Unequal Protection: The Early Role of Corporations in America
An effort is being made to build a railroad from Springfield to Alton. A [corporate] charter has been granted by the legislature, and books are now open for subscriptions to the stock. The chief reliance for taking the stock must be on the eastern capitalists; yet, as an inducement to them, we, here must do something. We must stake something of our own in the enterprise, to convince them that we believe it will succeed, and to place ourselves between them and subsequent unfavorable legislation, which, it is supposed, they very much dread.
— Illinois Congressman Abraham Lincoln, addressing the leaders of Sangamon County, Illinois, June 30, 1847
Jane Anne Morris is a corporate anthropologist and writer in Madison, Wisconsin, and she is affiliated with the Program on Corporations, Law, and Democracy (POCLAD), one of the leading organizations doing research and work in illuminating the story of corporate personhood.
Morris discovered that on the eve of his becoming chief justice of Wisconsin’s Supreme Court, Edward G. Ryan said ominously in his 1873 address to the graduating class of the University of Wisconsin Law School,
[There] is looming up a new and dark power...the enterprises of the country are aggregating vast corporate combinations of unexampled capital, boldly marching, not for economical conquests only, but for political power....The question will arise and arise in your day, though perhaps not fully in mine, which shall rule—wealth or man [sic]; which shall lead—money or intellect; who shall fill public stations—educated and patriotic freemen, or the feudal serfs of corporate capital....1
In researching nineteenth-century laws regulating corporations, Morris
found that in Wisconsin, as in most other states at that time:
- Corporations were required to have a clear purpose, to be fulfilled but not exceeded.2
- Corporations’ licenses to do business were revocable by the state legis- lature if they exceeded or did not fulfill their chartered purpose(s).3
- The state legislature could revoke a corporation’s charter if it misbehaved.4
- The act of incorporation did not relieve corporate management or stockholders/owners of responsibility or liability for corporate acts.5
- As a matter of course, corporation officers, directors, or agents couldn’t break the law and avoid punishment by claiming they were “just doing their job” when committing crimes but instead could be held criminally liable for violating the law.6
- State (not federal) courts heard cases where corporations or their agents were accused of breaking the law or harming the public.7
- Directors of the corporation were required to come from among stockholders.8
- Corporations had to have their headquarters and meetings in the state where their principal place of business was located.9
- Corporation charters were granted for a specific period of time, such as twenty or thirty years (instead of being granted “in perpetuity,” as is now the practice).10
- Corporations were prohibited from owning stock in other corporations, to prevent them from extending their power inappropriately.11
- Corporations’ real estate holdings were limited to what was necessary to carry out their specific purpose(s).12
- Corporations were prohibited from making any political contributions, direct or indirect.13
- Corporations were prohibited from making charitable or civic donations outside of their specific purposes.14
State legislatures could set the rates that some monopoly corporations could charge for their products or services.15
All corporation records and documents were open to the legislature or the state attorney general.16
Similar laws existed in most other states. It is important to understand that tens of thousands of entrepreneurs did business in the early colonies and continue to do so today without being incorporated—the proverbial butcher, baker, and candlestick maker. To do business in America or most of the world does not require a corporate structure—people can run partnerships, individual proprietorships, or simply manufacture and sell products or offer services without any business structure whatsoever other than keeping track of the money for the Internal Revenue Service.
It’s only when a group of people get together and put capital (cash) at risk and want to seek from the government legal limits on their liability, and to legally limit their possible losses, that a corporate form becomes necessary. In exchange for these limitations on liability, governments demand certain responsibilities from corporations. The oldest historic one was that corporations “operate in the public interest” or “to the public benefit.” After all, if the people, through their elected representatives, are going to authorize a legal limitation of liability for a group of people engaged in the game of business, it’s quite reasonable to ask that the game be played in a way that throws off some benefit to the government’s citizens or at least doesn’t operate counter to the public welfare.
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But the bigger they got, the less America’s corporations (or their investors) seemed to like regulation and the more they started to seek more flexibility. Railroads, in particular, were finding themselves increasingly subject to local and state taxes, regulations, and tariff and passenger fare limits, which were specifically designed to keep prices affordable for the people and to limit the profits of the railroads to what the people’s governments considered fair for state-authorized monopolies.
So, starting in the 1870s, the railroads and their owners began directing massive legal attacks against the power of governments to regulate them.
Corporations under Control
From the 1500s until the 1880s, corporations were considered the artificial creations of their owners and the state legislatures that authorized them. Because they were artificial legal entities, created only and exclusively by the states and referred to in the law as “artificial persons,” they were subject to control by the people of the state in which they were incorporated, who asserted their will through representative government. In American republican democracy, government’s role is to serve the people and protect them from the predations of both foreign and domestic threats to their life, liberty, and pursuit of happiness. This has historically included control of corporate behavior.
Although until 1886 corporations operated in many of the same ways as today’s corporations do, the local, state, and federal legislatures had what the owners of America’s largest corporations considered a distressing tendency to limit their behaviors. Many states had laws on the books similar to this old Wisconsin statute:
Political contributions by corporations. No corporation doing business in this state shall pay or contribute, or offer consent or agree to pay or contribute, directly or indirectly, any money, property, free service of its officers or employees or thing of value to any political party, organization, committee or individual for any political purpose whatsoever, or for the purpose of influencing legislation of any kind, or to promote or defeat the candidacy of any person for nomination, appointment or election to any political office.
