A History Blog

A Revival of the "Privileges or Immunities" Clause?

This week an important brief was filed at the Supreme Court involving a matter not directly related to corporate law, but which historically has roots in a corporate matter and which has had significant influence in civil rights law.  I am interested in it, though, also because it is a developing case study at the intersection of law and history and because I am advising a student who is writing a research paper on the right to bear arms on military posts.  

The case is McDonald v. City of Chicago, and involves a challenge to that city's gun-control law.  Last Term, the Court held in Heller v. District of Columbia (2009) that the Second Amendment's right to bear arms was an individual right.  The Petitioner (McDonald et al, challenging the law) raises the question of whether a state may nonetheless restrict this individual right.  They filed their brief earlier in the week, Download McDonald-brief-11-16-09, and in doing so have mounted a bold attack on The Slaugterhouse Cases (1873), a case that many contend is one of the worst decisions ever issued by the Court. 

A Louisiana law in 1869 chartered a corporation with a 25-year monopoly to maintain a slaugterhouse in New Orleans.  All other slaugterhouses were to close, but the monopoly was required to let independent butchers slaughter cattle at a state-imposed price.  Some independent butchers claimed the law deprived them of their right to exercise their trade and challenged it under the 14th Amendment as abridging the privileges and immunities of US citizens.  Despite the plain language of the amendment, that no state "shall make or enforce any law which shall abridge the privleges or immunities of citizens of the United States," in a 5-4 decision the Supreme Court narrowed the amendment and effectively read the Privileges or Immunities Clause out of the Constitution.  It ruled that the amendment did not restrict the police powers of the state, that the Fourteenth Amendment's Privileges or Immunities Clause affected only the rights of US citizenship and not of state citizenship, that the amendment was primarily intended to protect former slaves (and thus not butchers), and that the butcher's rights had not been violated. 

The subject of the appeal was a state's power to create a corporate monopoly, but its far-reaching effect was to evicerate the Privileges or Immunities Clause and provide a foundation for states to perpetuate restrictions on individual liberties in a variety of areas, including the civil rights of the newly freed slaves.  See e.g., United States v. Cruikshank (1875). 

The Petitioner's brief combines legal with historical analysis of both the legal/intellectual thought behind the Amendment and the historical context of the "ancient" and early national understanding of what privileges and immunities meant (as used in Article IV) and the political debates in the late 1860s.  The City of Chicago has until the end of December to respond, so it will be a while before the Court has all the materials to proceed.  The weight of the commentary in both legal and historical communities is that The Slaughterhouse Cases was prongly decided and should be overturned.  See e.g., Michael Kent Curtis, No State Shall Abridge (1990); Raoul Berger, Government by Judiciary (1977).  As these briefs are filed, and as the Court hears arguments and renders a decision, it will make for a fascinating case study of how (whether?) law and history can get along. 

Are There Benefits to the Corporation?

The novels for this weeks readings are certainly critical of business, capitalism, and corporations.  The Whiskey Rebels, the book I read, has an obvious agenda, and it seems likely that The Financier does too.  Moreover, both seem highly critical of bankers in particular and capitalism in general.  OK, as far as that goes.  Two points I would like to make in this post.  One involves the portrait painted in The Whiskey Rebels of the antagonists in that story.  The other is more a general thought about the present attitude about corporations and capitalism. 

As to the book, there is no subtleness.  There is the misunderstood and virtuous (Ethan Saunders), and then there are the evil "elites" who control the levers of power (William Duer, Alexander Hamilton, et al.).  The rural farmers are rich with land and poor of cash and challenge the government's taxation policy.  The city dwellers are greedy, focused on money and speculation that is inherent in Hamilton's economic policies and that is fostered under the political stability offered by the Constitution.  The conflict created is so one-sided that one wonders why a few guillotines were not imported from Paris, and why significant portions of the population (from many different regions and socio-economic groups) supported the Constitution at all.   

