This is the first of two essays examining the origins and impacts of the two most powerful institutions in the world, corporations and banks. This first essay examines the rise of corporate power.
Imperialism in the 21st Century has abandoned its national base as the center of power completes its migration from nation-states to corporations and banks — the culmination of the imperial ventures that began with the European colonization of the Americas, Asia, and Africa.
The modern corporation and central banks began as mechanisms to fulfill imperial ambitions, institutions created to finance military adventures so costly they were beyond the reach of royal treasuries.
In order to bankroll continental conquests, with the first of the great banks created by royal charter in 1694 by William III to finance reconstruction of the Royal Navy following its decisive defeat in the Nine Year’s War, though Sweden’s Riksbank predates the Old Lady of Threadneedle Street by 26 years.
The modern joint stock company similarly began as a mechanism for conquest and colonization, beginning with the 1553 royal charter granted to The Mystery, Company, and Fellowship of Merchant Adventurers for the Discovery of Regions, Dominions, Islands, and Places Unknown, formed to find the Northwest Passage and conquer the Mollucan Islands.
Other royal charters followed over the next two centuries for the Levant Company [1581], Venice Company [1583], East India Company [1600], Virginia Company [1609], and Hudson’s Bay Company [1670] — the only original colonial corporation still in existence and the oldest continuously existing corporation in the Americas [they just bought the oldest (1870) upscale retailer in the U.S., Lord & Taylor, in January]. The French, Dutch, and Swedish crowns chartered similar colonial corporations, though the Spanish did not.
Royal African Company seal
In 1671, the British crown chartered the Royal African Company, the result of a merger of two older corporations, and in the following 17 years, the corporation transported as many as 100,000 slaves to British and Spanish colonies in the Americas. One investor who made a tidy profit was Enlightenment philosopher John Locke, one of the first advocates of modern capitalism and the intellectual bulwark of the enclosure movement to transform commonly held peasant lands into the private property of wealthy landlords, using the same arguments he employed to advocate expropriation of Native American lands.
As Edward Galleano writes in his marvelous 2009 book Mirrors, Stories of Almost Everyone:
According to the Royal African Company, its efforts guaranteed “a constant and sufficient supply of Merchantable Negroes, at moderate rates.”
The corporations demand their price
The corporations and central banks came at a price for the thrones of Europe. In exchange for financing conquest, wealthy nobles and the newly empowered merchants demanded that they be protected from any liability from any crimes resulting from the institutions they funded beyond the loss of their investment, the concept of limited liability which remains as the legal foundation of the modern corporate form.
Only those who directly ordered and carried out criminal actions could be held responsible, with investors shielded by the force of law — perhaps the most fateful compromise ever struck, one with far-reaching consequences. Fall guys would take the rap for colossal crimes, and the big money players would only suffer only the loss of their table stakes.
Corporate bailouts are almost as old as corporations, and it was one such bailout that sparked the most famous act of rebellion in the British colonies that would become the United States.
The East India company was struggling in the 1760s, so on 5 March 1770, Parliament decided to give them a tax break, cutting all import duties on five corporate commodities shipped to the American colonies through British ports. On 10 May 1773, Parliament added tea to the list to undercut Dutch traders, who were evading Crown customs officers.
The American colonists were already angry that they were being forced to pay taxes to bankroll colonial administration, yet were denied representation in Parliament. Their slogan became “No taxation without representation.”
Yet a the East Indian Company was being exempted from taxes by Act of Parliament, signifying that a corporation had more power than the colonists.
What followed on 16 December was an action that became known as the Boston Tea Party. The rest, as they say, is history.
The founders, corporations, and railroads
Revolution followed the Tea Party two years later, and the founders of the new nation, decreed an imperial mission of their own. Indeed, in a 15 March 1783 to army officers, President George Washington explicitly used a telling phrase to describe the new political entity, “our rising Empire.”
But the founders were deeply suspicious of the two essential imperial institutions, corporations and banks.
Thomas Jefferson, the principal author of the Declaration of Independence, was singularly focused on corporate power, as he wrote to a friend in 1816:
“I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country.”
James Madison was equally explicit, writing in 1827:
Incorporated Companies, with proper limitations and guards, may in particular cases, be useful, but they are at best a necessary evil only. Monopolies and perpetuities are objects of just abhorrence. The former are unjust to the existing, the latter usurpations on the rights of future generations.
For the first decades of the new nation, corporate charters were issued for single purposes and for limited durations. Typical uses of the corporate form were the construction of canals and toll roads.
A nation owned by railroads
But it was the railroad, that preeminent symbol of the Industrial Revolution, that would deal a fateful blow to efforts to control the corporation in the United States.
While Abraham Lincoln is often portrayed as a foe of the corporation, Honest Abe made his career as a railroad lawyer, and two of his leading Civil War generals, George McClellan and Ambrose Burnside, were friends from his days as a litigator for the Illinois Central, while a third, Ulysses Grant, was a town drunk who had tried and failed to land a job at the same railroad.
The railroad was the engine of conquest for the nation’s westward expansion, with companies harvesting vast land grants in return for bringing rail service, often earning as much from the sale of real estate as from building the lines that would serve the land they sold.
And Lincoln’s successor as railroad litigators would preempt the 14th Amendment, passed by Congress to give civil rights to freed slaves, as the legal bulwark of a corporate power grab channeled through a court system filled with former railroad litigators.
Their triumph became complete with the noxious Citizens United decision, granting corporations the power to buy elections outright.
Next: The murky world of banks and debt
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