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Corporate Law: A History - Glen Yeadon

Part 1: Constitutional Law

Let's begin this chapter with a few items from the news. First, other twenty-nine deaths have been attributed to Firestone tires. In particular, these deaths are linked to tires that the government wanted to include in the first recall but relented under assurances and pressure from corporate management. The second item on the news was the shortage of electric capacity in California. California had just deregulated the electric utilities this year and consumers' bills skyrocketed. People in California have been asked to turn off the lights on the Christmas decorations or possibly face a blackout. However, there was more to the story. It seems that the shortage was at least partially self-made by the utilities themselves.

In the early 1990s, the local media in Portland, Oregon, carried several stories about a poor lad who had developed leukemia and, without a life-saving bone marrow transplant, would die. The family's health insurance refused to pay for the transplant. The family was given a quote of the cost by a Seattle hospital. The family was fortunate enough to raise the required amount through community car washes and bake sales and promptly returned to the Seattle hospital seeking treatment for their son. However, even with a certified check for the amount they had been quoted, the hospital refused, saying that the cost of such a transplant operation was almost double the price previously quoted. Dejected, the family grimly returned home to Portland. The local media then picked the story up as a cause c�l�bre. The community was outraged and within two weeks, the Seattle hospital relented to do the transplant for the original price. In short, the hospital was not basing the cost of the transplant on actual cost; rather it was basing the cost on the highest dollar figure they could extract from that family.

Nor is this the only case of such price gouging in the mid-1990s, it was reported that the supply of interferon was being hoarded by the producers in an attempt to drive up the price. After the Valdez ran aground all of the oil companies raised their prices by one-third, claiming a shortage of crude.

In Kentucky, a mine explosion killed seven miners. The corporation was cited for gross violations of safety regulations; no fans to draw out methane gas was even present. Many of the widows of this explosion ended up on welfare when their husbands were killed. More than 6,000 people, annually, roughly 17 a day, are killed on the job, yet we never hear of an operating officer of a corporation being brought to trial for murder or manslaughter. That number omits the thousands who have died as a direct result of exposure to toxic substances or disease-causing agents in the workplace.

It's now commonplace to hear news of managers altering employees' time cards, requiring them to work after punching them out. Or to hear of yet another sweatshop in operation, not in a third-world banana republic but in our own large cities, where employees were held as virtual slaves.

Corporate welfare now totals more than $167 billion dollars annually. For the average taxpayer that means paying out $1400 a year in taxes to support corporations. Meanwhile, social welfare costs are less than one-third of the cost of corporate welfare.

By 1990, ten corporations accounted for 22% of all profits in the United States. Only 400 corporations controlled 80% of all capitalist assets in the non-socialist world. 49 American banks hold a controlling interest in 500 large corporations. 10 corporations own the 3 largest television networks and 62 [radio] networks.

Are these crimes by corporate America just another product of the greed and immorality of the Reagan administration and its agenda of "free enterprise"? Or are these symptoms of a much deeper problem? It should be readily apparent that fascism was a top-down revolution of the elite. It was the large industrialists that brought Hitler to power in a backroom deal, almost an exact parallel to the candidacy of George W. Bush in 2000 and the special interest money behind him.

Before considering fascism within the United States, an understanding of corporations and how they have evolved to become a menace to our freedoms is needed. Make no mistake that the danger posed by corporations and the almost inherent fascism that accompanies a capitalistic economy poses the greatest threat to the liberty that anyone will ever face in their lifetime. However, most Americans understand little about how corporations became so powerful. They are largely unaware of the past restrictions on corporations that served the nation in good stead. A brief look at past state constitutions and court cases will provide the reader with a background in understanding how corporations were kept in check in the 1800s. It wasn't until after the Civil War that corporations became so prominent and powerful.

In the past, corporate laws held corporations in check-ups until the later part of the 1800s with the rise of the silver and railroad barons. In fact, corporate law evolved along with the emergence of a wealthy elite class. The first large change in corporate law came in the 1880s when corporations were given the rights of personhood. A case dating in the first half of the 1920s required the government to obtain search warrants to obtain corporate files. A decision that no doubt saved more than one profit, monger, supplying arms in WWI and hindered the prosecution of corporations that traded with the Nazis during WWII.

The old adage that "you can't fight city hall" applies in spades to corporations. Almost everyone has experienced changes corporations made without permission to personnel insurance policies, banking accounts, and mutual fund accounts. In effect, corporations control virtually every aspect of life today, including the news.

Today, many senior citizens make monthly pilgrimages to Canada to refill their prescription drugs. Maine has even adopted a law requiring future drug prices must be comparative to those in Canada. Even an Internet site exists to help seniors to obtain their prescriptions through the mail from Canada. Because American drug companies were losing millions in these cross-border sales, the George W. Bush administration banned such sales.

So what is the difference between Canada's healthcare system and that of the United States? If one was to listen to the extreme right and the Republican Party, they are screaming that Canada's healthcare system is "socialistic". Balderdash! The same prescription drugs that can be obtained in Canada for a fraction of the price they sell for in the United States are produced by the very same corporations that are gouging American citizens. If those corporations were owned and run by the government, then it would truly be a socialistic system. But, why the lie? It is simple. Canada chooses to regulate its corporations. We have the same choice--but the right-wing politicians are shills bought and paid for by the very corporations that they are in charge of regulating. It's simply a diversion and scare tactic perfected by the Republicans to scream "communism" or "socialism" whenever anything should threaten their meal ticket.

