CELDF

Corporations and Natural Rights By Charles A. Beard

Chapter I, from “Jefferson, Corporations and the Constitution” originally published in The Virginia Quarterly Review, 1936

In every age, in every society, there is a group of persons, more or less closely united, who have a realistic view of affairs and policies. Their knowledge is wide. Their wits are sharpened by experience. They know what they want. They are acquainted with ways and means calculated to attain their objectives. Usually at the other pole there is an opposing group, likewise with realistic views, knowledge, and policy. They too have positive ideas on ways and means of realizing their aims when the time is ripe.

Between these groups is the great mass of people almost wholly absorbed in the routine of living. Food, clothing, shelter, and amusements occupy most of their labor and thought. Their knowledge of society is narrow. Their ideas about the world and its works are hazy. They read little. Their experience is limited. As long as the routine runs fairly well, they have little curiosity about “what makes the wheels go around.” Only in time of some domestic or foreign crisis are they deeply stirred about anything outside the daily grind and its diversions. In such times they are likely to be swept one way or another by signs, symbols, myths, and slogans.

If this general view of things is correct, and it seems to be, then it ought to be borne in mind when any large questions of public policy and probable action are under discussion. This is especially true in all consideration of such matters as the meaning of the Constitution and its clauses, the rights of the people, and the intentions of the Fathers, who framed the fundamental law of the land. Otherwise there is danger of getting lost in a land of moonshine and fog.

I
Now there is abroad in the country a common theory to the effect that the American Revolution was made and the Constitution established for the sole and express purpose of realizing grand conceptions of human rights. Are they not set forth in the Declaration of Independence? Are not the people to enjoy forever life, liberty, and the pursuit of happiness? Is not the welfare of the governed the supreme end of all governments? Are not monopolies and special privileges incompatible with the rights of natural persons? Is not opportunity for each individual to make his way in the world a precious value to be defended against every effort to close it? Man is born free; he is in chains; he is to be liberated. Was not this philosophy celebrated in the dominant thinking of the revolutionary age?

Moreover, is not this theory of human rights written large in the state constitutions drafted by the Fathers? They are set forth with great prolixity and precision in many a document. They are attached to the Constitution of the United States by amendments. They are regarded as primordial, inalienable, and to be protected against the arbitrary action of all government – federal, state, and local. In the Fifth Amendment, applicable to Congress, it is explicitly declared that “No person shall be deprived of life, liberty, or property without due process of law.” And in the Fourteenth Amendment the same words are repeated, in raising constitutional barriers against once sovereign states.
“No person,” it is written. That means no human being, it is assumed; for constitutions are made for human beings, surely, and not for anything else. So it would seem, if tradition, rather than practice, is to be taken as the ruling principle. But, if we are realists and try to pursue the subject to the fullness thereof, we must search for the correspondence between theory and practice.

Is there any kind of person other than human beings? Bluntly, there is. This strange being is the persona ficta, as the lawyers have it, the corporations, the person created by law and endowed with large powers in matters of life, liberty, and the pursuit of happiness. The corporation is a “person” under the Fifth Amendment and also under the Fourteenth Amendment.

Did the Fathers of the Republic have this distinction clearly in mind? What did the framers of the Fourteenth Amendment have in mind when they submitted their handiwork to the approval of the states? These queries are more than historical questions for dust-sifters. They are at this hour among the most pressing and practical issues to which the thought of statesmen can be directed.

One thing is certain. The framers of the Constitution and their informed contemporaries were acquainted with corporations and knew that corporations were treated as persons at law. This is no place to recite even an outline of the history of corporations from Roman times to the eighteenth century. It is sufficient to say that corporations had long been employed in England for purposes of exploration, commercial adventure, and colonization. They were associations of persons given unity and a collective will by charters from the Crown. Sometimes they were granted monopolies in the domestic market; indeed monopolistic features usually characterized their organization.

