Corporate Personality and Human Commodification - Part 2 (of 3)
The Political Economy of Corporate Personality and Human Commodification
In Part 1 of this series, I told the story of two Supreme Court decisions elevating the concept of “corporate person” into US Constitutional law: Dartmouth College v. Woodward (1819) and Santa Clara County v. Southern Pacific Railroad (1883, 1886)
Now, in Part 2, I look at political-economy.
The “corporate system” leaves Adam Smith’s classical free enterprise theory in the dust.
When 18th century Scottish philosopher Adam Smith, father of what later became known as laissez-faire capitalism, talked of ‘‘enterprise’’ he had in mind individual owners producing goods for market in profit-seeking businesses. The business and everything associated with it was their “property”.
Smith regarded individual property as a “natural right” and its protection a “law of nature”. His aim was an economy in which production is governed by “blind economic forces” operating through competing owners deploying their property to maximize their profits.
Smith allowed that individuals might pool their property in a business, but he emphatically repudiated the stock corporation, holding that the dispersion of ownership made efficient profit-seeking impossible.
In the 20th century, Adolph Berle and Gardiner Means, in The Modern Corporation and Private Property (1932), their classic study1 of the impact of corporations on American society, emphasized that:
When we speak of business enterprise today, we must have in mind primarily these very units which seemed to Adam Smith not to fit into the principles which he was laying down for the conduct of economic activity. …
To Adam Smith… private property was a unity involving possession. He assumed that ownership and control were combined. …
The corporation has… evolved [into] a ‘‘corporate system’’— as there was once a feudal system….
The central conclusion of Berle and Means research was that the evolution of the “corporate system” fragmented the concept of “property” into two parts:
On one hand are the physical assets of the corporation — property in its basic form — operated by managers.
On the other are the claims of investors to shares in profits generated by the operation of the assets.
In Adam Smith’s day, “wealth”, like property, was understood in tangible terms — crops, land, buildings, merchandise — “things” that were “owned”.
Berle and Means explained:
To …the stockholder [in the modern “corporate system”], wealth consists, not of tangible goods — factories, railroad stations, machinery — but of [“shares”,] a bundle of expectations which have a market value….
The position of investors in the “corporate system” is different from the individual proprietors envisioned in classical theories of market society.
Berle and Means conclude:
For Adam Smith and his followers, it was possible to abstract one motive, the desire for personal profit, from all the motives driving men to action and to make this the key to man’s economic activity.
They could conclude that, where true private enterprise existed, personal profit was an effective and socially beneficent motivating force. …
Just what motives are effective today… must be a matter of conjecture.
But it is probable that more could be learned regarding them by studying the motives of an Alexander the Great, seeking new worlds to conquer, than by considering the motives of a petty tradesman of the days of Adam Smith.
The 1883 circuit court decision in Santa Clara County used Adam Smith’s views to obscure the obvious changes in economic reality.
The Santa Clara case arose to challenge California's 1879 Constitutional prohibition of mortgage cost deductions for railroad property tax purposes. The prohibition was a high-water mark of anti-corporate populist legislation, pushed through by a coalition of the Workingmen's Party and disgruntled agrarians.
The prohibition distinguished between mortgage cost deductions for individual property taxes (e.g., homes, farms), which were allowed, and mortgage cost deductions for railroad corporation property, which were denied.
The Constitution also created an elective Railroad Commission with full investigative and regulatory powers over rates and service, and declared that the value of railroads operating in more than one county was to be assessed as a whole by an elective State Board of Equalization and not figured simply at the cost of scrap iron, rolling-stock and right of way, as county assessors had been doing.
The Constitution was effective: beginning in 1880, the companies' assessments and tax bills soared.
As Howard Jay Graham explained in “Innocent Abroad: The Constitutional Corporate Person” (UCLA Law Review, 1955):
The good reason [for the mortgage prohibition was] that the railroads, unlike other property, were mortgaged for more than cost, yet still paid handsome dividends, while their bonds were, of course, held largely out of state, and by the federal government.