A good example was the Republican response to President Clinton's proposal to expand Medicare. The Republicans chose Senator Bill Frist of Tennessee to deliver their response. Frist pretended to be just an "old country doctor overwhelmed by regulations". Frist's performance was truly deserving of an Academy Award for best actor as the quote below exemplifies.

"You know, my father was a family doctor for 55 years. As a young boy making house calls with him, I remember his stethoscope, his doctor's bag, and best of all his wonderful and compassionate heart."

However, the facts from Roll Call reveal a different picture.14 While Bill Frist is indeed a doctor, he is hardly a simple country doctor. In 1968, Frist's father and brother help launched the Hospital Corporation of America. Frist's wealth comes from his stock holdings in this giant healthcare unit. In 1996, Frist disclosed a minimum of $13.7 million in assets; $8 million of which was in Hospital Corporation of America. Of course, Senator Frist omitted his holdings in this healthcare giant in his response, just as he omitted the fact that Hospital Corporation of America faced a Justice Department probe into charges of widespread fraudulent Medicare billing schemes. In other words, the ones writing the laws and regulations are the corporations.

Here we have the crux of the problem, regulation. Regulation of corporations is not socialism; when done to promote the common good, it is liberalism at its finest hour. As paper entities, corporations have no rights--only people have rights. Corporations only have conditional obligations to fulfill for the society that created them. It is the obligation of that society in creating a corporation to ensure that it works to the common good and welfare of the society and not just to the benefit of a few moneyed interests. That is liberalism, not socialism. Perhaps, George Soros stated the problem best by saying one cannot have a global economy without first having a global society. By "society," he means a government or other regulatory mechanism.1 The same applies equally well within a nation. This does not imply that corporations are necessarily bad or evil; they are just a tool for any society to better itself. However, left unregulated, corporations can and do acquire absolute power, which leads directly to the fascist state of corporate rule.

Before proceeding further, one needs to understand how corporate law and regulations have evolved. In doing so, many myths commonly held by the hard-right today about the founding fathers will be dispelled. The founding fathers were indeed liberals and did believe in a capitalistic economy. However, they also believed strongly in regulating trade. So much so, that one of the enumerated powers in the constitution granted the federal government is the power to regulate interstate commerce. It is a bald-faced-lie to assume that the enumerated power concerning the regulation of commerce between states only applied to tariffs between the thirteen colonies or that the founders were supportive of corporations.

Corporations first came about in the middle of the 1600s in England when the crown vested governmental authority to certain commerce groups. The royal charters regulated the trading company or corporations since only the Crown had the right to govern trade. The right of the Crown to regulate or control corporations largely went unused, leading to much abuse and monopolistic power. Some royal charters had their own governors and armies such as the East India Company.

In fact, it was the East India Company that led to the Boston Tea Party. At the time, the colonies were boycotting tea, which was controlled almost solely by the East India Company. In an effort to prop up sagging profits from the boycott, the British cut taxes on tea. This in turn cut into the profit of a group of Americans smuggling tea into the colonies. Seeing their profits eroded by the tax cut, they raided the English ships in the harbor. While the classical story of the Boston Tea Party being a protest over "rising taxes and tax without representation" makes for good patriotic propaganda, it is patently false and has taken on mythical proportions.

This was but one of the many cases of abuse the colonies suffered at the hands of English corporations. For instance, American colonial settlements often were patents granted to English corporations by the Crown. South and North Virginia were two such patents. These corporations obtained their labor supply with indentured slaves. Typically, after seven years of labor, the indentured slave would be given one hundred acres. Astoundingly, two-thirds of the colonists at the time of the revolution were estimated to have been indentured slaves. Virginia, Maryland, and Pennsylvania all began as commercial enterprises ran by chartered corporations.

A full listing of such abuses is beyond the scope of this book. However, the examples provided are sufficient to illustrate the contempt many of the founders had for corporations, as well as the need to regulate them. Perhaps the eloquent words of Thomas Jefferson best sum up the founding fathers' outlook toward corporations.

"I hope we shall take warning from the example of England and crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our Government to trial, and bid defiance to the laws of our country "

The concept of granting a charter as a privilege and not a right carried over into early American corporate law. Thus, the present view that corporations hold a property right is based on another myth. In fact, the view of this property right did not come about until after the Civil War. Before this time, the concept of a corporate charter as a privilege was the commonly held view. The present view of a corporate charter having property rights only came about through judicial activism and through various state legislators.

The concept of corporate charters as a privilege was clearly carried forward into the Articles of Confederation when in 1781 Congress granted a national charter to the Bank of North America. Likewise, this concept of privilege was carried into the Constitutional Convention of 1787. During the convention, James Madison twice proposed that Congress be given the power to grant charters. Both proposals were met with failure, although no formal vote on either measure was ever taken. Various members opposed such proposals as unnecessary or feared that they would lead to monopolies. Based on his fears of a national bank, Jefferson opposed the idea of federal charters fearing they would create monopolies. Jefferson was to lose on both views when Congress later granted a federal charter for the National Bank. One can hardly blame the delegates to the convention for believing that there was no need for proposals regulating corporations since there were less than 40 corporations in 1787. That number rose to 334 by 1800.

Thus, the Constitution of the United States was left with only two clauses to regulate corporations: the commerce clause in Article I Section VIII and the obligation of contract clause in Article I Section X. The regulation and granting of corporate charters were left to the various states. The states continued to treat a corporate charter as a privilege granted only under special acts of their legislators. However, the process of hearings and petitioning the state legislators was plagued with delays, favoritism, and outright corruption.