As to the present attitude about corporations, I am increasingly concerned that our society is becoming unhinged about the benefits and problems inherent in the corporate form and about the nature of capitalism.  A comment in our last class noted that many of our blogs had been highly critical of corporations, and that has certainly been the theme of the discussions (though not of all the books). 

I come at this from a rather different perspective.  I very much recognize that I am a product of a corporate culture.  People I have known well (family) have found their lives better because of their employment by corporations (as conductors and engineers for the Pennsylvania Railroad, as national sales managers for Andrew Jergens in the early-20th century, as financial controllers and auditors for General Foods and other consumer food businesses in the mid- and late-20th century).  People I have known somewhat less well have been corporate executives -- people who have built new businesses, grown existing businesses, and even irretrievably damaged businesses.  Not only have I and others benefitted from that employment (both in financial terms and in a perspective of the world), I have absorbed a culture of success from that association, a recognition that I am part of a larger national and international economic, cultural, and political system.  Moreover, I do not see the corporation as an entity, but as a collection of people -- imperfect though they are.  In the Navy there is an old adage that a ship is just a bunch of steel until the officers and crew climb aboard, and that is also true with corporations, or universities, or any other group activities. 

The corporate form allows people to pool money and create something in an industrial economy that could not be done through a partnership or single proprietorship.  It simultaneously spreads the risk of failure to numerous investors and limits the risk of failure to other markets.  We see this today in bankruptcy proceeding that spread the economic ripples caused by business failure.  Of course this insulates investors personally, and that is a problem where bad things happen intentionally.  But it can also have the benefit of insulating the broader market and economy from dislocations caused by business failures. 

Life is imperfect and is a series of trade-offs.  There is a difference between problems of the corporate form, and problems of human nature.  The first can be addressed, the other is more problematic.  William Duer is a sneak who preys on others less knowledgable about investments and less able to defend themselves.  There is little difference between him and Ivan Bovsky in the 1980s or even the imprudent decisionmaking on Wall Street in the last decade.  That is about human nature.  I am beginning to wonder if our cultural willingness to see fault in the corporate form and in captialism makes us unwilling to tolerate human failings, and is blinding us to the benefits of capitalism and to the problems inherent in the alternative. 

Corporate "Personhood"

At various times in our discussions, we have touched on the legal nature of the corporation, and especially its personhood.  There have been several references to the expected decision of the Supreme Court in Citizens United v. Federal Elections Commission.  Let me be clear that I am not an expert on this area, though I have some understanding of the broad contours of the legal issues.  So I make a couple of points here with the caveat that there are other facts and opinions that should amplify (or contradict) what I post here. 

The readings for this week very much show how corporations used public relations to fashion an identity.  This is a fascinating question of cultural history and we should recognize that this cultural dynamic took place in response to the impersonal nature of giant industrial combinations.  It is indeed the rise of industrial enterprises that both creates a problem of public perception and that provides the tools by which that problem may be addressed. 

The legal concept of a corporation as a "person," though, seems to me to be within a more narrow context, indeed I think it should be seen through the lense of intellectual history rather than social or cultural history.  In the late nineteenth century, under the intellectual leadership of Justice Stephen Fields, the courts developed theories of a "liberty of contract" and of "substantive due process"  based in the 14th Amendment.  Essentially the theories held that economic regulations of the relationship between members of society, such as a worker and an employer, inteferred with both the liberty of the worker and the employer to contract with each other based on their own self-determined interests.  These theories are entirely discredited today, but through the 1930s the courts used these doctrines to restrict many, though not all, government regulations of economic activity. 

