Gangs of America

Questions (8)

  1. What is the nature of "corporate power"?
  2. How does it exactly work?
  3. Does the law instantly conform to the needs and wants of those 100 businessmen?
  4. What happens when corporate America finds its wishes thwarted by constitutional barriers?
  5. Who decides what is “public” and what is “private?”
  6. Who defines the nature of “crime” versus “business as usual?”

POINT: A corporation has no body to imprison, no conscience to appeal to. It has resources and a license to be and to act in certain ways. It has a reputation. It does not have a unitary consciousness. So how do we adjust our ideas about social control so that we can live in a coordinated and cooperative manner with them?

To Know: What is a corporation? (15ff) What does it mean to say that something "takes on a life of its own"?

Organizations have insides

  • Structure (levels of hierarchy, span of control, matrix structure, teams)
  • Leadership (authoritarian, participative, democratic, top-down, bottom-up)
  • Organizational culture
  • Communication
  • Architecture

Organizations have environments

  • Other organizations
  • Individuals
  • The state


CHALLENGE: fully theorize the "society" and "democracy" thing in which we are trying to place corporations as fellow actors.

1 How did Corporations get so much Power?: In which the author reads a poll, feels provoked and befuddled, and organizes his investigation

Santa Clara County v. Southern Pacific Railroad (1886) and the 14th Amendment

As a result of the war, corporations have been enthroned and an era of corruption 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. Lincoln to Elkins, 1864 (Nace 23-4)

GIST of chapter: 1. Corporations acquired personhood through long process of court decisions. 2. Suggestion: this evolution neither natural, necessary, nor unassisted.

2 From Street Fight to Empire: The British roots of the American corporation (1267-1773)

Space + Family > Voluntary Communities > Craft guild.

Family names and occupations: see Holden 1997 What's in a Name: Surnames and Occupations

Protection, mutual aid, standards, defining products, training. Control. Patronage.

Hierarchy between and within.

~1500 craft guilds try out trading.

Independent trade association > independent traders with shared infrastructure (cf. today's shared workspace)

As ventures pushed the envelope things mover farther up the risk/reward curve


Mutual aid > pooled risk

If there are 100 ventures and each costs $100 and might return $10100 but only 1 in 25 are successful. Your expected value is 10,000 x 0.04 = 104 x 4 x 10-2 = 4 x 102 but 24 times out of 25 you will lose everything. It turns out that the value of the first 100 profit is enormous — you eat. The next hundred means you can educate your kids. And the next 100 you can buy your house.

Social organizational challenge: how to coordinate with others so that larger ventures can be attempted?

Constant urge to reduce competition by acquiring exclusive rights of access.

Joint stock company. First try: share in this voyage. Second: fixed term bond. Third: permanent stock.

  1. Allow us to be treated as an entity (the entity can sign a contract, own something, etc.)
  2. Shield our individual fortunes and families from debts.
    • Why? Suppose you marry someone with undisclosed debts. And suddenly, your family's fortune is exposed. Result: people are very concerned with marrying well. Bad example. Better: sending a borrowed boat to Ceylon for tea could net you riches but it could also land you in a heap of trouble if the boat sinks. Result: no one in their right mind would sponsor such a voyage. And so no one has tea.
  3. Allow us to sell our shares to third parties.

Eventually, the entity can also hire people. These people can be put in charge. You can have an entity that is owned by one group of people and run by a completely different group of people.

(later: principal-agent problem)


Emergence of East India Tea Company as most important organization of its day.

Colonialism as a corporate activity (35ff)

3 The Ultimate Reality Show: The brutal history of the Virginia Company (1607-1624)
  • Virginia company and Jamestown
  • 1500s-1600s enclosure movement
  • IMPORTANT: company interior as social-free zone
  • Disputes about company; disastrous results; 1624 charter revocation; formation of legislature.
  • IMPORTANT: company interior as social-free zone (45)
4 Why the Colonists Feared Corporations…: In which the citizens of Boston demonstrate the use of the hatchet as an anti-monopoly device (1607-1773)
  • The fifth freedom and the ideology of free enterprise and it's attendant individualism.
  • The "other people’s money" problem

According to Smith, a core flaw of the corporation as an institutional form was the intrinsic lack of functional accountability caused by separating ownership from management (51)

Adam Smith: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or some contrivance to raise prices."