What many people fail to understand is the Bill of Rights originally consisted of twelve rights. On December 20th, 1787, Jefferson wrote to James Madison about his concerns regarding the Constitution. He listed what he did not like in the new constitution in the excerpt below.

"First, the omission of a bill of rights, providing clarity, and without the aid of sophism, for freedom of religion, freedom of the press, protection against standing armies, restriction of monopolies, the eternal and unremitting force of the habeas corpus laws, and trials by jury in all matters of fact triable by the laws of the land, and not by the laws of nations."

Besides noting the many freedoms that now compose the Bill of Rights, Jefferson also noted the lack of restriction on monopolies. Many of the revolutionaries of 1776 believed any institution made up by and of humans-from governments to churches to corporations-must be subordinate to individual people in terms of the rights and powers held by the institution. This is perhaps best stated by Thomas Paine in The Rights of Man as the example below illustrates.

"that government is a compact between those who govern and those who are governed; but this cannot be true, because it is putting the effect before the cause; for a man must have existed before governments existed, there necessarily was a time when governments did not exist, and consequently there could originally exist no governors to form such a compact with. The fact, therefore, must be, that the individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise and the only principle on which they have a right to exist."

Jefferson received a good response in ten of the measures comprising the original bill of rights. The two issues of banning a standing army and blocking corporations from gaining monopolistic control over industries were meeting with resistance and failed to pass. The Federalists were in power, a group Jefferson referred to as "the rich and the well-born." The following quote from James Madison confirms the distrust of corporations held by the founding fathers.

"There is an evil, which ought to be guarded against in the indefinite accumulation of property from the capacity of holding it in perpetuity by ... corporations. The power of all corporations ought to be limited in this respect. The growing wealth acquired by them never fails to be a source of abuses."

Sub-Section 1

The first blow to increasing corporate power came in 1795 as the pace of incorporations continued to expand. There was a movement to grant general charters to alleviate the problems with hearings and petitions. North Carolina was the first state in 1795 to enact a general incorporation law, followed by Massachusetts in 1799, New York in 1811, and Connecticut in 1837.2 However, some states required more than a simple majority for granting, renewing, or altering a corporate charter. In the 1840s, citizens in New York, Delaware, Michigan, and Florida required a two-thirds vote of their state legislatures to do so. In Wisconsin and four other states, every bank charter had to first be approved by the voters within the state, and then the charter was recommended by their legislatures.

Nevertheless, even under a general incorporation law, states still treated the corporate charters as a privilege and restricted the activities of corporations to a great extent. The following comprises some of the limitations placed on corporations by various states.

Limited Duration: Charters were granted only for a period of 10, 20, or 30 years after which the corporation had to be liquidated and the proceeds distributed among the shareholders.

Limited Land Holdings: Many states imposed limitations on the amount of land a corporation could own. Most often, the amount of land was limited to that required for the factory or mill site.

Limited Capital Holdings: Once again, many states limited the amount of money or financial assets a corporation could possess. Some states banned corporations from owning other corporations or stock in them. Once a corporation exceeded the limit, it had to be either dissolved or split.

Specific Purpose Charters: This was perhaps the most common of all restrictions in the early years of this country. Corporations were chartered only for a specific purpose such as the building of a canal or road. Once the stated purpose was completed, the corporation was dissolved. Now charters are issued that enable a corporation to engage in any type of business.

No Limitations on Liability: Directors, managers, and shareholders were held to be fully liable for any debts or damages. In some cases, the lender or injured party was entitled to double or triple the damages. Other states imposed extremely high-interest rates until the debt was fully paid.

Restrictive Shareholder Rights: The internal governance of corporations was much more restrictive than it is today. Shareholders had more rights. In the case of mergers, some states required a unanimous vote of shareholders.

Restrictions on Pricing: Some states maintained the right to set prices on corporate products. Wisconsin, for one, gave the state legislature the power to set prices on products after reviewing the corporations' expenses.

Revocable Charters: States maintained the right to revoke or change a charter at the will of its legislature. Almost all of the states adopted this clause after 1820.

Before continuing to look at various state constitutions of the early 1800s a brief review of a couple of early Supreme Court cases is needed. One of the cases led to most states including a clause allowing for the modification or annulment of any charters the state may grant. Perhaps one of the best Chief Justices of the Supreme Court of all time was John Marshall, appointed by John Adams in 1801. It was Marshall who shaped the Supreme Court into being a full third branch of government and strengthened the federal system.

Marshall presided over several landmark cases with a pro-business outcome. Four cases are notable. In Fletcher v. Peck, the sanctity of a written contract was upheld. In Gibbons v. Ogden the court established the power of Congress to regulate interstate commerce to avoid a monopoly. In McCullough v. Maryland, the court ruled that the state had no right to tax the federal bank. However, it was Dartmouth v. Woodward, which exerted the most influence in later years. Daniel Webster argued the case for Dartmouth before the court and implied that there was a property right. The Dartmouth case was the first case, which tried to attach a property right to a corporate charter.

Marshall was well-known for his opinions and choosing his words with the precision of a surgeon's scalpel. However, Marshall's opinion granted no property rights to a corporation. Rather, in the Dartmouth case, he extended the Fletcher case and the principle of the sanctity of a written contract to include states as well as corporations as the excerpt below shows.