Penalty. Any officer, employee, agent or attorney or other representative of any corporation, acting for and in behalf of such corporation, who shall violate this act, shall be punished upon conviction by a fine of not less than one hundred nor more than five thousand dollars, or by imprisonment in the state prison for a period of not less than one nor more than five years, or by both such fine and imprisonment in the discretion of the court or judge before whom such conviction is had and if the corporation shall be subject to a penalty then by forfeiture in double the amount of any fine and if a domestic corporation it may be dissolved, if after a proper proceeding upon quo warranto, in either the circuit or supreme court of the state to be prosecuted by the attorney general of the state, the court shall find and give judgment that section 1 of this act has been violated as charged, and if a foreign or non-resident corporation its right to do business in this state may be declared forfeited. [Italics added.]17
Pennsylvania corporate charters were required to carry revocation clauses starting in 1784; and in 1815 Massachusetts Justice Joseph Story said explicitly that corporations existed only because they were authorized by state legislatures. In his ruling in the Terrett v. Taylor case, he said, “A private corporation created by the legislature may lose its franchises by a misuser or nonuser of them....This is the common law of the land, and is a tacit condition annexed to the creation of every such corporation.”18
The Supreme Court Takes Over
But the states, as Charles and Mary Beard write in The Rise of American Civilization, “had to reckon with the Federalist interpretation of the Constitution by John Marshall, who, as Chief Justice of the Supreme Court of the United States from 1801 to 1835, never failed to exalt the [pro-business] doctrines of Hamilton above the claims of the states.”19
Marshall, appointed to the Court by Federalist John Adams (who had appointed—for life—only Federalists to all federal judgeships), was what would today be called a judicial activist. As the Beards wrote, “By historic irony, he [Marshall] administered the oath of office to his bitterest enemy, Thomas Jefferson; and for a quarter of a century after the author of the Decla- ration of Independence retired to private life, the stern Chief Justice continued to announce old Federalist rulings from the Supreme Bench.”
In 1803, during the second year of Jefferson’s presidency, Marshall took on a power for himself and future Supreme Courts that made President Jefferson apoplectic. In the Marbury v. Madison case, as the Beards relate it,
Marshall had been in his high post only two years when he laid down for the first time in the name of the entire Court the doctrine that the judges have the power to declare an act of Congress null and void when in their opinion it violates the Constitution. This power was not expressly conferred on the Court [by the Constitution]. Though many able men had held that the judicial branch of the government enjoyed it, the principle was not positively established until 1803 [by Marshall’s ruling in this case]...
Jefferson, shocked, bluntly expressed his concern to his old friend Judge Spencer Roane, the son-in-law of Patrick Henry and a justice of the Virginia Supreme Court:
If this opinion be sound,” Jefferson wrote, “then indeed is our Constitution a complete felo de se [legally, a suicide]. For intending to establish three departments, coordinate and independent, that they might check and balance one another, it has given, according to this opinion, to one of them alone, the right to prescribe rules for the government of the others, and to that one too, which is unelected by, and independent of the nation....
Jefferson continued in full fury,
The Constitution, on this hypothesis, is a mere thing of wax in the hands of the judiciary, which they may twist and shape into any form they please. It should be remembered, as an axiom of eternal truth in politics, that whatever power in any government is independent, is absolute also; in theory only, at first, while the spirit of the people is up, but in practice, as fast as that relaxes. Independence can be trusted nowhere but with the people in mass. They are inherently independent of all but moral law. My construction of the Constitution is very different from that you quote. It is that each department is truly independent of the others, and has an equal right to decide for itself what is the meaning of the Constitution in the cases submitted to its action; and especially, where it is to act ultimately and without appeal....
A judiciary independent of a king or executive alone is a good thing; but independent of the will of the nation is a solecism [an error or blunder], at least in a republican government.20
In his decision putting the Supreme Court above the elected officials (the legislature and the president), Marshall was echoing Hamilton’s Federalist mistrust of any form of government constrained solely by those elected by the people. Kings had faced challenges, the Federalists argued, and fought back because as kings they could force decisions without having to wait for a consensus by the people. This powerful federal judiciary, only partially answerable to the people, the Federalists believed, was essential to the survival of the nation.
As Hamilton wrote in the Federalist Papers (No. 23), about whether there should be constraints in the Constitution that would prevent the U.S. government from operating outside the will of its people,
These [constitutional] powers ought to exist without limitation, BECAUSE IT IS IMPOSSIBLE TO FORSEE OR DEFINE THE EXTENT AND VARIETY OF NATIONAL EXIGENCIES, OR THE CORRESPONDENT EXTENT AND VARIETY OF THE MEANS WHICH MAY BE NECESSARY TO SATISFY THEM [capitals Hamilton’s]. The circumstances that endanger the safety of nations are infinite, and for this reason no constitutional shackles can wisely be imposed on the power to which the care of it is committed.21
(Hamilton’s argument is essentially what was said by the Bush adminis tration lawyers who argued in their legal briefs for massive increases in presidential power post-9/11.)
Madison, an ally of Jefferson, rebutted Hamilton’s worldview perhaps most eloquently in the Federalist Papers (No. 39) when he wrote: “It is ESSENTIAL [capitals Madison’s] to such a government that it be derived from the great body of the society, not from an inconsiderable proportion, or a favored class of it; otherwise a handful of tyrannical nobles, exercising their oppressions by a delegation of their powers, might aspire to the rank of republicans, and claim for their government the honorable title of republic.”22
Jefferson further elaborated his arguments for three independent and equal-in-power branches of government as well in numerous writings during the 1780s as the Constitution was being formed.