In Santa Clara County v. Southern Pac. R.R. Co. (1886), a California state agency sought to collect a tax on various real estate owned by the railroad.  The railroad argued that the assessment improperly included fences between the land owned by the railroad and that owned by another.  The county brought suit to recover its proportion of the tax based on the fences.  The lower court and the Supreme Court render their decisions on the underlying merits of the dispute, the Supreme Court doing so unanimously.  However, the parties had made other arguments as to the constitutionality of the tax under the equal protection  clause of the Fourteenth Amendment, arguments that would logically precede any decision on the merits of the case.  In an unusual preface to the opinion, Chief Justice Waite stated that "The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does."  The Supreme Court's obiter dictum is in the context of the 14th Amendment and the court's embrace of a liberty of contract and substantive due process.  Through another line of cases in the mid-20th century, the Supreme Court held that most (if not all) of the restrictions on government enshrined in the Bill of Rights are applicable to the states through the 14th Amendment. 

Yet the interesting thing about the arguments in Citizens United v. FEC, argued last September, is that the arguments deal almost entirely with the First Amendment issue and presume the personhood of the corporation at issue.  Here is a link to an article at the First Amendment Center on the issues at stake in Citizens United v. FEC.  http://www.firstamendmentcenter.org/analysis.aspx?id=22030.  The Washington Post's article is at http://www.washingtonpost.com/wp-dyn/content/article/2009/03/14/AR2009031401603.html.  Finally, a New York Times article is at http://www.nytimes.com/2009/08/30/us/30scotus.html.  Moreover, the issues as raised by the parties deal with government regulation of corporate campaign contributions and that can be dealt with without addressing whether the corporation is a person. 

As a result, I am not sure that a decision in Citizens United v. FEC will tell us a great deal about the legal status of a corporation as a person in the early 21st century.  But I do think there is a connection between the social and cultural dynamics of corporate public relations in the first third of the 20th century and the intellectual currents about the legal nature of the corporation.  And part of that story seems to be the acceptance of corporations as a partial solution to the problems of economic expansion in the late 19th and early 20th centuries.  

Imagining Consumers (versus creating consumers)

Regina Lee Blaszczyk's Imagining Consumers is a deft and well constructed portrait through case studiws of several companies in the glass and ceramics industries.  Through these firms, she illustrates the intersections between research and development, marketing, retailers, manufacturers, artists and middle managers, who sought to determine what consumers wanted.  This flow of interaction leads to a discovery of what consumers need or desire, rather than a manipulation of those needs and desires for purely corporate purposes. 

This is in constrast to my reading of Shelley Nickles' article, "'Preserving Women': Refrigerator Design as Social Process in the 1930s."  Nickles decribes a process of imagination not unlike Blaszczyk's in refrigerator design as the views of designers, engineers, advertisers, and consumers (predominantly women) over time altered the style, material, design, and functions.  I am on board with Nickles' proposition that these issues reinforced social norms about the middle class kitchen and that Frigidare used various sources (home economists, imperfect surveys, etc) to imagine what a typical, middle class consumer would purchase.  I got the impression, though, that she felt the design, functions, and style actually created a vision of middle class consumer life.  The evidence she uses (the Lord & Thomas research, truck surveys through neighborhoods, taking Miss Wagner's comment seriously) seems in line with Blaszczyk's research and argument and does not support a more manipulative argument of corporate market creation through manipulation. 

This seems almost akin to the HIST 610 arguments over which came first, the historian or the history.  Here, did the consumers come first, with their needs and desires, or did to the corporation come first to create those needs and desires? 

Michael Clayton

Last week was Movie Night, and I chose Michael Clayton (2007).  George Clooney stars in the title role as an attorney in a large New York law firm.  He is a "fixer," someone who "cleans up" the unpleasant and embarrassing problems left by clients of other lawyers in his firm.  Although he started out as a litigator in a prosecutors office and liked the good he did there, he joined the firm to better his career and financial independence.  Now he is trapped trying to manage the breakdown of the firm's most successful litigator, Arthur Edens, who has gone off his medications and is building the case against his client, U-North, a large agro-chemical corporation defending a class-action suit brought by cancer victims of their products.  As he searches for Edens, he begins to suspect that the firm is on the wrong side of the suit.  Opposite Clayton is Karen Crowder (played by Tilda Swinton), the general counsel for U-North, the corporation manufacturing the carcinogenic pesticide.  She's cosy with the chief executive and adopts his brutal and immoral tactics to ensure that the damaging information Edens has collected is not exposed -- ultimately arranging for Edens to be killed and an attempt to be made on Clayton's life. 