"A corporation is an artificial being, invisible, intangible and existing only in the contemplation of the law... It possesses only those properties which the charter of its creation confers upon it...The opinion of the Court after mature deliberation is that this is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States."3

Marshall defined this case very narrowly. There was no mention of any property rights in his decision. It was simply a decision based on the sanctity of contracts. However, this was perhaps the first and most important pro-business case that has led to corporate abuse. Marshall correctly ruled in defining the case narrowly to contract law.

However, later pro-corporate judicial activists would use this decision to confer the rights of a person onto corporations, a decision that Marshall obviously did not share because he defined a corporation very narrowly as an artificial being that only had the properties, which its charter granted it. Marshall clearly stated that the only "rights" a corporate has come from its charter--and not from the Constitution. Again, a corporate charter is a privilege--and not a property rights issue. Thus, the present-day view of corporations having property rights and the rights of a person only came about through perversion of the law and the Constitution.

However, it was this case in 1819 that led to the almost universal inclusion of states to contain language to amend and revoke charters into both state laws and state constitutions. Because the states included such language, it shows that the granting of a charter was a privilege that carried no rights and could be revoked whenever corporate activities were not in the general interests of the state or the people.

A brief look at various state constitutions of the 1800s will further emphasize the point that a corporate charter is a privilege. A look at the Constitution of Pennsylvania (1838) reveals the clause for revocation and establishes a time limit of 20 years for all corporate charters in Article I Section 25 as follows:

"No corporate body shall be hereafter created, renewed, or extended, with banking or discounting privileges, without six months' previous public notice of the intended application for the same in such manner as shall be prescribed by law. Nor shall any charter for the purposes aforesaid be granted for a longer time than twenty years; and every such charter shall contain a clause reserving to the legislature the power to alter, revoke, or annul the same, whenever in their opinion it may be injurious to the citizens of the commonwealth, in such manner, however, that no injustice shall be done to the corporators. No law hereafter enacted shall create, renew, or extend the charter of more than one corporation."4

Nor was Pennsylvania the only state to limit corporations to a set time limit. Maryland legislators restricted manufacturing charters to forty years, mining charters to fifty, and most others to thirty years. Several other states included time limits in corporate charters, including Louisiana, Michigan.

The revocation clause was initially written into the Pennsylvanian Constitution in 1784. Clauses of revocation were first commonly found in insurance and banking charters. Further, the revocation clause was broadened and strengthened from 1784 to 1857 when the legislature became required to revoke charters whenever corporate activities were deemed injurious to the community. Notice the specific mention of corporations engaged in banking. Private banking corporations were banned altogether by the Indiana Constitution in 1816, and by the Illinois Constitution in 1818. Ohio, Pennsylvania, and Mississippi revoked charters throughout the early 1800s of banks that engaged in activities that would leave them insolvent or in a financially unsound condition. Limitations on railroads were another common feature in many state constitutions. New York, Ohio, Michigan, and Nebraska successfully revoked charters from a wide range of businesses including matches, oil, sugar, and whiskey. By 1870, 19 states included a revocation clause (presently 49 of the 50 states have a revocation clause). In 1857, Pennsylvania amended its constitution with Article XI, Section 6 with the following clause is found.

"The commonwealth shall not assume the debt, or any part thereof, of any county, city, borough, or township, or of any corporation or association, unless such debt shall have been contracted to enable the State to repel invasion, suppress domestic insurrection, defend itself in time of war, or to assist the State in the discharge of any portion of its present indebtedness."

Again, such a clause was commonplace in the early 1800s. The Alabama Constitution of 1875 can be used to illustrate two of the other common restrictions. In Article XIV Sections 5 and 9 respectively.

No corporation shall engage in any business other than that expressly authorized in its charter.

No corporation shall issue preferred stock without the consent of the owners of two-thirds of the stock of the said corporation.5

The concept of a corporate charter as a privilege can best be illustrated by the Wyoming Constitution of 1889. Although the Wyoming Constitution allows for the creation of corporations under the general law, it contains many restrictions on corporations, as follows.

The legislature shall provide for the organization of corporations by general law. All laws relating to corporations may be altered, amended, or repealed by the legislature at any time when necessary for the public good and general welfare, and all corporations doing business in this state may as to such business be regulated, limited, or restrained by law not in conflict with the constitution of the United States.

All powers and franchises of corporations are derived from the people and are granted by their agent, the government, for the public good and general welfare, and the right and duty of the state to control and regulate them for these purposes is hereby declared. The power, rights and privileges of any and all corporations may be forfeited by willful neglect or abuse thereof. The police power of the state is supreme over all corporations as well as individuals.6

In the second paragraph above, it is clearly stated that a corporation's powers come only from the people and that it is subservient to the people for the public good and general welfare. Wyoming's Constitution is also the source of the following strong anti-trust language:

There shall be no consolidation or combination of corporations of any kind whatever to prevent competition, to control or influence productions or prices thereof, or in any other manner to interfere with the public good and general welfare.

California's Constitution of 1849 as amended by Article XII in 1879 has perhaps the longest listing of restrictions on corporations with a total of 24 sections.7 Sadly, 20 of the 24 sections have already been repealed. In Section 3, the state holds all shareholders responsible for the debt of the corporation. Once again another myth, the myth of limited liability, is destroyed. Notice in the text that follows of Section 3 that the shareholder need not be a present owner, he only had to be a shareholder at the time the debt was incurred. In Ohio, Missouri and Arkansas, stockholders were liable over and above the stock they actually owned. In the 1870s, seven state constitutions made bank shareholders doubly liable for any debts.

