Page 4 of
5 THE SHAPE OF
US POPULISM, Part 2 Long-term effects of the Civil
War By Henry C K
Liu
with generous
philanthropy. The combination of Calvinism and
liberalism shaped a national ethos that glorified
the successful businessman as the most useful and
respected member of society. This new status of
the merchant class is unique in American culture;
it is not found in the old European and Asian
societies.
Only economies rich in
resources can afford capitalism Still, the
counterfactual question remains whether it was
capitalism that produced the industrialization
that led to spectacular economic growth in the
young nation, or the promising potential richness
of the land in the young nation that
made capitalism, despite its many internal
contradictions that needed regulation, an
efficient economic system. Throughout the young
nation, there were pockets of successful
communities that thrived not on individual
competition but on the communal cooperation based
on collective ownership that lay behind the
celebration of the Pilgrim spirit of Thanksgiving.
In the subsequent mercantile milieu,
influenced by the social Darwinism of the survival
of the fittest advocated by Herbert Spencer
(1920-1903) and the anti-equality ideology of
influential Yale professor William Graham Sumner
(1840-1910), who labeled democracy as the "pet
superstition of the age", big business found a
pseudoscientific rationalization for predatory
consolidation.
While decrying the early
American concept of equality among men as contrary
to the law of nature and seeing government action
to protect the weak and unfit against the strong
and fit as impediment to progress, Sumner thought
it was natural for government to assist and
protect big business and the elites who ran it to
ward off threats from stronger foreign
competitors.
The survival of the nation
depended on effective protection from the fittest
among world powers while national fitness depended
on domestic survival of the fittest. Economic
nationalism trumped economic democracy, which was
considered a threat to national security.
Yet the Constitution specifically protects
personal private ownership of property by
forbidding states to impair of the obligation of
contracts. In the summer of 1819, the newly
elected governor of New Hampshire, William Plumer,
sought to take control of the charter of Dartmouth
College [one of nine Colonial Colleges founded
before the revolution] from its elitist Federalist
trustees in order to replace the board with
elected populist Republican members.
Daniel Webster successfully argued for
Dartmouth in the US Supreme Court, and Chief
Justice John Marshall (in office 1801-35) handed
down the landmark decision, interpreting the
Fourteenth Amendment, that Dartmouth was a private
rather than public entity, therefore, the state of
New Hampshire did not have regulatory power over
it. This is an important historic decision as it
limits the control a state government may have, in
the name of the common good, over a corporate
charter which is in essence a private contract.
Marshall's interpretation of the
Fourteenth Amendment transformed it into a Magna
Carta of corporate right, ironically so, as the
Amendment was originally added on June 16, 1866,
and ratified on July 23, 1868, to the Constitution
for protection against state violation of the
rights of "Negro" persons to life, liberty or
property without due process of law.
A
private corporation is regarded by the Marshall
decision as a "legal person" and thereby cannot be
deprived of its right to conduct business and of
its private property rights. The Constitution
declares, moreover, that "the Citizen of each
State shall be entitled to all Privileges or
Immunities of Citizens in several States".
This declaration, when extended to cover
corporations as "legal persons", gives
corporations chartered in any state the right to
conduct business in all states. Since the
organization of huge amounts of capital needed by
large-scale commerce can only be accomplished
through the corporate structure, this
constitutional and legal protection is vital to
the expansion of the capitalistic economy. It
paved the path towards corporatism.
Popular reaction against
corporatism After the 1819 Supreme Court
ruling, throughout the rest of the 1880s the
public was increasingly alarmed by the pervasive
growth of monopolies crowding out small
businesses. In popular parlance, a large
combination was known generally as a trust though
in reality big business secures market dominance
through a variety of invisible structures,
including the use of holding companies to
implement mergers and acquisitions that continue
to technically evade anti-trust restrictions to
this day.
While some states began to
impose anti-trust legislation on big business,
such restriction were ineffective as long as a few
states, notably New Jersey and Delaware, the local
politics of which had been controlled by big
business interests, continued to place few
restrictions on the issuance of corporate charters
with which corporations could own properties and
conduct business in all other states.
In
1890, Congress passed the Sherman Anti-trust Act
by near unanimous vote, which declared that "every
contract, combination in the form of trust or
otherwise, or conspiracy in restraint of trade or
commerce among the several states or with foreign
nations" was declared guilty of a misdemeanor
punishable by a fine of not more than $5,000
and/or imprisonment of not more than a year.
Those who hoped John D Rockefeller would
be heading for jail were disappointed. Prior to
1901, neither the Justice Department nor the
courts showed any interest to comply with the
Sherman Act. Instead the act was perverted into a
weapon for attacking labor unions. Since the Civil
War, notwithstanding the Sherman Act, 5,300
separate firms were combined into 318 large
corporations by 1904, with 236 of these
combinations taking place between 1898 and 1903.
The development of public utilities fell
largely into private hands. Coal, steel and
railroads, three interconnected industries, fell
under private control from the beginning. Hard
anthracite coal soon passed to the control of the
railroads, while soft bituminous coal continued to
be mined by thousands of small operators.
In 1860, the US produced 800,000 tons of
pig iron while no steel was produced. By 1900, the
US produced 14 million tons of pig iron of which
11 million tons were made into steel, larger than
the total production of Britain and Germany
combined.
Investment banking is the
midwife of mergers and acquisition. This was the
period when investment banking first flourished in
the US. The chief banking house of the Civil War
was Jay Cooke and Company of Philadelphia, which
became insolvent in 1873. Financial supremacy
passed to New York, where the leading firm,
Drexel, Morgan and Company, was reorganized in
1895 as JP Morgan and Company. While apologists
rationalized the role of investment banking as
introducing order into a chaotic financial market
and economy, most of the astronomical profit came
from manipulation.
For example, Morgan
took control of the New York, New Haven and
Hartford Railroads in 1903 and pushed the market
capitalization from $93 million to $417 million in
nine years, most of which represented water rather
than real investment. Applying the same
manipulation, Morgan organized US steel after the
retirement of Andrew Carnegie with a
capitalization of $1.1 trillion plus a bond debt
of $303 million, reaping an instant profit of over
$700 million through watering down the value of
the stock while collecting an investment banking
fee of $75 million.
Cornelius Vanderbilt,
a semi-illiterate New Yorker, started on his road
to massive fortune by running a ferry between
Manhattan and Staten Island, and later running
barges on the Hudson river. In 1862, aged 62, he
began buying railroads and before his death in
1877 expanded the New York Central into a vast
network serving New York and Chicago, boosting his
fortune from $10 million to $100 million is 15
years. Notorious for his bad grammar and worse
attitude, he was recorded as having boasted: "Law,
what do I care about law? H'aint I got the power?"
Vanderbilt and fur trading real estate tycoon John
Jacob Astor, the richest man in America from 1835
on, became leaders of New York society and
arbiters of upper class mannerism.
Populist opposition to the growing abuse
of power by railroad owners was building. The main
complaint was the railroads' practice of rebates
to preferred shippers such as Rockefeller's oil
monopoly to drive competitors into distressed
selling to a predator
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