It often happened that the corporation was an association of the king’s friends and favorites and was intended to enrich them by special privilege rather than to promote industrial and commercial enterprise of the creative type. Thus a bad odor was generally attached to this fictitious being. Attacks on “monopolies” accompanied the Puritan revolution in England and the rise of parliamentarian supremacy over the Crown. In America also colonists looked with fear upon these institutions. Some of the colonies had been founded by chartered companies, and conflicts had occurred between the settlers and their corporate overlords in London. Even in the proprietary colonies some elements of the same struggle appeared. Lie the corporation the proprietor had special privileges, and although he could not escape physical death he could pass the property on to his heirs in regular succession. Furthermore, corporations had appeared in American commerce and industry before the fateful year 1787.

In fact, the corporation was a well know institution when the Constitution was drafted. As then employed it often carried with it some special rights of a monopolistic character – the sole right to operate a ferry, or a mill, or some other “public service.” It sometimes excluded other concerns and individuals from its own field of enterprise. In any event, it was closed to all except stockholders. Unlike natural persons, it did not die and leave its property to be distributed among natural heirs. Unless it was dissolved by its creator or a term of years was fixed in it charter, it might go on forever, expanding its operations, adding to its accumulated wealth and power. Hence in the best of circumstance it was likely to be regarded as a foe of all natural persons, to whom human rights were ascribed by the philosophers of the eighteenth century. Moreover, many informed Americans of the time must have been familiar with Adam Smith’s pages on the “evils” of “the exclusive privilege of an incorporated trade” and its restraints on the competition of active and enterprising individuals.

While fear of the corporation was then present in the minds of many American leaders, it was limited by ignorance of the potential powers inherent in the corporation idea. Even Adam Smith himself had scarcely an inkling of the future which lay in store for the modern corporate Leviathan. He could not imagine it occupying every field of economic eEnterprise, including farming and corner stores. “the only trades which it seems possible for a joint stock company to carry on successfully without and exclusive privilege,” he said, “are those of which all the operations are capable of being reduced to routine, or to such a uniformity of method as admits of little or no variation Of this kind is, first, the banking trade; secondly, the trade of insurance from fire, and from sea risk and capture in time of war; thirdly, the trade of making and maintaining a navigable cut or canal; and fourthly, the similar trade of bringing water for the supply of a great city.” Poor Adam Smith! Such was his depth of insight, his power to divine the course of economic enterprise!

Yet while having little knowledge of the potentials of corporate enterprise, some Americans foresaw the possibility of using the corporation to furnish capital for the development of the vast natural resources and economic opportunities at hand. There seems to be little doubt that many members of the constitutional convention believed that the new Congress of the United States would have power to charter corporations, even though the express power was not directly conferred upon it. In fact Hamilton made and ingenious argument to that effect in his memorandum to President Washington on the constitutionality of the first United States Bank; and the relative ease with which Congress passed the bill indicated that the power to grant charters of incorporation was widely accepted as an implication of the powers conferred on Congress.

On the other hand, there were many Americans at the time who feared this very thing with an almost deadly fear. In a letter to James Madison, on December 20, 1787, Jefferson listed objections to the Constitution then pending ratification. Among them was “First, the omission of a bill of rights, providing clearly, and without the aid of sophism, for…restriction of monopolies.” The convention of Massachusetts, in ratifying the Constitution, specifically recommended an amendment which reads: “That Congress erect no company of merchants with exclusive advantages of commerce.” And an identical provision was attached to the ratification of New Hampshire.
No such provision was inserted, however, in the Articles of Amendment submitted to the states by the first Congress in response to the demand for a bill of rights. Madison, who took leadership in drafting the amendments, must have been well aware of the fact that many members of the convention understood that Congress, under the Constitution, had an implied power to charter corporations. Gentlemen of insight and foresight said as much, during the debate on the bill incorporating the first Bank. They constituted a relatively small body of the total “people” perhaps, but they knew what they were doing, without the aid of corporation lawyers and publicity experts.