Each stockholder of a corporation. or joint stock association, shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred, during the time he was a stockholder, as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock, or shares of the corporation or association. The directors or trustees of corporations and joint-stock associations shall be jointly and severally liable to the creditors and stockholders for all moneys embezzled or misappropriated by the officers of such corporation or joint stock association during the term of office of such director or trustee.

Section 8 prohibits corporations from infringing upon the rights of individuals:

The exercise of the right of eminent domain shall never be so abridged or construed as to prevent the Legislature from taking the property and franchises of incorporated companies and subjecting them to public use the same as the property of individuals, and the exercise of the police power of the State shall never be so abridged or construed as to permit corporations to conduct their business in such manner as to infringe the rights of individuals or the general well-being of the State.

Section 9 limits the activities of corporations to those that are defined in their charters.

No corporation shall engage in any business other than that expressly authorized in its charter, or the law under which it may have been or may hereafter be organized; nor shall it hold for a longer period than five years any real estate except such as may be necessary for carrying on its business.

By looking at several different state constitutions from the 1800s, it is clearly apparent that in times gone by severe restrictions were placed on corporate activities. In the process, many of the current myths concerning corporations have been destroyed, such as that of limited liability. Even more remarkably, this quick look at state constitutions has revealed that the granting of a charter as a privilege--and not a right survived at least up until 1889 when the Wyoming Constitution was adopted; the phrase, for the public good and general welfare is unmistakable in its intent.

Unfortunately, the extent of regulating corporations cannot be revealed by just looking at the state constitutions. One would need to review all state laws to get a full understanding of the extent of regulation. Such a review would be a daunting task and beyond the scope of even a book let alone a single chapter. However, one can glean a glimpse of it by looking at a list of the more important Supreme Court cases.

The first important case following the Marshall court came in 1839 in Bank of Augusta v. Earle.8 The court ruled that corporations were "persons" in the state of their charter, but were free to do business in other states. However, the court stopped short of declaring corporations as citizens protected from state laws, which violated the federal constitution.

In 1844, the court expanded the power of corporations and struck a blow against local control in Louisville, Cincinnati & Charleston Railroad v. Letson. In this case, the court ruled that corporations are citizens of the chartering state, and further added that the Constitution's diversity clause (Article. III Section. 2) allows corporate cases to be heard in federal court. As more and more corporations were chartered, their power increased at a quickening pace. The increases in power still came about through judicial activism. With the increase in number and increases in corporate power, wealth became concentrated into the hands of the few. After becoming president, Lincoln lamented:

"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."

Corporate Law: A History
Part 2: Supreme Court Cases

The three decades following the Civil War saw further increases in the number of corporations and a much more rapid pace of favorable court rulings. Part of the increasing numbers of corporations no doubt came from the great give-away of public lands to some 61 railroad companies. However, even with the huge land grants, the railroads could not live within the conditions set forth by the grants and more than one-third of the land, a total of 190 million acres, was forfeited. Even today, the terms of those grants are being disputed in court cases, most notably in the clear cutting of timber from and the shipping of the raw logs to Asia.

In 1868, the Supreme Court ruled that corporations were not citizens within the context of Article IV Section 2 of the Constitution. Elaborating, the court defined a citizen to apply only to natural persons, members of the body politic, and those owing allegiance to the state. Corporations only had the properties conferred on it by the legislature. Citizenship incurred an obligation of allegiance to the state. The many cartel agreements that American corporations willingly signed with German corporations granted allegiance to the German corporations and hindered both world wars immensely.

In 1876, the Supreme Court ruled in Munn v. Illinois that corporations with a public interest (in this case, the rate grain elevators charged farmers for shipping) were subject to state regulation. The court further ruled that what constituted a reasonable rate was a legislative and not a judicial question. This case is also very similar to a case settled before the Wisconsin Supreme Court. In Attorney General v. Northwestern Railroad, the court ruled that the state could set maximum fares on classes of rail transportation.9

It is important to note here, that Justice Stephen J. Field dissented in Munn. Lincoln appointed Field in 1863 to the Supreme Court in a move that brought the number of justices to ten. Field would serve for another 34 years. It is equally import to note that Field's opinions were more often at odds with the majority. He had just three concepts of government. One, he felt it was not a function of the government to protect individual liberty. Two, government should be limited (and this fit with his laissez faire economic views). Three, only the U.S. government should have the right to interact with foreign governments. Field first expressed his view that the 14th amendment protected private businesses from government regulation in the Munn case.

In 1879, Judge Lorenzo Sawyer of the Ninth Circuit Court ruled in the Orton case that the federal government had control over the railroad land grants. However, he further restricted state regulation in controlling ulra vires acts of corporations. Stated otherwise, it means that corporate actions go beyond the powers actually granted to corporations. The ruling of the court led directly to settlers being evicted forcibly in the Mussel Slough battle of 1880, in which five settlers were killed. Sawyer is best described as a flatterer of Field, and Field was also involved in this case. Sawyer was involved in several railroad cases that will shortly follow.

In 1882, Sawyer ruled in the San Mateo Railroad case in the Ninth Circuit Court that corporations were persons. Field was likewise involved. However, it is a matter of record that Sawyer owned stocked in the Central Pacific Railroad. Additionally, both Sawyer and Field were close friends of Leland Stanford and other parties involved in the rail cases. Sawyer was uniquely placed to expand the powers of corporations and used unorthodox interpretations of statues and judicial review to do so.