Of course the corporation is bad, and where there is a bad corporation there must also be a bad law firm.  Yet the central conflict is among the characters and their differing approaches to their lives within the corporate environment.  Edens has a mental break from the stress of serving the horrid corporate master full-time for six years.  Clayton is a soldier in support of Edens and sees himself as Edens friend.  During a confrontation in an alley he declares to Eden, "I am not the enemy!"  "Then who are you?" responds Edens.  As Edens assembles the evidence that will destroy the corporation, he muses "Is this the sum of my existence?"  It's a question that is equally applicable to the three characters.  Is Edens just defending a monsterous corporation that intentionally hurts people?  Is Clayton just a "fixer," a "bag man" who cleans up unpleasantries?  Is Crowder just helping to advance an impersonal corporate business even as it destroys the users of its own products, but is blind to this reality?  After years of being on the wrong side, can Clayton suddenly change and "fix" the damage caused by the malfeasance of Crowder and U-North?  Through a sub-plot concerning his family (his brother the good cop, another brother addicted and deeply in debt, and a son who he wants to protect from the bad he sees all around him), Clayton must find a way to extricate himself from the Devil's den and somehow do some good. 

This is a great movie, a thriller that jumps around and slowly builds tension and springs unexpected surprises .  The evilness of the corporation and its executives is so exaggerated, though, that they become caricature.  Corporations don't just make destructive products, their executives kill to protect themselves and the business.  Lawyers protect that evil, and collect an obscene fee whether they are successful or not.  And once one is held by the corporate trap, the difficulty is finding any way to get out and return to the idealic good that one aspires to. 

This all makes for great viewing pleasure, and yet leaves a skewed vision of corporations that is in line with modern conspiratorial culture.  The malfeasance of Ford executives in allowing the Pinto to go into production, discussed by Brinkley in Wheels For the World, is far more interesting as a lense into corporate evil.  How could Ford stand by and let its customers drive the Pinto when they knew the safety risks?  Indifference, complacense, a lack of care for others presents most of the answer.  That is far more human -- and real -- than the murder and conspiracy of Michael Clayton.  But see it anyway, for the tension, for the suspense, and as a demonstration of why George Clooney is such a force in the movie business. 

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Jackson Hole - Redux

Thanks for the comments on my latest post.  Part of my thought was informed by Ron Chernow's Titan, his biography of John D. Rocekfeller, Sr.  There are significant debates about the means by which wealth is created.  Those debates have much to do with the times and our attitudes many decades later about the effects of business actions on others.  Chernow paints a portrait of Rockefeller as a predatory businessman, but also spends more than half of the book on Rockefeller's family life - especially his religious convictions and his philanthropy.  So one answer to myself is that for Rockefeller, Sr., giving away his wealth (to Baptist causes, to the University of Chicago, and to what became the research center Rockefeller University, and others) was a manifestation of his religious ideals about stewardship (read: money is a tool to serve others).  That may have mixed with other impulses in his son, who was also driven by the need to improve the family name and reputation (Colonial Williamsburg both was an act of giving, as well as an effort to refurbish the name).  As TJD alluded to, I am generally not comfortable judging the moral rectitude of historical actors (though I admit there are some big exceptions).  It is just these contradictions in peoples lives that might history so interesting.  These are individual stories, so I concur with Salvatore that these things must be judged on an individual basis.  Together they might point toward an American "culture" of philanthropy. (OK - there is the title of my book, "The American Culture of Philanthropy"! Quite grandious!)