But there remained so much opposition to the federal incorporation of companies that the power was not extensively exercised. To be sure, it was and has been generally agreed by student of the convention proceedings and constitutional law and theory that the power to charter concerns engaged in interstate and foreign commerce, and concerns of an auxiliary nature, does in fact reside in Congress. Indeed Jefferson signed bills permitting the United States Bank to open branches in the territories, thus setting his seal on the law he had once declared unconstitutional. And Madison signed the second United States Bank bill. If he had any doubts “however reasonable” he put them aside as irrelevant or inapplicable. Yet, in spite of this high testimony, Congress has refused to compel corporations engaged in interstate and foreign commerce to take out federal charters or licenses, despite insistence from many quarters that such action alone can bring these giants under effective public control and regulation.
In these circumstances, it seems fairly certain that the first ten amendments to the Constitution refer, at least primarily, to the rights of natural persons – human beings; and not to the rights of corporations – fictitious persons. When the origin of the amendments is reviewed, and the character of their supporters is examined, it seems impossible to believe that the mass of people who demanded, sponsored, and ratified the amendments had corporate persons in mind. A few of the higher sophisticates may have been “in the know” and may have foreseen the possibilities, but there is no evidence to show that the overwhelming majority of the people at the time had any such outcome in view.

II

It came about that the business of chartering corporations fell mainly to the states. They had already taken it up in a small way before the Constitution was adopted. The informed few in the constitutional convention knew that. Probably they also desired to protect such concerns, as well as natural persons, when they inserted the clause forbidding states to pass any law “impairing the obligation of contracts.”

At all events John Marshall soon turned that clause to effect in protecting corporations against assaults by state legislatures, even when corporate privileges had been obtained by corrupt methods. In the case of Fletcher v. Peck, decided in 1810, Marshall defeated an attempt of Georgia to repeal an act granting public land to a company of speculators, on the ground, among others, that the repeal impaired the obligation of contracts. Although it was notorious that members of the legislature had been induced to make the original grant by bribery, Marshall, speaking for the Supreme Court, declined to go into that aspect of the affair. Thus he said in effect to would-be makers of state corporations: “Get your charter and privileges, by corruption if necessary and this Court will protect you against any impairment of the contract so wrung from state authorities.” That was a grand national license to freebooters, and they did not fail to take notice of it.

So, politicians of each state, who often wailed about states’ rights and the centralization of power, turned loose upon the country a flood of corporations empowered under the Constitution to roam at will over the other states, almost without let or hindrance. The lengths to which they finally went are described by W. Z. Ripley in “Wall Street and Main Street.” In fact a few of the most unscrupulous states, like prostitutes, openly advertised themselves for sale to any corporation that wanted a general license to exploit the public, “with no questions asked” by state authorities. All through the years, these unnatural persons sprang up and proliferated.

And during the opening years of the nineteenth century John Marshall continued to write opinions protecting corporations against efforts of state legislatures to curtail their rights and privileges once duly secured by charter. In his determination to bolt and nail down their acquired rights and privileges, Marshall sought to interpret the term “obligation of contract” to mean a sacred and eternal right of property against all material legislative interference (Sturges v. Crowninshield, 1819). If this effort had been successful, then the states that created corporate giants would have been virtually stripped of all subsequent control over their own progeny, however corrupt and unruly.

But the tide of Jacksonian democracy was running in. New judges were coming to power. In 1827, the Supreme Court narrowed Marshall’s interpretation of the obligation of contracts. Speaking for the Court, Justice Washington held, in substance, that the obligation of a contract is the body of law existing at the moment, controlling it, defining it, and providing for enforcement. Marshall dissented vigorously, but in vain. His day was waning. Henceforward, if a state had in its pre-existing body of law provisions for the repeal and modification of corporate charters, these provisions were a part of the obligation binding on the corporation itself. To Marshall this was devastating, but states were quick to take advantage of it and to write in their constitutions or general statutes provisions reserving the right to modify and repeal corporate charters once granted. Henceforward states could, if they would, control and regulate their own creatures within their own borders, and, at the same time, if they so desired, allow their corporations to roam freely throughout the Union, preying upon the people of other states.