In short, the property tax provisions changed the mode of assessment of railroads in order to get at their "going value”, their profit-generating capacity, as opposed to the value of their physical assets.
This change threatened not only the railroads but the whole system of industrial finance capital.
The populists saw what Berle and Means would later document:
…The quasi-public corporation may fairly be said to work a revolution. It has destroyed the unity that we commonly call property — has divided ownership into nominal ownership and the power formerly joined to it. Thereby the corporation has changed the nature of profit-seeking enterprise.
… This involves the area roughly termed ‘‘corporation finance’’ — the relations between the corporation as managed by the group in control, and those who hold participations in it — its stockholders, bondholders….
…This dissolution of the atom of property destroys the very foundation on which the economic order of the past three centuries has rested.
The populists recognized the corporate “revolution” and aimed to enact tax laws that would effectively respond to it.
In the ensuing litigation that resulted in the Santa Clara decision, railroad lawyers remolded nearly every word in the Due Process and Equal Protection Clauses of the 14th Amendment to make it fit the new reality of corporate financing.
As Graham explains:
"Property" - heretofore tangible property - [was] equated to "earning power" or "exchange value”. …
As one of the pioneer Southern Pacific Railroad briefs put it, in a truly inspired and prophetic typographical error, the phrase [“deprived of property” was stated] as "deprived of . . . profit without due process of law.''
"Deprived" in turn, had to mean, not a physical taking, as heretofore, but rather … "diminution" or "impairment" of exchange value.
The railroad lawyers stretching and twisting the conception of physical property into property as exchange-value were representing the needs of their real clients, that is, not the railroad with its inventories of rails and rolling stock, but the investors with their shares of stock.
In fact, railroad finance had begun to transform investment banking generally, and this wider interest was at stake in the corporate battle against populism.
The major press of the day was quick to applaud the Santa Clara decision, showering accolades and pressing the legal reasoning to its clear political-economic conclusion.
A New York Tribune editorial captured the fact that the decision reified capital — it protected capital and guaranteed its rights:
“…The law will continue to guarantee to capital invested in partnerships or associations or any form of corporate effort the same rights it would have if managed separately by individual owners."
In short, Santa Clara rebooted Adam Smith in a way he expressly said should not be done.
Humans are governed by abstractions in a world where “corporate persons” reign.
The tort doctrine of the "reasonable person” — aka, the “reasonable man” — provides an example.
The “reasonable person” is the legal abstraction of human behavior, “a paragon of moderation and prudence, an almost supernatural being”. (Jon C. Blue, Connecticut Bar Journal, 1990).
The Supreme Court of Texas offered a typical example in an 1897 case, Missouri, K. & T. Railway Co. of Texas v. Hannig:
"Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a reasonable and prudent man would not do."
A 1976 contributory negligence decision from the New Mexico Court of Appeals, Karl Cox, Jr. v. Karl Cox v. J. I. Case Company, illustrates this.
The court said:
The issue is would a reasonable prudent person anticipate the danger of using his foot to dislodge a clog in an area where there were moving parts of the machine which would cause serious injury….
Plaintiff asserts that there was an issue of fact as to "what effect the custom of the community had on the standard of care when all the witnesses testified it was the common custom in the community to do what plaintiff did"….
In determining whether the particular acts of a plaintiff constitute negligence, the test is not the frequency with which other men commit such acts but whether the plaintiff at the time of the occurrence, used that degree of care which an ordinarily careful person would have used…
Custom in and of itself is not conclusive.
It is not surprising to find that the “reasonable man” is more congenial to the “community customs” of “corporate persons” than to humans.
A 1978 case, B & B Insulation, Inc. v. Occupational Safety and Health Review Commission, illustrates the difference:
The court said:
We look to cases construing … OSHA standards and to the tort law concept of the “reasonable man.”
The "reasonable man" is, of course, a fictional character borrowed from tort law….
Because the reasonable man personifies the community ideal of reasonable behavior, evidence of customary conduct of those similarly situated may be probative in determining his behavior….