Jackson Hole - Redux

Thanks for the comments on my latest post.  Part of my thought was informed by Ron Chernow's Titan, his biography of John D. Rocekfeller, Sr.  There are significant debates about the means by which wealth is created.  Those debates have much to do with the times and our attitudes many decades later about the effects of business actions on others.  Chernow paints a portrait of Rockefeller as a predatory businessman, but also spends more than half of the book on Rockefeller's family life - especially his religious convictions and his philanthropy.  So one answer to myself is that for Rockefeller, Sr., giving away his wealth (to Baptist causes, to the University of Chicago, and to what became the research center Rockefeller University, and others) was a manifestation of his religious ideals about stewardship (read: money is a tool to serve others).  That may have mixed with other impulses in his son, who was also driven by the need to improve the family name and reputation (Colonial Williamsburg both was an act of giving, as well as an effort to refurbish the name).  As TJD alluded to, I am generally not comfortable judging the moral rectitude of historical actors (though I admit there are some big exceptions).  It is just these contradictions in peoples lives that might history so interesting.  These are individual stories, so I concur with Salvatore that these things must be judged on an individual basis.  Together they might point toward an American "culture" of philanthropy. (OK - there is the title of my book, "The American Culture of Philanthropy"! Quite grandious!)

Jackson Hole & Philanthropy

In my first post, I discussed an interest I have in questions of corporate philanthropy.  Why is it that some businesses give money, goods, or services to non-profit causes?  A starker question is will this philanthropy continue as businesses are started and grow with a corporate form, as opposed to a pattern a century ago of businesses that started as individual enterprises and then took on a corporate form? 

I was reminded of this while watching Ken Burn's series on PBS about the national parks.  As a teenager I spent a lot of time backpacking in Grand Teton National Park.  The camp was on the eastern side of Jackson Hole with a clear view of Tetons to the west.  That view, and the 17 mile drive across the valley, was unmared except by elks, and that all had to do with John D. Rockefeller, Jr., buying up the valley floor and waiting 15 years to donate it to the nation.  Burns' series tells that story in two parts and it, like similar uses of vast wealth as a tool for good, has its source in something more that one man's desire to improve his family's reputation.  There must be something deeper than that -- something about the purposes of wealth. 

This is not a broad-based critique of wealth, or of corporations, or of capitalism.  In that debate, I will be a strong defender of those.  But it is a querie about how the culture of giving is generated and how it is transferred to a corporate culture. 

Does Chandler Have a Point?

After our discussion last week on The Visible Hand, I thought a bit more of Chandler's underlying thesis that the visible hand of a managerial class replaced the invisible hand of a Adam Smith's marketplace in the allocation of resources.  At first I had difficulty with such a sweeping statement, but something from my own experience makes me wonder if Chandler has it right. 

I grew up in Minneapolis where my father worked as an internal auditor and financial controller for a Fortune 500 food business, a competitor to Pillsbury.  One of the business lines of his firm was grain merchandising, the buying and selling of wheat on the grain exchanges either for speculation or for use by the flour milling division of the company.  For several years, he was engaged in acquiring local grain elevators through Montana, North Dakota, and northern Minnesota, along the railroad lines to Duluth.  From there the grain would be transported by ships through the Great Lakes to flour mills in Toledo, Cleveland, and Buffalo.  Other companies were also engaged in these markets, include Archer Daniels Midland, General Mills, and Pillsbury. 

What struck me was that it seems likely that simply the presence of several large companies purchasing grain, moving that product to mills, and in turn selling the finished flour in the US and international markets, altered the allocation of agricultural resources in the Upper Midwest for some set of economic actors.  Had those companies not been doing this, undoubtedly farmers would have grown wheat and sold it to independent elevator operators, but in a different way and in different quantities.  (I suspect that farmers would have had an incentive to grow less wheat, would have marketed it in a more limited way, or would have done so at different market prices.)  