In 1886, the Illinois Supreme Court struck down state Granger laws regulating railroad rates in Wabash v. Illinois. The high point of pro-business judicial activism occurred in 1886. In this year alone, the court struck down 230 state laws passed to regulate corporations. It was also the year of the most grievous act of all in furthering corporate power. This was the year that the court handed down the ruling in Santa Clara County v. Southern Pacific Railroad declaring that corporations were persons under the 15th Amendment. At the very outset of the case Chief Justice, Morrison R. Waite stated:

"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 the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."

This outrageous ruling has done more to damage our liberty and freedoms than any other single ruling in the history of the country. It in effect gave corporations the same rights as persons, but with none of the obligations and social responsibility carried with those rights. It paved the way for rendering the people subservient to corporations. It is important to note the year this ruling came down corresponds to the height of the robber barons.

Before proceeding further, a closer look at the members of this Supreme Court is needed. This court was undoubtedly the court that was the most agonistic court toward individual freedom and liberty than any other court, with the possible exception of the Rehnquist court of today. Just as the Rehnquist court voided the results of the 2000 election and appointed George W. Bush president, Associate Justice Joseph Bradley of this court cased the deciding vote in giving Rutherford B. Hayes the presidency.

This was the same court that rendered the Civil Rights Act of 1875 invalid in Plessy v. Ferguson. In essence, the court threw out the 14th Amendment in their ruling in applying the amendment to individuals as it was intended. Even more telling of the abusive nature of the court on civil rights was that number of fourteenth amendment cases between 1890 and 1910 only 19 dealt with the Negro while 288 dealt with corporations.

Nor was this court any more friendly to women's suffrage. In Bradwell v. Illinois, the court upheld an Illinois ruling that denied women a license to practice law as a host of women suffrage and women rights cases followed the passage of the 14th Amendment. In 1886, the Supreme Court Justices were Samuel F. Miller, Stephen J. Field, Joseph P. Bradley, John M. Harlan, Stanley Matthews, William B. Woods, Samuel Blatchford, Horace Gray, and Chief Justice Morrison. R. Waite. The Chief Justice, Waite shared similar views with Field. Waite believed that the first ten amendments applied only to the federal government and were not intended to limit the powers of the various states. Samuel Miller declared that any taxation was robbery in 1874.

The invoking of the 14th Amendment in the Santa Clara case has been ridiculed by later justices. Seventy year later in Connecticut General Life Insurance Company v. Johnson Justice Hugo Black wrote.

"Certainly when the fourteenth amendment was submitted for approval, the people were not told that ratifying an amendment granting new and revolutionary rights to corporations...and were not told that it was intended to remove corporations in any fashion from the control of the state governments. The fourteenth followed the freedom of a race from slavery...Corporations have neither race or color."

William Douglas was another later justice who ridiculed the decision.

In 1890, the Sherman Antitrust Act was passed outlawing contract, combinations, trust or conspiracies, which restrained or monopolized trade. Following passage, the largest wave of corporate mergers yet swept across the country. Section 6 of the act required the forfeiture of any property transported across state lines that fell under the act. Sections 7 and 8 both defined corporations as persons.

In 1890, in Chicago, Milwaukee & St. Paul Railway v. Minnesota the court began retreating from its earlier ruling in Munn. The court now amended its earlier ruling by stating that rail rates were subject to judicial review and due process if set by a commission. A series of cases followed, all with the court favoring a pro-railroad or corporate rulings. In Smythe v. Ames in 1898, the court further extended the ruling to allow for judicial review even if the rates were set by legislature.

In addition, in 1890, New Jersey intensified the race to the bottom by relaxing its general corporate laws. After this time, New Jersey would allow corporate charters for holding companies, which permitted corporations to trade stock of other corporations and to issue their own stock as payment. In 1892, New Jersey went further by repealing its antitrust law. In 1896, New Jersey allowed charters to be granted for any legal purpose and removed any restrictions on mergers. Likewise the 50-year limit on corporate life was removed, and for the first time, New Jersey would now grant charters to corporations operating outside its boarders. Shareholders' rights received a blow as well. Under the new laws of the state, directors were allowed to amend bylaws without shareholder approval, and could now rely on proxy voting with all shareholder meetings held in New Jersey. The new laws were so popular that between 1897-1904, corporations chartered in New Jersey with a net worth of $20 million or more increased to 104 from a mere 15 in 1896. Enough revenue from the filing fees and franchise taxes was generated to allow the state to abolish property taxes.

Sub-Section 1

In response, Delaware passed a General Corporation Law in 1899 that allowed corporations to write any provisions they wished in creating, defining, limiting and regulating the power of the corporations. This change in Delaware law figures prominently as the reason the du Ponts reincorporated in Delaware.

In 1893, the court issued perhaps its first anti-union ruling in U.S. v. Workingmen's Amalgamated Council. The court upheld an injunction against a union on grounds that the Interstate Commerce Act required carriers to accept freight without discrimination. Also in 1893, corporations were first given the protection of the Bill of Rights in Noble v. Union River Logging Railroad with the ruling that the railroad was denied its 5th Amendment protection when the Department of Interior attempted to remove its approval of a right-of-way over federal lands.

Between 1894 and 1905, a host of anti-labor rulings were issued by the court. Before this time, it was common under state law for the state to limit the number of hours a person was allowed to work. In 1894, the court struck down the eight-hour shift for mechanics and labor in Low v. Rees Printing. Colorado eliminated its eight-hour day for mining and manufacturing by House Bill 203. In 1895, in Ritchie v. People, the eight-hour day was removed for women garment workers. Lochner v. New York eliminated the ten-hour day for bakers in New York in 1905. In 1895, the court ruled that the Sherman Antitrust Act could be used against interstate labor strikes because such strikes were a restraint on trade.