But that was then and this was 1803: The deed was done by Marshall, and the Federalists had won. That said, there is also no doubt that Marshall, like Hamilton, believed he was doing the best thing for the nation that he had served as a soldier during the Revolutionary War. In the 1819 McCulloch v. Maryland decision, for example, he referenced government’s deriving all its power from and “by the people” no fewer than eleven times in his majority opinion.23 It was just that his notion of who “the people” were was more in line with Hamilton’s and Adams’s than with Jefferson’s and Madison’s.
Rulings and Laws on Revoking Corporate Charters
In a sense, a corporate charter is like a driver’s license: It is permission to operate in a particular way, granted by the government. (The comparison is imperfect in technical details, but this point doesn’t depend on those details.) Like a driver’s license, a charter can be revoked if the privilege is abused.
In 1819 Chief Justice John Marshall used the power he had given himself and the Supreme Court to alter the states’ power to regulate or dissolve corporations.
King George III had chartered Dartmouth College in 1769 as a private college, but one part of Jefferson’s agenda was to make a college education available to any citizen regardless of the ability to pay. In keeping with Jefferson’s Democratic Republican philosophy of free public education, the state of New Hampshire dissolved Dartmouth’s corporate charter and rechartered it as a public state school. Dartmouth sued to retain its private corporate charter status, claiming that the corporate charter granted by King George before the Revolution was still valid, and the case went to the Supreme Court.
Chief Justice Marshall, in an opinion clearly reflective of Federalist thought and opposed to Jefferson’s plans, ruled that because the original corporate charter of Dartmouth College didn’t contain a clause that would allow for its own revocation, and the charter “was a contract between the state and the College, which under the federal Constitution no legislature could impair,” the state of New Hampshire had no authority to revoke the college’s charter.24
Even at this, Marshall was explicit about the need for restrictions on corporations, including that they are not citizens.
As corporate historian and law professor James Willard Hurst notes, “The Dartmouth College case put states on warning that regulation of their corporate creatures must be compatible with the contract clause of the federal Constitution. Concerned to respect state control of corporate activity, the Court took pains to deny that a corporation was a ‘citizen’ of the chartering state so that it might claim in other states the benefits of the Constitution’s privileges and immunities clause.”25
Even with this qualification, the response from the states—feeling that the Marshall Court had usurped their power to control or dissolve corporations—was furious. Newspapers wrote scathing editorials about the decision, citizens were outraged, and over the following years numerous state legislators took action.
In response to the Dartmouth decision, Pennsylvania’s legislature passed a law in 1825 that declared the legislature had the power to “revoke, alter or annul the charter” of corporations. New York State passed a similar law in 1828, including “Section 320,” which said that any acts by a corporation not specifically authorized in their charter were ultra vires (Latin for “beyond the power”; it basically means “you can’t do that because you lack the legal authority”) and grounds for revocation of the corporation’s charter. Michigan, Louisiana, and Delaware all passed laws in 1831 limiting the time of corporate charters.26
In the following decade, Michigan, Delaware, Florida, and New York all passed laws that corporate charters could be created or renewed only by a two-thirds vote of the legislature. Altogether during the nineteenth century, nineteen states passed laws in response to Marshall’s ruling in the Dartmouth case, each specifying they had the authority to control corporations. Rhode Island’s 1857 law is characteristic: “The charter or acts of association of every corporation hereafter created may be amendable or repealed at the will of the general assembly.”
In 1855 the U.S. Supreme Court went along with the trend, ruling in Dodge v. Woolsey that the states have not “released their powers over the artificial bodies which originate under the legislation of their representatives.” The Court added, “combinations of classes in society...united by the bond of a corporate spirit...unquestionably desire limitations upon the sovereignty of the people....But the framers of the Constitution were imbued with no desire to call into existence such combinations.”
Early Presidents Wary of Corporations
The Founders knew that without business there would be little progress in the new nation they had helped birth. Yet on commerce, Madison and many of the Founders were of mixed minds. They had seen firsthand the abuses of large monopolistic trusts and corporations like the East India Company, yet they also knew that the future of America was based in part on people’s pursuing entrepreneurial, mercantile dreams. In a letter to Edmund Randolph on September 30, 1783, Madison wrote, “Wherever Commerce prevails there will be an inequality of wealth, and wherever [an inequality of wealth prevails] a simplicity of manners must decline.”27
On the other hand, given the widespread nature of trade in his day, Madison knew it was foolish to try to restrain it, at least unless it got as big as the ill-fated Second Bank of the United States. For example, in a speech to the House of Representatives on April 9, 1789, Madison said,
I own myself the friend to a very free system of commerce, and hold it as a truth, that commercial shackles are generally unjust, oppressive and impolitic—it is also a truth, that if industry and labour are left to take their own course, they will generally be directed to those objects which are the most productive, and this in a more certain and direct manner than the wisdom of the most enlightened legislature could point out.28
When commerce was taken over by large corporate or religious enterprises, however, Madison knew exactly where he stood. In 1817 he wrote, “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.”29
And in a letter to James K. Paulding on March 10, 1827, Madison made
absolutely explicit a lifetime of thought on the matter:
Incorporated Companies, with proper limitations and guards, may in particu- lar 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. Is it not strange that the Law which will not permit an individual to bequeath his property to the descendants of his own loins for more than a short and strictly defined term, should authorize an associated few, to entail perpetual and indefeasible appropriations...”30
Because the Founders of America tended to agree with Thomas Hobbes that corporations had the potential to be “worms in the body politic,”31 governments at all levels—municipal, county, state, and federal—had laws carefully circumscribing the behaviors of corporations.
