What we think of as the essence of the capitalist system -- competition -- was anathema to the way corporations were originally created and operated.
The following post is part of an ongoing series on the self-made man in U.S. history.
Nowhere was the the emergence of a modern industrial economy in the 19th century more clear than in the new meaning and uses of a longstanding institution: the corporation. Prior to 1800, corporations were created – “chartered,” to use the technical term – by governments for the purpose of promoting economic activity in the name of the public good. This was how, for example, the colonies of Virginia and Massachusetts had been established (the latter smuggling in a religious agenda its directors hoped royal authorities would overlook). Corporations were licensed monopolies granted to aristocrats, natural and otherwise, for what was assumed to be plural benefit. Members of the corporation received a unique right to trade – and the right to bar anyone else from trading – in a particular commodity, territory, or both. In return, the corporation would, in terms of tax revenue and political loyalty, support the national interest against other imperial rivals or domestic miscreants who attempted to trade without government supervision and permission.
Today we think of economic competition
as the very essence of a healthy economy. That’s because we live in a
capitalist society. But in the mercantilist world of colonial America,
competition was a problem, not a solution – something that fostered conflict
and distraction from the common good. This notion was subject to increasing
pressure – the colonists considered the East India Company as a locus of
oppression and launched the Boston Tea Party to attack it – and a growing sense
that corporations functioned as instruments of private corruption. But a belief
in the viability of, even need for, the traditional corporation survived
Revolution. It was especially prevalent among the old Federalist elite. In
1810, retreating Federalists in Massachusetts succeeded in turning Harvard College
into a private corporation to protect it from what they feared would be the
rising Jeffersonian mob mentality.
One can see both the persistence of this
corporate ideal and its erosion in the career John Jacob Astor (pictured above), a merchant who
amassed one of the great private fortunes in American history. In 1808 the
federal government granted him a charter for the American Fur Company. For
Astor, the new corporation was a crucial instrument in consolidating his
growing power in the lucrative fur trade, furnishing him with the basis of a
commercial empire that would span Europe, Asia, and the North American
continent (he established an outpost he called Astoria in what became the
Oregon territory). For the U.S. government, Astoria’s company was a vehicle for
contesting British domination of the fur trade and establishing commercial
links with Russia and China.
Astor was a good example of one of those
people Parrington described as “strange figures, sprung from obscure origins.”
Born in Germany in 1763, he migrated to London when he was 16 and began working
for his brother, who manufactured musical instruments. He came to the New York
in 1784 and gravitated toward the Hudson fur trade, where his fierce commitment
and sound instincts soon paid dividends. In this sense one might say Astor was
a natural aristocrat, but he had little sense of civic virtue. In the words of
one recent biographer, “He felt no compassion toward the larger community or
for the country that gave him so much. He might be butcher’s son, but he
scorned Thomas Jefferson’s ideals of equality for white men. He stood outside
the narrow circle of landed families who controlled New York politics, but like
them he believed only members of the gentry and self-made men were capable of
discerning the common good … Liberty, he believed, gave a man of humble birth a
chance to advance himself, but to give the common worker a voice in political
affairs was wrong and fraught with danger.” Astor also
became increasingly impatient with what he regarded as government meddling in
his business. He resisted federal efforts to prevent the exploitation of
Indians by establishing non-profit trading posts where the sale of liquor to
Indians would be banned, because alcohol was his chief bargaining chip in
dealing with Indians.
By the time of Jefferson’s presidency, a
full-scale rebellion against the paternalist premises in the corporate ideal
was underway. As historian Johan Neem explains, “Jefferson, like other
Americans, believed that permitting the spread of voluntary associations and
corporations would threaten civic equality by allowing a small minority, a
cabal, to exercise disproportionate influence over public life.” But given
the growing desire and need for such institutions in a society where the reach
of government was relatively limited – here I’ll pause to note Frenchman Alexis
de Tocqueville’s famous observation in Democracy
in America (1835/40) that Americans were instinctive joiners with a
near-mania for founding associations – the solution of this problem,
counterintuitively, was indicated by Jefferson’s great lieutenant James
Madison, who argued in the Federalist
Papers #10 that the great bulwark against minority rule was allowing a
profusion of interests and factions. If private corporations threatened the
state, the goal should be to have more, not less of them, and in so doing
dilute their power.
Perhaps ironically, this imperative
intersected with another that was more characteristic of Jeffersonian opponents
like Alexander Hamilton: to affirm the supremacy of the federal government over
that of the states. His goal was to create a gigantic free trade zone with the
same language, law, and financial system. Hamilton of course passed from the
scene after his assassination in 1804, but his mantle was picked up by another
Jeffersonian adversary, Supreme Court justice John Marshall.
The point where these two imperatives
converged – a convergence so apt because it embodied the spirit of the
quickening industrial revolution – were steamship companies. The turn of the
nineteenth century was truly an epochal moment in the history of seafaring
because it marked the transition from the age of muscle and wind to that of
wood (later coal), burned to generate the steam that could drive propellers and
paddlewheels. The crucial figure here was Robert Fulton, who is not only
credited with developing the first commercially viable steamboat, but who also
was an important figure in the early passenger business. That’s because Fulton
married Harriet Livingston, the niece of Robert Livingston, a commercial
magnate in one of the most powerful New York families of the Revolutionary era.
Fulton and Livingston received a corporate charter that granted them monopoly
control over a series of ferrying routes across various bodies of water in
metropolitan Manhattan (and beyond). In those cases where their hold on a route
was less than secure, the Livingston interests would either buy off competitors
or sell them franchises. Such practices were (and would remain) widespread an
industry where multiple carriers in a given market were perceived to be more
the exception than the rule. Price wars would erupt, rivals would be ousted,
and equilibrium would be re-established. Again, competition was the problem,
not the solution.
Next: Cornelius Vanderbilt, master of the new order.