In 1895, the court upheld a monopoly of 98 percent of the country's sugar protection in U.S. v. E.C. Knight Company ruling that the Sherman Antitrust Act applied only to commerce and not to production. In a dissenting opinion, Justice Harlan wrote that the ruling placed the Constitution in " a condition of helplessness... while capital destroy competition."

In Hale v. Henkel the court ruled against the corporation's attempt to use the 5th Amendment but ruled that overly broad subpoenas for corporate documents could be a violation of the 4th Amendment.

In 1911, the court broke Standard Oil into 33 corporations in Standard Oil of New Jersey v. the United States. This case basically ended a short period of generally fair rulings against monopolies and trusts. It was for the most part the climax of the antitrust sentiment started by Teddy Roosevelt. The Clayton Act of 1914 legislated price discrimination within the same industry and further stipulated that labor unions were not trusts.

In 1917, Idaho became the first state to enact criminal syndicalism laws; twenty-three other states soon followed. The laws were used to suppress labor organizers, political activists, and foreigners.

The Keating-Owen Child Labor Act was struck down in 1918 by the Supreme Court which ruled that goods produced by child labor did not fall under the Sherman Anti-Trust Act because it only applied to commerce.

Between 1920 and 1924, the court granted corporations the protection of the 4th Amendment ruling that government officers seizing corporate documents violated the provisions against unreasonable searches in Silverthorne Lumber v. the U.S and FTC v. American Tobacco. This decision came just as investigations into profit mongering by arms makers during WWI were heating up. Likewise, the decision provided protection for those corporations that signed cartel agreements with I.G. Farben and other German corporations during WWII.

In 1937, the court ruled that Congress could protect interstate commerce from labor organizing in National Labor Relations Board v. Jones & Laughlin Steel Corp.

In 1938, in the Subcommittee of Federal Licensing of Corporations hearing on Senate Bill 3072 sponsored by Senator Joseph O'Mahoney of Wyoming and William Borah, O'Mahoney argued that "a corporation has no rights; it has only privileges."

In 1947, the anti-union Taft-Hartley Act was passed over the veto of President Truman. The act declared the closed shop to be illegal, outlawed secondary strikes and boycotts, allowed employers to exempt themselves from bargaining with unions if they wished to, forbade the unions from contributing to political campaigns, and required unions and their officers to confirm that they were not supporters of the Communist Party.

The Celler-Kefauver Act of 1950 amended Section 7 of the Clayton Act to include the lessening of competition through the acquisition of another company's assets.

In 1969, the Newspaper Preservation Act was passed. The act specifically exempts newspapers from the antitrust laws. Wholesale consolidation of newspapers followed until only a handful of corporations owned all the major newspapers

In 1976, the second most grievous extension to corporate power was granted to corporations by the court. In Buckley v. Valeo, corporations were granted freedom of speech and corporations were now free to contribute unlimited funds to the election in effect buying the candidate of their choice. The year 1976 marks the beginning of another long period of pro-corporate rulings, as Republicans were once again able to stack the court with extremely conservative justices.

In U.S. v. Martin Linen Supply Co., a case heard in 1976, the court ruled that corporations may use the 5th Amendment to protect themselves from double jeopardy to avoid a retrial of an antitrust suit. In addition, in 1976 the court ruled that advertising was free speech in Virginia Board of Pharmacy v. Virginia Citizens Consumer Council. In 1977, the court allowed corporations the protection of the 4th Amendment to thwart the efforts of OSHA inspectors in Marshall v. Barlow. In 1977, the court overturned state restrictions on corporate spending on political referendums under 1st Amendment protections in First National Bank v. Bellotti ruling that money was free speech.

After this brief review, it's clear that the founders had just as much fear and loathing of big money (read corporations) as they did of big government. As the state constitutions showed, they chose to restrict corporate activities sharply. The founders certainly believed that a corporate charter was a privilege and conferred no property rights onto the owners of the corporations. In fact, many of the state constitutions granted only charters that were limited by time duration, after which the corporation would have to be dissolved. Almost all states gave their legislatures the power to revoke a charter if the corporations failed to live within their charter or when their activities were viewed as harmful to the general welfare of the state.

Most states, through general law, further restricted the activities of corporations limiting the amount of wealth or land they could accumulate. It was liberalism is its finest hour protecting the rights of the common man against the plutocrats.

It was only through judicial activism and corruption, along with some state legislatures that eroded most of the laws governing corporations in the 19th Century. This erosion of the law paralleled the rise of a rich elite within our society and also the corporatization of America. Prior to the Civil War, most corporations consisted of railroads or banks. It was only after the Civil War that corporations began significant expansion into other businesses. This is the primary reason why so many of the early court decisions and clauses within state constitutions were specific to banks and railroads---other types of corporations were simply insignificant. [EDITOR: industrialization: the manufacture of widgets created thousands of factories and corporations]

It should be clear that the rich elite as a class didn't begin to emerge until after the Civil War, which paralleled with the court's pro-business rulings that reached a climax with the robber barons of the 1880s. By the end of the 1880s, corporations were granted the rights of personhood by the Waite court. In effect, the judicial system conferred citizenship on corporations without any of the obligations and responsibilities that go with individual citizenship. It leaves us in the precarious position of capital (money) having more rights than that of the owner of the capital.