After the American Revolution, it was a basic principle of democratic government to protect the people it represented from unrestrained corporate power. Thus during the first few decades of the existence of the new United States of America, there were only a handful of corporations, most formed for international trade or banking.
Seeing in even these few corporations the possible reincarnation of an East India Company type of corporate plutocracy, in 1816 Thomas Jefferson wrote, “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.”32
Those “moneyed corporations” grew in power and influence through Jefferson’s lifetime and after his death in 1826. As mentioned earlier, the rise of the Second Bank of the United States caused considerable consternation. Legislators railed against it for decades, particularly when the bank started involving itself in politics, and they tried to terminate its corporate charter, an effort that finally succeeded when the bank went under in 1841.
President Martin Van Buren, in his first annual message to Congress in December 1837, said, “I am more than ever convinced of the dangers to which the free and unbiased exercise of political opinion—the only sure foundation and safeguard of republican government—would be exposed by any further increase of the already overgrown influence of corporate authorities.”33
Early Growth of the Railroads—and Their Legal Tactics
During the middle of the nineteenth century—roughly from the late 1820s to the early 1870s—the first incarnations of our modern economy evolved out of a previously agrarian and local small-business economy. Other than the Second Bank of the United States, which was out of business by 1841, the dominant industries in America were the plantations, largely staffed by slaves, and the textile mills of the northeast, largely staffed by indentured immigrants from Europe.
Cheap coal, the cheap steel it made possible, and the telegraph brought dramatic changes to America between 1820 and 1850. During this time the railroads grew from obscurity to dominate the corporate and political landscape of the nation. Just twenty-six years after the steam locomotive was invented in England, the first public railway in the world opened in England in 1823. Four years later, with subsidies from the city of Baltimore, the first railroad in America—the Baltimore & Ohio, or B&O Railroad—was incorporated. In 1830 the first scheduled passenger train began operation, using the first U.S.-built steam locomotive, “The Best Friend of Charleston.” In 1833 there were only 380 miles of track laid in the United States, and that year President Andrew Jackson became the first sitting president to ride a railroad, creating a new mass-transport sensation.
By 1840 more than 2,700 miles of track were in use in the United States, serving seven states, and by 1850 the total had exploded to more than 9,000 miles of track. By 1860, largely through government subsidies to the new rail companies, more than 30,000 miles of track were in regular use in the United States, and the railroads were the largest and most powerful corporations the nation had ever seen. By 1890 more than 180 million acres of taxpayer-owned land had been deeded to the owners of the nation’s largest railroads by various federal, state, and county governments.
Abe Lincoln Reluctantly Joins the Railroads
As the railroads grew in size, they also grew in political power. And they hired some of the nation’s best lawyers. For example, in May 1853 the Illinois Central Railroad Company chose not to pay its property taxes to McLean County, Illinois, and sued the county in the Circuit Court to prevent collection. James F. Joy of Detroit, the head lawyer for the railroad, contacted a former Illinois state representative, now an attorney in private practice in the McLean County city of Bloomington, with an offer of employment.
But a young lawyer, who had already gained quite a reputation as an attorney and from his days in the legislature, felt that his personal loyalties in the case were with the county and not the railroad. So the attorney—young Abraham Lincoln—wrote a letter to T. R. Webber, the Champaign County clerk of court, asking for the job of defending the county against the railroad:
An effort is about to be made to get the question of the right to so tax the [Railroad] Co. before the court and ultimately before the Supreme Court, and the [Railroad] Co. are offering to engage me for them....
I am...feeling that you have the first right to my services, if you choose to secure me a fee something near such as I can get from the other side.34
Lincoln knew that the case would be big and the issues important, and the fee an attorney could earn from it would be a big help to his family. “The question in its magnitude to the [Railroad] Co. on the one hand and the counties in which the Co. has land on the other is the largest law question that can now be got up in the State,” he wrote to the county’s clerk, “and therefore in justice to myself, I can not afford, if I can help it, to miss a fee altogether.”35
The county didn’t answer his letter, so Lincoln wrote to the railroad’s attorney, Mason Brayman, saying, “Neither the County of McLean nor any one on its behalf has yet made any engagement with me in relation to its suit with the Illinois Central Railroad on the subject of taxation, so I am now free to make an engagement for the [rail]road, and if you think of it you may ‘count me in.’”36
Brayman immediately sent Lincoln a $200 check as a retainer, and Lincoln went to work for the railroad along with James Joy.
Lincoln’s Case Foreshadows a Corporate Claim of Personhood
The case sailed through the Circuit Court and immediately went to the Illinois Supreme Court. In the May 1854 term of the court, Brayman and Lincoln represented the Illinois Central Railroad.
A brief written by Lincoln noted that Section Two, Article Nine of the Illinois State Constitution of 1847 required “uniform taxation” of all “persons using and exercising franchises and privileges.” Arguing for the railroad, Lincoln claimed that it was a “person” and thus the nonuniform taxation of different railroad properties at different tax rates was unfair and unconstitutional under the Illinois State Constitution.
Lincoln both lost and won the case. The Illinois Supreme Court ruled unanimously that, on the one hand, the state legislature could “make exceptions from the rule of uniformity” with regard to corporations it had chartered, thus losing him the corporate personhood argument.