Here, [OSHA] would…assert the authority to decide what a reasonable prudent employer would do…even though in an industry of multiple employers, not one of them would have followed that course of action….
This disregard of demonstrated industry custom is clearly beyond the …reasonable man theory….
Conduct of the reasonably prudent employer would generally be established by reference to industry custom and practice.
The 14th Amendment, having fostered the birth of freedom for the “corporate person”, is superfluous for “human commodities”.
In 1964, seventy-eight years after Santa Clara, corporate personality came again under scrutiny in the Supreme Court, in the case of Bell v. Maryland.
This time it was not human discrimination against corporations but corporate discrimination among humans that provoked the legal controversy.
Twelve Black students had been convicted of “criminal trespass” in a Maryland state court as a result of their participation in a "sit-in" demonstration at a segregated restaurant in the City of Baltimore.
The Supreme Court reversed the convictions and remanded the case to state court to interpret a new Maryland law that prohibited refusing service on grounds of race.
Justice Douglas dissented from the remand, and said the Supreme Court should instead declare a right of public accommodation under the Fourteenth Amendment.
He especially criticized the restaurant owner’s argument that "a person's 'personal prejudices' may dictate the way in which he uses his property”.
Douglas said:
With all respect, that is not the real issue.
The corporation that owns this restaurant did not refuse service to these Negroes because "it" did not like Negroes. The reason "it" refused service was because "it" thought "it" could make more money by running a segregated restaurant. …
Moreover, when corporate restaurateurs are involved, whose "personal prejudices" are being protected? The stockholders'? The directors'? The officers'? The managers'?
The truth is, I think, that the corporate interest is in making money, not in protecting "personal prejudices".
One year later, after refusing to declare a constitutional right in Bell, the Supreme Court heard a challenge to the federal Civil Rights Act of 1964, in the case of Heart of Atlanta Motel v. United States.
The motel corporation argued that the Civil Rights Act required it to rent to Black persons “against its will” and was thus a “taking of its liberty and property without due process of law”.
The court upheld the constitutionality of the Act. But how it did so reveals the human commodification inherent in the world of “corporate persons”:
The court said:
The Senate Commerce Committee made it quite clear that the fundamental object of [the Act] was to vindicate "the deprivation of personal dignity that surely accompanies denials of equal access to public establishments."
At the same time, however, [the Committee] noted that such an objective …could be readily achieved "by congressional action based on the commerce power of the Constitution."
[We have come] to the conclusion that Congress possessed ample [commerce] power…and we have therefore not considered the other grounds….
In short, the Heart of Atlanta decision declined to discuss Fourteenth Amendment human rights and dignity. Instead, the decision relied on the power of Congress to regulate interstate commerce.
The court said:
[T]he record of [the Act's] passage through each house is replete with evidence of the burdens that discrimination by race or color places upon interstate commerce….
Negroes in particular have been the subject of discrimination in transient accommodations, having to travel great distances to secure the same…. Often they have been unable to obtain accommodations and have had to call upon friends to put them up overnight….
There was evidence that this uncertainty stemming from racial discrimination had the effect of discouraging travel on the part of a substantial portion of the Negro community….
The Administrator of the Federal Aviation Agency … wrote…that it was his "belief that air commerce is adversely affected by the denial to a substantial segment of the traveling public of adequate and desegregated public accommodations”.
In short, Heart of Atlanta upheld the constitutionality of the 1964 Civil Rights Act not because of Black people's status as human beings, but because of their status as objects in commerce — commodities.
The Court's commodified definition of civil rights aimed at equality only by virtue of the fact that the market equalizes everything: money is the universal equivalent, through which all things are made fungible.
The decision transformed the uniqueness of Black people's historical relation to the Constitution into the generic form of the consumer in a market economy.
The Heart of Atlanta decision was not about value in human terms of the freedom to travel or to eat in public. It was about economic value to be derived from an expansion of interstate commerce.