In the tug of war between state legislatures and corporations which followed, the corporations, as persons created by law, claimed all the rights of natural, human persons, in the pursuit of life, liberty, and property – in acquiring, holding, enlarging, and transmitting property perpetually in an unbroken line of succession. In effect, this practice virtually entailed vast accumulations of property forever in the grip of deathless corporations. Under the leadership of Jefferson the last vestiges of primogeniture and entailment had been destroyed for natural persons. That was done to prevent the concentration of wealth. The natural person died. His property distributed among heirs, and was often dissipated in the competition of active individuals. But the corporation, unless its term was expressly limited, might live forever. The death of stockholders, it is true, brought about a distribution of their paper claim to equities, but the corpus of the company remained intact through the years unless wrecked by misfortune.

Surely this was an amazing situation to be endured by people who imagined themselves to be stalwart individualists, foes of collectivism, bent on preserving the natural rights of natural persons against government – and, presumably, against the corporate creatures of government. While government could not interfere with the natural rights of natural persons, it could let loose a thousand artificial persons with wholesale power to intervene in the rights of natural persons to pursue life, liberty, and happiness!

III

The history of the tug of war between states and their corporate creatures has never been written. Yet something is known of it. State legislatures did try to control their creations in various ways, by taxation and regulation. Sometimes they made honest efforts conceived in the public interests. Sometimes they blackmailed corporations by the use of “strike bills” – by threatening them with attacks if they did not make peace with party bosses. Sometimes they were controlled by party bosses bought and paid for by corporate managers. No balance of justice has ever been struck. It is probably useless to try to strike a balance. For our purposes the merits of legislatures and corporations are irrelevant.

The point is that the tug of war between legislatures and corporations was fierce by 1850, and the latter were reaching out for more protection of their rights to the life, liberty, and property accorded by constitutions to natural persons. With the obligation of contracts clause riddled by post-Marshall interpretation, corporations claimed that they were being harried by state legislatures. They needed federal protection – protection by federal judges appointed in Washington and holding office for life. In due time the protection came in the Fourteenth Amendment. That amendment was carefully drawn with an eye to artificial persons as well as natural (black) persons. Irony of history!

The Fourteenth Amendment made available to federal judges, as against the states, the same provision that the Fifth Amendment applies to Congress. No state can “deprive any person of life, liberty, or property without due process of law.” Many states did not like the bitter medicine. It is possible that it would not have been ratified if it had not been forced upon Southern states as the price of restoration to the Union, and if in the North it had not been associated with the granting of civil rights to Negroes. But it was indeed ratified, in a way, and stands on the books as a part of the Constitution.

No state can deprive any person of life, liberty, or property without due process of law. Did the framers of that provision, like the framers of the Fifth Amendment, have only or mainly in mind natural persons, or did they include corporate persons in their thought? The answer to this question is clear. John A. Bingham, a successful railroad lawyer, was a member of the congressional committee which drafted it. Some time afterward, he stated openly in Congress that he was the author of the due process clause of the Fourteenth Amendment, that he inserted it to provide a broad and general protection for all persons, high and low, as well as Negroes, against state legislatures. He made no point of artificial persons known as corporations, but that was not necessary.

Long afterward, in 1882, Roscoe Conkling, in arguing a tax case for a railway company before the Supreme Court, supplied and missing implication. “At the time the Fourteenth Amendment was ratified,” he said, “individuals and joint stock companies were appealing for congressional and administrative protection against invidious and discriminating state and local taxes…Those who devised the Fourteenth Amendment wrought in grave sincerity…They planted in the Constitution a monumental truth to stand four square to whatever wind might blow. That truth is but the golden rule, so entrenched as to curb the many who would do to the few as they would not have the few do to them.” That served notice on majorities of natural persons in pursuit of life, liberty, and property that they could not deprive the relatively few artificial persons of their right to life, liberty, and the pursuit of property.
So in the economy of history it came about that rights accorded to natural and mortal persons were extended to artificial and immortal persons and, under judicial supremacy, protected against Congress, state constitutional conventions, state legislatures, city councils, and other governmental agencies of unfeathered bipeds, called men and women. In the case of the Fourteenth Amendment this extension of rights to corporations was certainly not generally intended by promoters and ratifiers. In the case of the Fourteenth Amendment it was specifically intended by some promoters, and not generally understood by the ratifiers. Such at least seem in high degrees to be the probabilities.