On the other hand, the Supreme Court ruled that the railroad’s charter—which functioned also as a sort of contract between it and the state, since early railroad charters were more similar to modern-day state-subsidized public utilities than traditional private corporations—allowed for direct taxation of the railroad by the state based on its revenues, and therefore the county didn’t have the authority to tax the railroad and the railroad didn’t have to pay the tax bill.37
Lincoln Sues the Railroad
Lincoln sent the Illinois Central Railroad—whose directors all lived in New York and thus had its headquarters there—a bill for his services in the case: he asked for $5,000. James F. Joy refused to pay him that much, suggesting that Lincoln was asking for more than he was worth. (Joy’s fee had been only $1,200 for his work on the case.) “The simple truth is that the whole trouble was with Mr. James F. Joy...whom Mr. Lincoln afterward despised,” a company memo later noted.38
To resolve the issue, the railroad’s president, William H. Osborne, suggested that Lincoln simply sue the railroad and let a judge decide how much he should be paid. Lincoln preferred not to sue his client, and almost three years later, in March 1857, he traveled by railroad to New York but was unsuc- cessful in prying his fee out of the railroad. With no other option, Lincoln filed a lawsuit against the railroad in McLean County Circuit Court, asking for his $5,000 legal fee.
The case opened on Thursday, June 18, 1857, then was postponed to the following Tuesday when it was well attended, as Lincoln was a rising star and there was a huge curiosity factor. In the courtroom that day was a young law student, Adlai E. Stevenson, who, when he was later vice president of the United States (1893 to 1897) would recall that, “It appeared to me in the nature of an amicable suit.”39 In a process that took only a few minutes, the railroad agreed to pay Lincoln’s $5,000 fee except that he had to reduce it by $200, as the client had already advanced him that amount as a retainer. Lincoln admit-ted that he had forgotten about the $200 and agreed to the terms.
The Great Corporate Crash
Lincoln left the courtroom having won the judgment but without any money. The railroad procrastinated in paying him, and on August 1, 1857, Lincoln had the sheriff issue a writ. On August 12 he was paid his $4,800 in a check, which he deposited and then converted to cash on August 31, 1857.
It was a fortunate date for Lincoln to get his cash because just over a month later, in the Great Panic of October 1857, both the bank on which the check was drawn and the railroad itself were “forced to suspend payment.”40
Of the sixty-six banks in Illinois, the Central Illinois Gazette (Champaign) reported that by the following April, “27 have gone into liquidation”41 in a recession/depression. The Chicago Democratic Press had declared on September 30, 1857, “The financial pressure now prevailing in the country has no parallel in our business history.”
The Railroad’s President and His Generals
Attesting to the power of the railroads as an employer is that Lincoln, through- out the entire time he was negotiating with and suing the railroad, continued to work as its attorney. One of the railroad’s other attorneys noted, “We had a contract that Lincoln was to take no case against us and that I could call on him to help me when he was there; and when my clients [the railroads] wanted help I always got Lincoln.”42
Lincoln enjoyed, as did all the railroad’s lawyers, a free pass for unlimited travel, which no doubt helped when he was floating his candidacy for president—he served as a railroad lawyer up until the day of his nomination.
On March 19, 1860, just two weeks before the opening of the Republican Convention in Chicago, where he was nominated as a candidate for president (on May 18), Lincoln defended the railroad in court in that same city and won the case, helping cement his credentials as a candidate for the Republicans.
Perhaps most interesting, and demonstrative of how tightly knit the railroads of the day were with the present and future leaders of the nation, is that while working for the railroad in Illinois, Lincoln met and befriended three men: George B. McClellan was, when Lincoln was first suing the railroad, the vice president and chief engineer of the Illinois Central Railroad. Ambrose E. Burnside was treasurer of the railroad. And a veteran of the Mexican war, Ulysses Grant, “was without success trying to win a livelihood at Galena, Illinois” and had apparently approached the railroad for employment.43
Lincoln’s biographer, Albert J. Beveridge, noted, “Within five years Lincoln was to make each of these [three] men a general in the Union army.”44
As the History of the Illinois Central Railroad notes, “Stephen A. Douglas, Abraham Lincoln, George B. McClellan, Ulysses S. Grant and Edward Harriman all played a major or minor role in the [railroad] line’s development.”45
The Emergency of the Civil War
The Civil War was a huge boon for the largest corporations in America because government spending exploded for just about every conceivable commodity that was needed by the troops. By the time the war was over, several corporations that supplied war materials and transportation, particularly the railroads, were operating in multistate and monopolistic ways that were raising alarm bells among citizens and in legislatures across the nation.
On July 1, 1862, President Lincoln signed into law under “military necessity” the Pacific Railway Bill, which granted to the Union Pacific and the Central Pacific railroads ten sections of land along a right-of-way from Iowa to San Francisco. The bill also included government loans for building rail lines of $16,000 per mile for level ground, $32,000 per mile for railways crossing deserts, and $48,000 per mile for rails crossing mountains. The national railroad-building campaign became a frenzied activity, sloshing with money and manpower.46
But the money was everywhere, and it spawned rampant corruption. As Attorney General Edward Bates wrote in his diary on March 9, 1863, “The demoralizing effect of this civil war is plainly visible in every department of life. The abuse of official powers and the thirst for dishonest gain are now so common that they cease to shock.”47
In his classic biography of Lincoln, Carl Sandburg wrote, “A procession of mouthpieces and fixers twined in and out of Lincoln’s office from week to week...”48
Sandburg notes that General James Grant Wilson wrote to Lincoln, “Every contractor has to be watched” because “some of the most competent and most energetic contractors were the most dishonest, [and] could not be content with a fair profit.” He quotes Blackwood Magazine of England as not- ing, “A great war always creates more scoundrels than it kills.”