  • Conflict with Britain over raw materials and manufacturing and who would sell what…. (52)
  • POINT: not symbolic politics
  • corporate form not typical in colonies (54)
  • Irony: suggestion (55) that American revolution and founding of democracy had (partial) proximate cause in a financial crisis
5 And What They Did About It: How the framers of the American political system restrained corporate power (1787–1850)
  • almost no corporations post-revolution
  • should states or feds charter corporations? (61)
  • Charters. Emphasis on restrictions not privileges
  • No charters if business already existed. No charter if "not necessary" (for the service to emerge)
  • IMPORTANT CONCEPT: permission to incorporate as policy solution to market failure
  • Note somewhat vague logic of why corporate form would lead to monopolization and such. Was it because it could be a political actor? Not clear. (62) To be honest, not clear why the form would squash the worker (63)
  • We get the impression that it's about the advantages charters give some players over all the others:

(63)Theodore Sedgwick in his 1835 book, What Is Monopoly: Every corporate grant is directly in the teeth of the doctrine of equal rights, for it gives to one set of men the exercise of privileges which the main body can never enjoy…. Every such grant is equally adverse to the fundamental maxim of free trade for it carries on its face that no one but the corporators are free to carry on the trade in question, with the advantages which the charter confers.

What are the dimensions along which charters constrained forms.


Typical Controls in Corporate Charters Prior to the Civil War
Activities Each corporation was limited to performing a specific function, such as operating a school or a bridge.
Lifespan Typically, charters of incorporation were issued for terms ranging from 20 to 50 years, after which they would have to be renewed. Banks were subject to especially tight restriction, with some states limiting terms to 3 to 10 years.
Property ownership Most states limited corporations to owning only property that was directly needed for the authorized activity.
Size Charters directly limited on the amount of capital that an individual corporation could control. Some charter provisions also had an indirect effect on size, including restrictions on property ownership, the requirement for unanimous shareholder consent in major decisions, geographic restrictions, and limits on permitted activities.
Geographic Most corporations were not allowed to operate beyond the borders of the state in which they were incorporated. Sometimes a corporation was even restricted to a single county.
Inter-company ownership As a rule, corporations were not allowed to own stock in other corporations.
Performance criteria In addition to stating what sort of activities were allowed, charters also frequently specified project completion dates and output requirements. Sometimes the two were combined; e.g. an iron company being required to reach a certain tonnage of production within three years.
Profits Charters sometimes limited the profit a corporation could earn. In addition, many charters required that profits from a company be used to buy back stock, so that eventually all stockholders would be eliminated and the company would in effect become a public entity under the supervision of the state legislature. Under the Turnpike Corporation Act of 1805, Massachusetts authorized the legislature to dissolve turnpike corporations once their receipts equaled the cost of construction plus 12 percent.
Public privilege Charters for turnpikes typically exempted farmers, worshippers, and poor people from paying tolls.
Shareholder restrictions and protections for minority owners In some cases incorporators had to be citizens of the state. Some charters prevented a single powerful individual from controlling the corporation; some required a minimum number of shareholders. Some charters required that the corporation use a voting formula that increased the leverage of small investors. Most required unanimous consent for key decisions, such as issuing new stock or selling the company.
Special restrictions on banking Bank charters were limited to three to ten years. Banks had to get special approval to merge. In some states banks were required to direct their loans to local industries. Banks were also required to lend money to the state government if requested. Maximum interest rates were designated. Both Illinois and Indiana actually banned private banking corporations in their state constitutions. Wisconsin and four other states amended their constitutions to require that all bank charters be approved by popular vote.
Shareholder liability Limited liability the principle that shareholders can’t be held responsible for judgments against a corporation or for unpaid corporate debts wasn’t a widespread feature of the corporation until after the Civil War. Some charters required full shareholder liability. Others capped liability at twice the value of a person’s stockholdings.
Ultra vires In addition to other restrictions, corporations were subject to the general ban on activities not expressly permitted in their charter. This doctrine of limited authorization, known as ultra vires, translates as “beyond the powers.” Courts would not enforce any contract outside the scope of a corporation’s charter.
6 The Genuis: The man who reinvented the corporation (1850–1880)
7 Super Powers: The corporation acquires nine powerful attributes (1860-1900)
8 The Judge: Stephen Field and the politics of personhood (18681885)
9 The Court Reporter: Who really decided the Supreme Court’s most important corporate case?(1886)
10 The Lavender-Vested Turkey Gobbler: How a “majestic, super-eminent” lawyer deceived the Supreme Court (1883)
11 Survival of the Fittest: How the Supreme Court used the Fourteenth Amendment to advance a Social Darwinist agenda, and how “people power” toppled that agenda (1886–1937)
12 the Revolt of the Bosses: The new mobilization of corporate political power (1971-2003)
13 Speech=Money: Using the First Amendment to block campaign finance reform
14 Judicial Yoga: The tangled logic of corporate rights
15 Crime Wave: The roots of the scandals of 2002
16 Global Rule: How international trade agreements are creating new corporate rights
17 Fighting Back: A movement emerges to challenge corporate hegemony
18 Intelligent, Amoral, Evolving: The hazards of persistent, dynamic entities