In any event, a count of Supreme Court decisions under the constitutional declarations of the rights of “persons,” shows that for every natural, human person who has had a right sustained, many artificial persons have enjoyed the benevolent protection of the judiciary. Doubtless Thomas Jefferson would regard this as a strange outcome of his immortal struggle for the natural rights of man.

IV

Under the dual system of equal rights for natural persons and for corporate persons, American economy has passed over the long road from the days of the Fathers to the latest hour. For readers of this journal it is not necessary to describe even briefly the present situation. They are familiar with such surveys of contemporary economy as may be found in Berle and Means, “The Modern Corporation and Private Property.” Nearly eighty per cent of the business wealth of the nation is concentrated in the hands of corporations, and about forty-nine percent of the corporate wealth and thirty-eight per cent of the business wealth is in the hands of two hundred corporations in a nation of over 120,000,000 natural persons. Nor is it necessary to speak of the achievements of corporations in amassing great capital, far beyond the reach of any natural person, and in developing great industrial, commercial, and transportation enterprises. Nor is it necessary to recite the story of corporate abuses – stock watering, holding company pyramiding, underground lobbying, and all the rest. Painful incidents and the revelations of many congressional investigations are already too poignantly in the minds of informed persons. The question is : What upshot?

The question is not easy to answer, but a few relevant facts may be set down for consideration. It is certain that vast changes have been made in American economy under the dual system of rights. Agriculture no longer overbalances industry, commerce, and finance many times, as in 1787. Both in capital invested and number of natural persons employed it is far below the combined forms of industrialist enterprise. The old days in which industries were carried on largely under the direction of individual masters have passed. The old days of isolated shops, mills, and stores, individually owned and operated largely with reference to local needs, have passed. The free land, to which discontented mechanics and sons and daughters of farmers could escape, has disappeared.

America is not a nation of home owning and independent farmers, as envisaged by Jefferson. It is mainly a nation of industrial workers, white-collar employees, debt-burdened farmers, tenants, share croppers, and casual laborers. The opportunity for natural persons to acquire physical property, manage it, operate it, and enjoy its fruits in security has materially declined. The household arts which enabled farmers and their wives to guarantee security to themselves have practically vanished. Nearly all the owners of small properties, such as stores, garages, gasoline stands, and pants-pressing establishments, are pitifully dependent for survival, to say nothing of a living, upon the general state of the economy of the nation. Finally, it is to be noted that the old days when America furnished vast quantities of raw materials and farm produce to the developing capitalism of Europe have passed. The whole balance of world economy has shifted since 1787, indeed since 1890. Hence even corporate enterprise finds itself hampered, blocked, and harassed in the quest for markets, domestic and foreign, in which to sell the flooding output of its vast technology.

Surely none will deny the immensity of this transformation in the economy in which natural persons are to enjoy the “natural rights” to life, liberty, and the pursuit of happiness. Surely none will deny the disparity between individual natural persons and individual corporate persons in wealth, economic power, and political influence. If the corporate person is to enjoy all the rights of natural persons, then the dice of fortune are loaded on its side. If corporations cannot provide employment for the millions of the American proletariat – for such we have, in spite of all the claptrap to the contrary – can corporate persons expect to protect themselves forever, through constitutional and judicial processes, against the distresses and distempers of natural persons twisting and turning in their search for the rights to life, liberty, and property declared in the American creed? If the history of past experiences of mankind on its long road from barbarism means anything, if history is not closed against future changes, if American economy is not now congealed in a perpetual frost, it seems reasonable to expect a negative answer to this fateful question.

Certainly the rattle and chatter of Liberty Leagues, Sentinels, professional patriots, corporation lawyers, the hack candidates of parties, and all other ritual reciters is no more relevant to the present moral and economic dilemma than the incantations of the medicine man in the presence of virulent smallpox. History is merciless and only the strong can endure it. If there is any doubt on this score, surely the fate of the Victorian dreams of yesteryear, as illustrated in the agony of present Europe, ought to dispel that doubt – at least for those intelligent enough to come in out of the rain. History is merciless to artificial persons as well as to natural persons; indeed more merciless, for natural persons, in some number, may live in caves and on wild berries and continue their life in some fashion, on some level.