One good example of corporations having the rights of a person without the obligations was during WWII when individuals could be drafted and forced to serve their country. Initially, after the bombing of Pearl Harbor, the army was overwhelmed with volunteers. However, throughout five long years, the army relied on the draft to maintain the army's strength, but the critical factor was a shortage of supplies. Moreover, the supplies and orders for munitions and armaments were slow to come. Corporations refused to produce war munitions in favor of consumer goods. In effect, corporations engaged in a sit-down strike until they had obtained outrageously beneficial terms. America faced corporations that openly violated the law, corporations that blackmailed the government with threats of an interruption of the supply of gasoline, and corporations that conspired to price-fixing. Finally, America faced the armies of the Third Reich supplied by products built by American corporations. No corporation ever faced charges of price-fixing, war profiteering, and treason with supplying the enemy with munitions. Yet more than 300 corporations did business with the Third Reich during the war.

Certainly, the record of the Waite court with its many antagonistic rulings toward the civil rights of individuals and their liberties, along with an extremely pro-business agenda spanning a period of almost 30 years should give us pause today---especially with the present Rehnquist court quietly chipping away at the Miranda ruling and other civil rights rulings. Likewise, it was the Rehnquist court that ruled that some ballots in Florida were more equal than others and need not be counted, thereby throwing the 2000 election to George W. Bush just as justices from the Waite court installed Rutherford B. Hayes as president earlier. Such outrageous rulings should call into question the confirmation procedure used in the Senate for court appointments. All too often justices are chosen for their political ideology rather than their judicial abilities.

The erosion of protections from corporations built into the various state constitutions has led to the present problems we are facing. Our government is for sale to the highest bidder. The erroneous decision of the court in 1976 equating money with free speech has left us with unequal rights. A citizen's voice is not equal to that of a multinational corporation simply because the corporation has unlimited financial resources to apply. Further, the court has allowed corporations to grow to gargantuan proportions, precisely the fear Jefferson expressed in his opposition to national charters.

Sub-Section 2

In 1996, 51 of the world's largest economies were corporations with General Motors larger than Denmark, and Wal-Mart, the twelfth corporation larger than 161 countries. The top 200 corporations in the world have sales equivalent to 28.3% of the world's GDP. The combined sales of these top 200 corporations are larger than the GDP of all but the world's nine largest countries. These top 200 corporations employ just 18.8 million people--or less than 1/3 of 1% of the world's population. The world's top five employers are General Motors, Wal-Mart, PepsiCo, Ford, and Siemens.

Domestically, the top 1% of Americans own 40% of all U.S. assets. The corporate share of income taxes has fallen from roughly 40% in the 1940s to less than 15% today. While corporate profits rose an astounding 130% from 1980 to 1995, the average family saw a net decrease in their real wage. The problem was first detailed in America: What Went Wrong? written by Barlett and Steele for the Philadelphia Inquirer in 1992 and now available in paperback.

In the abbreviated list of court rulings and acts of Congress above, the list stopped in 1987. For one, the focus of corporate regulation changed; an era of extreme conservatism gripped the nation. Carter began deregulation of a few industries to prop up a sagging economy feeling the after-effects of OPEC. In the 1980 presidential race, Reagan ran on a platform of deregulation. If Carter began limited deregulation, the Reagan administration threw open the flood gates. The last dying gasp in favor of regulation of corporations came in 1984 when the judge ordered AT&T to be broken into eight Regional Bells in an ongoing monopoly case.

Coupled with the earlier grievous court ruling of equating money as free speech and the reduction in the top tax rates for individuals and corporations, corporations were free to buy the politicians of their choice. The results have been a host of new bills enacted by Congress granting corporations more corporate welfare, fewer regulations, more power, and more rights. With the top tax rates reduced to a mere 31%, corporate executives soon reaped the benefits of exorbitant salaries and benefits at the expense of the employees. Employees became expendable and a new industry was born overnight: the temporary employment firms. Meanwhile, the CEOs of corporations sought control of corporate boards, further increasing their empire and concentrating their power.

The result of the deregulation of the 1980s and 1990s is literally punctuated with dismal failures. The era is marked in the beginning by a multi-billion dollar taxpayer bailout of the savings and loan industry. For much of the 1980s, the savings and loan bailout was a black hole for taxpayers' hard-earned dollars. The industry had been deregulated and had gambled on high-interest junk bonds and foreign loans. When the junk bond market collapsed along with the foreign loans the industry was devastated. The fallout from the resulting carnage leads to the Keating Five and the Michael Milken trials. Keating lobbied Congress heavily promoting deregulation of the savings and loan--but at the end Lincoln, Savings and Loan went bankrupt, as did the reputation of the five congressmen most heavily involved with Keating. Milken, the junk bond king faced a 98-count indictment.

The end result of the savings and loan scandal and the junk bond scandal went far beyond the taxpayer bailout. The junk bonds were used to finance leveraged buyouts, further concentrating power in fewer hands. In addition, many investors in junk bonds found themselves empty-handed with worthless paper or, if they were lucky perhaps saw their investment reduced to $.015 (fifteen cents) for every $1 (dollar) invested. In the end, none of the perpetrators of the failed savings and loans faced serious sentencing. Milken was fined heavily and sentenced to a short prison term. His fortune was somewhat reduced, but he was still a multi-millionaire... CLICK LINK BELOW FOR MORE INFO

Image of Corporate Law: A History - Glen Yeadon