Between just June 1863 and June 1864, the War Department paid out more than $250 million. A letter attributed to Lincoln by many historians over the years but not verifiably his (it was probably written by one of the progressives or populists of the late nineteenth century, and just sounded so Lincoln- esque that it stuck) has him saying:
Whether or not Lincoln said it (the letter first appeared in the 1880s, and its veracity was denied by the head of the Republican Party, Perry Heath, in the New York Times on October 3, 1896, although by that time the Republican Party was virtually a wholly owned appendage of the Robber Barons and their corporations and no longer shared the worldview of Lincoln’s Radical Republicans), it reflected a widespread sentiment in the United States at the time.
We may congratulate ourselves that this cruel war is nearing its end. It has cost a vast amount of treasure and blood. The best blood of the flower of American youth has been freely offered upon our country’s altar that the nation might live. It has indeed been a trying hour for the Republic; but I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country.
As a result of the war, corporations have been enthroned and an era of cor- ruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety than ever before, even in the midst of war. God grant that my suspicions may prove groundless.49
The Railroads Rise to Power
During the Civil War, the railroads rose to become the most powerful of the American corporations. Lincoln mentioned both their “great enterprise” and the conflicts that they were causing across the nation by defying state and federal attempts to regulate them. Because most of the railroads were essentially monopolies (except where they met in large cities), as “the only game in town” they could charge whatever prices they wanted for the transportation of goods and people.
The resulting expenses caused by this domination of the transportation industry by a few very large railroad corporations were increasingly passed along to consumers, government, and smaller companies who received their workers or materials by rail. The unrestrained price increases that drove their profits were also driving a general inflation, even as they helped interconnect and build the nation.
“The great enterprise of connecting the Atlantic with the Pacific states by railways and telegraph lines has been entered upon with a vigor that gives assurance of success,” Lincoln noted in his fourth annual message to the nation on December 6, 1864, “notwithstanding the embarrassments arising from the prevailing high prices of materials and labor.”50
At the same time, under the growing influence of railroad money and power, courts and legislatures were making business more risk-free for the railroad corporations. In 1864 Congress passed the Contract Labor Law, which allowed employers to exchange a year’s low-cost or free labor for passage and immigration from a foreign nation to the United States. The main effect—and one of the main goals—of this legislation was to break up strikes and lower labor costs by increasing the labor pool and thus introducing greater competition among workers for jobs.
While the courts ruled that if a corporation broke a contract with another corporation, the aggrieved company would still have to pay for what it had already received, they also ruled that if a human broke a Contract Labor Law contract with a railroad corporation, that corporation wasn’t obligated to pay the worker anything. As historian Howard Zinn points out, “The pretense of the law was that a worker and a railroad made a contract with equal bargaining power,”51 the same as if two powerful corporations had entered into a contract with each other with equal legal resources. Thus the railroads always won.
The first transcontinental railroad line, proposed by Lincoln during his campaign and started during his presidency, was completed on May 10, 1869. By 1871 more than 45,000 miles of track crisscrossed the nation. John D. Rockefeller was eleven years away from forming the Standard Oil Trust, and Andrew Carnegie’s steel monopoly and John Pierpont Morgan’s banking monopoly were rising in power and influence but not yet dominant forces in American business.* At that time railroads were king; they were the first truly huge American corporations, with the power to transport people and goods and crops from place to place and state to state, energizing the American econ- omy and driving the westward expansion of the new nation.
The growth of the railroads, while supported in part by government grants of millions of acres of free land and millions of dollars of subsidies and tax abatements, also drew expressions of concern from the president and the state legislatures. Transportation is a fundamental need, and people quickly became dependent on the railroads for fast long-distance transport, so the public became prey to predatory pricing practices.
On December 4, 1882, President Chester Arthur said in his annual address to Congress and the nation,
One of the incidents of the marvelous extension of the railway system of the country has been the adoption of such measures by the corporations which own or control the [rail]roads as have tended to impair the advantages of healthful competition and to make hurtful discriminations in the adjustment of freightage [prices]. These inequalities have been corrected in several of the States by appropriate legislation, the effect of which is necessarily restricted to the limits of their own territory.52
As President Arthur noted, the states considered the railroad’s ability to charge whatever they pleased as unfair, and by the mid-1880s virtually all states had passed laws setting maximum fees and prices for fares (for people) and tariffs (for freight) or otherwise regulating the railroads. There was nation- wide sentiment in favor of continuing to regulate the behavior of the country’s largest and most aggressive corporations, particularly the railroads.
How Freeing the Slaves Became the Railroads’ Secret Weapon
On July 9, 1868, just after the Civil War, three-quarters of the states ratified the Fourteenth Amendment to the U.S. Constitution as part of a set of laws to end slavery. The intent of Congress and the states was clear: to provide full constitutional protections and due process of law to the now-emancipated former slaves of the United States. The Fourteenth Amendment’s first article says, in its entirety:
All persons born or naturalized in the United States, and subject to the juris- diction thereof, are citizens of the United States and of the state wherein they reside. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
Along with the Thirteenth Amendment (“Neither slavery nor involun tary servitude...shall exist within the United States”) and the Fifteenth Amendment (“The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or pre- vious condition of servitude”), the Fourteenth Amendment guaranteed that freed slaves would have full access to legal due process within the United States.
