was organized December 14th, 1864, the road was completed September 1st, 1869. J.C. Bancroft Davis was elected President of the Board of Directors'[on] August 1st, 1868.’