V

This is no strange doctrine for American ears. Jefferson knew that nations are not immortal, that governments are transient, that concentrated wealth and widespread poverty can not forever endure side by side in a democracy. Madison was equally well acquainted with the long story of mankind. He also warned his countrymen of perils to come. In the constitutional convention, on August 7, 1787, he said: “In future times a great majority of the people will not only be without landed, but any other sort of property. These will either combine under the influence of their common situation; in which case the rights of property and the public liberty will not be secure in their hands or which is more probable, they will become the tools of opulence and ambition, in which case there will be equal danger on another side.”

More than thirty years afterward, Daniel Webster, whose “Americanism” will hardly be questioned, put the same case in other language. After describing the freehold land system of “our New England ancestors,” he added: “The consequence of all these causes has been a great subdivision of the soil and a great equality of condition; the true basis, most certainly, of popular government.” Then he drew a conclusion for the future: “The freest government, if it could exist, would not long be acceptable, if the tendency of the laws were to create a rapid accumulation of property in few hands and to render the great mass of the population dependent and penniless. In such a case, the popular power must break in upon the rights of property or else the influence of property must limit and control the exercise of popular power.” On this ground Webster opposed the granting of complete political equality in Massachusetts. He saw the tendency of things and must have known that the only instrument by which property can effectively “limit and control the exercise of popular power” in a democracy once established is the ultima ratio of the State.

In less precise language Jefferson gave a similar interpretation of America’s destined history. “Reliance [on popular government],” he wrote to Madison on December 20, 1787, “cannot deceive us, as long as we remain virtuous; and I think we shall be so, as long as agriculture is our principle object, which will be the case, while there remain vacant lands in any part of America. When we get piled upon one another in larger cities, as in Europe, we shall become corrupt as in Europe, and go to eating one another as they do there.” Evidently a shadow of fateful things to come fell athwart Jefferson’s mind as he wrote from Paris to Madison on the prospects of the new Constitution.

It is scarcely too much to say that this historical sense, this long view of human life gave to Madison, Jefferson, and Webster that outlook of statesmanship which distinguished them from the horde of politicians who have long been buried in oblivion. It is reasonable to assume that statesmanship of the same kind is required to deal effectively with the situation brought about by events under the dual system of natural and artificial persons.

It is difficult to suppose that God’s providence was finally revealed and American history closed by the decision of the Supreme Court of the united States in the celebrated Sick Chicken Case of 1935, A.D. History seems to be, to use the words of Mary Beard, merely “the prologue to our drama.” A knowledge of the past mutability of human affairs, as well as intuitive judgment, confirms that conception. The rights and property of a few hundred artificial persons stand over against the rights and property of 120,000,000 natural persons, still engaged in the pursuit of life, liberty, and happiness – 10,000.000 or more of them without property and unemployed. The Blue Eagle of N.I.R.A. may be dead and buried forever, but the issue out of which it sprang lives and still challenges the nation.

The President of the United States knows this. At least four members of the Supreme Court are aware of it. Leading members of Congress even when they back away from it into the single screen of election campaigning, privately acknowledge its imminence and the necessity of facing it boldly, with eyes unveiled, some time, in some way. Even economists who are sure that the old cycle will be repeated (eternally?) and that prosperity is again around the corner discuss the issue quietly in ivory towers, and occasionally in open print.

Whether we like it or not, we confront a number of questions as fundamental and imperative as those with which the founders of the Republic wrestled. Can the ominous juxtaposition of powerful artificial persons and multitudinous natural persons continue to exist in the indefinite future as in the past? Will “popular power,” as Webster foretold, “break in upon the rights” of property held in mortmain by deathless corporations? Or will some Prince, pursuing the strategy recommended by Machiavelli, intervene by an appeal to the ultima ratio and seek to hold a balance of interests? If he does, how long can his system of balance be maintained?