Acting on behalf of the railroad barons, attorneys for the railroads repeatedly filed suits against local and state governments that had passed laws regulating railroad corporations. The main tool the railroads’ lawyers tried to use was the fact that corporations had historically been referred to under law not as corporations but as “artificial persons.”** Based on this, they argued, corporations should be considered persons under the free-the-slaves Fourteenth Amendment and enjoy the protections of the Constitution just like living, breathing, human persons.
Using this argument for their base, the railroads (in particular, but a few other corporations got into the act) repeatedly sued various states, counties, and towns, claiming that they shouldn’t have to pay local taxes because different railroad properties were taxed in different ways in different places and this constituted the creation of different “classes of persons” and was thus illegal discrimination. For almost twenty years, these arguments did not succeed.
In 1873 one of the first Supreme Court rulings on the Fourteenth Amendment, which had been passed only five years earlier, involved not slaves but corporations. Writing in the lead opinion, Justice Samuel F. Miller minced no words in chastising corporations for trying to claim the rights of human beings.
The Fourteenth Amendment’s “one pervading purpose,” he wrote in the majority opinion, “was the freedom of the slave race, the security and firm establishment of that freedom, and the protection of the newly-made freeman and citizen from the oppression of those who had formerly exercised unlim- ited dominion over him.”53
The railroads, however, had a lot of money to pay for lawyers, and railroad lawyer S. W. Sanderson had the reputation of a pit bull. Undeterred, the railroads again and again argued their corporations-are-persons position all the way to the Supreme Court. The peak year for their legal assault was 1877, with four different cases reaching the Supreme Court in which the railroads argued that governments could not regulate their fees or activities or tax them in differing ways because governments can’t interfere to such an extent in the lives of “persons” and because different laws and taxes in different states and counties represented illegal discrimination against the persons of the railroads under the Fourteenth Amendment.54
By then the Supreme Court was under the supervision of Chief Justice Morrison Remick Waite, himself a former railroad attorney. Associate Justice Stephen J. Field, who was so openly on the side of the railroads in case after case that he annoyed his colleagues, also heavily influenced the Court. In each of the previous four cases, the Court ruled that the Fourteenth Amendment was not intended to regulate interstate commerce and therefore was not applicable. But in none of those cases did Waite or any other justice muster a major ity opinion on the issue of whether railroad corporations were persons under the Constitution, and so Miller’s “one pervading purpose” of the Fourteenth Amendment as being to free slaves prevailed.
Having lost four cases in one year took a bit of the wind out of the sails of the railroads, and there followed a few years of relative calm. The railroads continued to assert that they were persons, but states and localities continued to call them artificial persons and pass laws regulating their activities.
Throughout the 1870s and 1880s, the issue of corporate personhood was frequently debated in newspapers and political speeches, with a handful of the nation’s largest corporations arguing “for” and most of the voters, newspaper editorialists, and politicians arguing “against.” Across America politicians were elected repeatedly on platforms that included the regulation of corporations, particularly the railroads. And yet the legal fight continued.
The Railroads Claim There Was a “Secret Journal”
In 1882 the railroads’ attorneys floated the claim in a Supreme Court plead ing that when the Fourteenth Amendment was drafted, “a journal of the joint Congressional Committee which framed the amendment, secret and undisclosed up to that date, indicated the committee’s desire to protect corporations by the use of the word ‘person.’”55
It was a complete fabrication, and they lost the 1882 case: nobody took the “secret journal theory” seriously except Justice Field, who had ruled in the railroad’s favor in the Ninth Circuit Court, where he was a judge at the same time he was on the Supreme Court and which brought the case before the Supreme Court.
In future cases the railroad attorneys were unable to produce or even prove legislative reference to the secret journal of the congressional committee. Years later Supreme Court Justice Hugo Black wrote, in a dissenting
opinion in the Connecticut General Life Insurance Company v. Johnson case,
Certainly, when the Fourteenth Amendment was submitted for approval, the people were not told that the states of the South were to be denied their normal relationship with the Federal Government unless they ratified an amendment granting new and revolutionary rights to corporations. This Court, when the Slaughter House Cases were decided in 1873, had apparently discovered no such purpose. The records of the time can be searched in vain for evidence that this amendment was adopted for the benefit of corporations.
It is true [303 U.S. 77, 87] that in 1882, twelve years after its adoption, and ten years after the Slaughter House Cases, an argument was made in this Court that a journal of the joint Congressional Committee which framed the amendment, secret and undisclosed up to that date, indicated the committee’s desire to protect corporations by the use of the word “person.”
A secret purpose on the part of the members of the committee, even if such be the fact, however, would not be sufficient to justify any such construction. The history of the amendment proves that the people were told that its purpose was to protect weak and helpless human beings and were not told that it was intended to remove corporations in any fashion from the control of state governments. The Fourteenth Amendment followed the freedom of a race from slavery.
Justice Swayne said in the Slaughter Houses Cases, supra, [ruled] that: “By ‘any person’ was meant all persons within the jurisdiction of the State. No distinction is intimated on account of race or color.” Corporations have neither race nor color. He knew the amendment was intended to protect the life, liberty, and property of human beings. The language of the amendment itself does not support the theory that it was passed for the benefit of corporations.56
The 1882 case, however, would not be the last time attorneys for the railroads would try to use this fabricated story in their attempts to change the meaning of the Constitution.
There’s an important lesson here about the relative ability of different parties to use the legal system for their protection or to gain advantage. A human individual might try to advance a ludicrous claim such as “There was a secret journal” without the slightest evidence. Indeed, from time to time we hear of defendants trying such things. But it’s highly unlikely that an actual person would have the ability to carry claims to the Supreme Court year after year after year with so little to go on.