This market-based civil rights rested on and reinforced a system of human relations in which people are subordinated to property and have "rights" and "freedoms" only on the basis of marketability.
The commodity version of civil rights says that those who have sufficient money to pay for what the market offers must be permitted to participate in that market.
This is the "equality" of commodified human relations.
Commodity Rights Take the Heart Out Of Human Community.
In 1987, in Plural But Equal: a Critical Study of Blacks and Minorities and America's Plural Society, Harold Cruse argued that the interpretation of the Fourteenth Amendment in terms of an abstract equality undermined the struggle of Black people to achieve political and economic freedom.
Cruse said that the market-based civil rights "integration" policy destroyed the human community basis for Black economic advancement:
Black aspirations are trapped within the ambiguities of the constitutional meaning of the equal protection clause.
Continued agitation and leadership confrontations on this issue…are not only fruitless but counterproductive.
The traditional civil rights leadership that aims at perpetuating this mode of agitation is detrimental to future development in the political, economic, educational, and cultural dimensions of the Black cause. [emphasis in original]
In 1986, James Boyd White presented "Economics and Law: Two Cultures in Tension” (Tennessee Law Review).
White criticized the “market model of life” and argued that the economistic, commodity definition of freedom “erases” human community.
White said:
This kind of economics [market exchange] has the greatest difficulty in reflecting the reality of human community and the value of communal institutions.
Its necessary tendency seems to be to destroy the idea of public action, indeed the idea of community itself.
White dug beneath the phenomena of abstract “legal personhood” to indict the entire trajectory that remolded Adam Smith’s “personal self-interest” into “corporate self-interest”:
The language of self and self-interest not only fails to reflect the reality of community and of shared interests, it draws attention away from those aspects of life and devalues them.
In short, the political-economy of corporate persons and human commodities is anti-life.
Berle, a lawyer, and Means, an economist, carried out the study with funding from the Social Science Research Council of America, under the auspices of Columbia University School of Law, where Berle was teaching.
Robert Hessen, in “The Modern Corporation and Private Property: A Reappraisal”, Journal of Law and Economics (1983), pointed out that “Publication by Macmillan …was not the book's debut. It had been published several months earlier by Commerce Clearing House, a small Chicago firm specializing in books on legal and financial subjects. If the Chicago edition had been the only one, the book might have languished unnoticed, except for reviews in the law journals. But Berle and Means were blessed with good fortune; someone at General Motors read a summary, was offended by its theme and thesis, and communicated his reaction to the Corporation Trust Company, which owned Commerce Clearing House. Fearing the loss of General Motors as a client, the Corporation Trust Company instructed its subsidiary to drop the book, which it did. But it arranged to sell the plates of the book to Macmillan, which quickly produced its own edition. This change of publisher increased the book’s visibility, partly because Macmillan sent copies to many more reviewers than the original publisher had and partly because Macmillan's trade distribution system made the book available in general bookstores, not just in specialized outlets. Ironically, General Motors, whose harassment of Ralph Nader helped to catapult that corporate critic to national fame, also was responsible for launching Berle and Means’s book.”
Thanks for breaking down the stuff. And, "money is the universal equivalent" & "the "equality" of commodified human relations" speak volumes. Having pondered the general topic over the years, i realized that money speeds things up... and that can be helpful if something essential is needed for purchase, yet in general it warps consciousness and behavior because it encourages and accentuates the speed and efficiency of go here and there, buy this and that while overlooking asking if those activities are right-wise, in other words, are those choices and activities beneficial for the community? the local habitat? do they enhance the well-being of the natural law and the overall harmonious synchronicity of all beings? Or yet another simpler way to say it, with money one can buy peppers in a flash, yet to grow, then eat them, is a vastly different multi-dimensional experience.
Corporations are the ultimate expression of amoral ultrasociality of humans, and thus are in complete control of the externalization of all ecocidal and sociocidal death and destruction. There is no way out, as the control extends to available institutions, including higher education. Thanks for fighting against it, but that war was lost decades ago.