Of course the technological predicate to this business was the railroad, large-volume shipping on the Great Lakes, and rapid communication, but it was a relatively small number of middle managers in some large corporations that planned and executed the business.  Questions of resource allocation are not just how much goods and services are allocated at some price, but what opportunities are foreclosed because resources were allocated one way and not another.  In my case study, it is likely that the actions of Chandler's regiment of middle managers altered the allocation of resources on a microeconomic (or firm) scale, which remains true even if those managers did not alter resource allocation on a macroeconomic scale (i.e., for the entire economy).  

Discuss!

The Visible Hand

In The Visible Hand: The Managerial Revolution in American Business, Alfred Chandler provides an ambitious survey of American business history from 1840 to 1920.  The work is focused on the managerial characteristics of various American businesses, rather than on individuals, industries, or business functions.  Chandler’s overarching thesis is that from 1840 to 1920 the resources in the American economy, which before had been allocated within the marketplace by Adam Smith’s “invisible hand,” were allocated rather by the visible hand of management. 

Chandler maintains that the market forces faced by American businesses in 1840 were little changed from those confronted by an Italian merchant five centuries earlier.  The rapid growth of the American population and its westward expansion resulted in a growth in demand.  For Chandler, it was the technological and organizational changes beginning in the 1840s that increased the volume and velocity of resources.  With the advent of high-volume manufacturing and rapid transportation and communications via railroads and the telegraph, Chandler believes that the growth of the American economy required their exploitation through coordination and planning.  In short, greater efficiency resulted from the development of various layers of middle management. 

As Chandler repeatedly reminds the reader, modern management arose first with the railroads, which due to the large areas of operations and the potential for serious injury, required managers to carefully monitor and coordinate the flow of equipment.  As railroads multiplied, owners sought to bring together separate lines into integrated networks.  In Chandler’s view, it was the need to organize these vast networks that required the emergence of a middle level of management to coordinate the safe and efficient flow of commerce.  From about the 1880s to the 1910s, this managerial revolution spread to other industries.  In heavy industries, such as steel and machinery, the techniques developed by the railroads led to modern factory management.  In consumer goods, the techniques of middle management were taken up in such industries as flour milling, canning, meat packing, and cigarettes, resulting in an explosion in production and distribution through vertical integration of purchasing, production, and distribution operations. 

Through the modern business enterprise, Chandler maintains, “was the organizational response to fundamental changes in processes of production and distribution made possible by the availability of new sources of energy and by the increasing appreciation of scientific knowledge to industrial technology.”  (376).  To support his argument, he relies mostly on secondary works concerning the history of business.  For example, in discussing the productivity revolution in the flour industry in Minneapolis (p. 250-53, notes 11 and 12 on p. 556-57), or its integration with mass distribution of consumer flour products (p. 294-95, notes 12-14 on p. 562), Chandler’s support is dependent entirely on a finite number of secondary works.  Yet the reliance on secondary sources pales in comparison to the depth of its analytical scope, the lucidity of its prose, and its use of specific case studies to illustrate changes in organizational form. 

Chandler’s synthesis of American business history is not without its critics.  In one article, Richard Sylla argues that national banking standards, especially reserve policies, resulting in a net flow of deposits from rural banks to city banks, thus increasing the amount of leverage-able assets in the late nineteenth century.  In another article, Naomi Lamoreaux, Daniel Raff, and Peter Temin survey American business through the early twenty-first century and argue that the management of information is the central problem of business.  Rejecting Chandler’s focus on resource allocation, these historians emphasize the fluidity of business conditions, criticize Chandler for declaring an end to business evolution by the 1920s, and see a more complex historical process at work, in particular the decline of hierarchical institutions. 

Yet these critiques seems to mistake Chandler’s point that managerial organization in American business created productivity gains that were central to the development of the modern consumer-centric world.  While certainly today’s business environment is different, such productivity gains in today’s information-technology era in many ways remain channeled through firms such as Walmart, Amazon.com, and United Parcel Service, that retain elements of hierarchical forms.