This is directly relevant to the issue of a level playing field: when one party has dramatically more power, property, and wealth than another, it makes no sense to assert that both require equal protection.
Indeed, one aspect of the concentration of wealth that worried Jefferson and most American legislatures in our nation’s earliest decades was that with enough wealth, a corporation can keep trying in the courts for centuries (literally centuries, because a corporation doesn’t die), no matter how much it costs, until it gets what it wants.
And, ultimately, that’s what happened.
**This usage began in sixteenth-century England, when lawyers for the East India Company argued that their corporation could not be convicted of a crime because the corporation was not a person and English laws regulating criminal behavior always began with, “No person shall...” In response to this, legislators from that time on began passing laws to specifically regulate the “artificial persons” of corporations. While they wanted to regulate corporations, they also wanted to acknowledge that corporations shared some things with humans: they were taxed, were subject to laws, and could be parties to lawsuits.
1. Alfons J. Beitzinger and Edward G. Ryan, Lion of the Law (Madison: State Historical Society of Wisconsin, 1960), 115–16. From an 1873 address to the graduating class of the University of Wisconsin Law School.
2. Jane Anne Morris is a brilliant researcher, and I gratefully owe much of the Wisconsin- related content of this chapter to her work and thank her for her generous permission to share it with you. The examples in this list are from her “Fixing Corporations: The Legacy of the Founding Parents” at http://www.populist.com/6.96.Fixing.Corps.html.
17.Lyman J. Nash, ed. Wisconsin Statutes 1919, Volume II: Embracing All General Statutes in Force at the Close of the General and Special Sessions of 1919, Consolidated and in Part Revised Pursuant to Sections 43.07, 43.03, 35.18 and 35.19 of These Statutes (Madison: State of Wisconsin, 1919), sec. 4479a, 1771–1775, http://books.google.com/books?id= 6ZCxAAAAMAAJ&pg=PA2299&lpg=PA2299&ots=WxkbUWGxMn&dq=wisconsin +1905+section+4479a&output=text.
18. . Richard L. Grossman and Frank T. Adams, Taking Care of Business: Citizenship and the Charter of Incorporation (S. Yarmouth, MA: Charter Ink, 1999), http://www.ratical. org/corporations/TCoB.txt.
20.Thomas Jefferson to Judge Spencer Roane, September 6, 1819, http://teachingamerican history.org/library/index.asp?document=2192.
21. Alexander Hamilton, Federalist Papers (No. 23), http://www.foundingfathers.info/ federalistpapers/fed23.htm.
22. James Madison, Federalist Papers (No. 39), http://www.foundingfathers.info/federalist papers/fed39.htm.
29. From Elizabeth Fleet, “Madison’s ‘Detatched Memoranda,’” William and Mary Quar- terly 3, no. 4 (1946), 551–62. See http://www.worldpolicy.org/projects/globalrights/ religion/madison-detachedmem.html.
Another infirmity of a Commonwealth is the immoderate greatness of a town, when it is able to furnish out of its own circuit the number and expense of a great army; as also the great number of corporations, which are as it were many lesser Commonwealths in the bowels of a greater, like worms in the entrails of a natural man. To may be added, liberty of dis- puting against absolute power by pretenders to political prudence; which though bred for the most part in the lees of the people, yet animated by false doctrines are perpetually meddling with the fundamental laws, to the molestation of the Commonwealth, like the little worms which physicians call ascarides.
32. Thomas Jefferson to George Logan, November 12, 1816, http://oll.libertyfund .org/?option=com_staticxt&staticfile=show.php%3Ftitle=808&chapter=88352&layout =html&Itemid=27.
33. Martin Van Buren, first annual message to Congress, December 5, 1837, http://www .presidency.ucsb.edu/ws/index.php?pid=29479.
Abraham Lincoln (Riverside Press, 1928).
49. Emanuel Hertz, Abraham Lincoln: A New Portrait (New York: Horace Liveright, 1931), 2:954. In my 1931 first-edition copy of this book, this note by Lincoln is not addressed and is unsigned. Dale Carnegie tells a famous story, in his book How to Win Friends and Influence People, about how Lincoln would often write letters to others or even to himself expressing his greatest concerns and then hide them away, often to be later destroyed. It’s my guess that this letter was one of those, later found by Hertz as he collected Lincoln’s personal effects in the early decades after Lincoln’s death. From its order in Hertz’s book, this letter sits between a signed and dated letter to Secretary of War Edward Stanton on November 10, 1864, and a signed note about Colonel Ward Hill Lamon dated November 29, 1854. Hertz certifies it is in Lincoln’s hand but gives us no clues as to whom he wrote the note to or how he planned to send or dispose of it before his death.
50. Abraham Lincoln, fourth annual message to Congress, December 6, 1864, http://www .presidency.ucsb.edu/ws/index.php?pid=29505.
52. Chester Arthur, second annual message to Congress, December 4, 1882, http://www .presidency.ucsb.edu/ws/index.php?pid=29523.
54. The cases, all in 1877, are: Chicago, Burlington, and Quincy Railroad Company v. Iowa, 94 U.S. 155; Peik v. Chicago and North-Western Railway Company, 94 U.S. 164; Chicago, Milwaukee, and St. Paul Railroad Company v. Ackley, 94 U.S. 179; and Winona and St. Peter Railroad Company v. Blake, 94 U.S. 180.