Court Cases to Know

Trustees of Dartmouth College v. Woodward (1819)

New Hampshire had enacted legislation converting Dartmouth College from a private college into a public one. The trustees appealed the action, and the Supreme Court ruled in their favor. According to the decision of the Court, the charter that the trustees of Dartmouth had received from King George in 1769 qualified as a contract entitled to protection under the contract clause of the Constitution (Article 1, Section 10), which prohibits states from “impairing the obligations of contracts.” This decision, Justice Story later wrote, was intended to protect the rights of property owners against “the passions of the popular doctrines of the day.” Its effect was to begin the process by which corporations gradually carved out a legal zone of immunity from state legislatures. Subsequently, legislatures found an easy way to get around the problem. They added a new clause to charters stating that the state reserved the right of revocation. But Dartmouth is important because it demonstrated that the Court intended to interpret the Constitution (which makes no mention of corporations) liberally enough to give corporations some measure of constitutional protection. At the same time, the ruling made it clear that corporations remain subordinate to state power. Justice Marshall wrote that the corporation is an “artificial being, invisible, intangible and existing only in contemplation of law.”

Santa Clara County v. Southern Pacific Railroad (1886)

California had a method of taxing corporate property that resulted in higher taxes than those placed on the property of persons. Southern Pacific objected, and the Court sided with the railroad. The decision is cited as having established that corporations are “persons” for purposes of applying the equal protection clause of the Fourteenth Amendment, which had been enacted to protect the newly freed slaves in the states of the former Confederacy.

Lochner v. New York (1905)

New York passed a law limiting the work week of bakery employees to sixty hours. Lochner, the owner of an unincorporated bakery business, was convicted of violating the law. The Court overturned the conviction, ruling that the law impinged on the right of employees and employers to make contracts with each other. Although Lochner did not involve a corporation, it is seen as the epitome of the “substantive due process” doctrine under which the Court overturned numerous state laws regulating working conditions, wages, and other aspects of business. Justice Holmes wrote a brilliant and scathing dissent to the decision, but his position was ignored by the majority for another three decades. Holmes was vindicated by the Court’s disavowal of the substantive due process doctrine in 1937.

United Sates v. Morton Salt Company (1950)

After the Federal Trade Commission ordered Morton Salt Company and nineteen other salt companies to stop certain price-fixing practices, the FTC ordered the corporations to submit regular reports showing their compliance with the order. Morton Salt appealed the decision, claiming that the Fourth Amendment protected its privacy. In this decision, the Court did not overturn the Fourth Amendment protections granted earlier in Hale v. Henkel (1906), but it did narrow them. Specifically, the Court ruled: “corporations can claim no equality with individuals in the enjoyment of a right to privacy.”

Buckley v. Valeo (1976)

This case invalidated limits on the amount of money a candidate could spend on his or her own campaign. According to the Court, expenditures of money are so closely associated in a political campaign with political expression that limiting such expenditures can only be justified if it can be shown to create corruption. Since a person presumably cannot corrupt himself or herself, limiting their expenditures cannot be justified under the First Amendment. This case is notorious for its narrow conception of how money can corrupt the political process.

References and Further Reading

1. Coal Free Bellingham. A Brief History of Corporate Personhood (accessed 23 April 2012).