Corporations

Military-Industrial Complex, WWI-Style

In his final speech as President, Dwight D. Eisenhower famously warned Americans to guard against the creation of  a "permanent armaments industry of vast proportions." But reading Ferdinand Lundberg's America's 60 Families, it seems a military industrial complex was already well established. Here are some passages relating to military spending in World War I:

According to "House Report No. 637, sixty- sixth Congress, second session…although more than $1,000,000,000 had been spent [during World War I] for combat airplanes none was ever delivered. The airplane scandal became so notorious in 1918, indeed, that President Wilson appointed Charles Evans Hughes [Standard Oil attorney, Supreme Court Justice, Secretary of State] to investigate." (193-4)

The Senate Committee on Naval Affairs determined in 1916 that the cost of producing armor plate by the steel companies was $262 a ton, against prices of $411 to $604 charged the government…United States Steel Corporation and Bethlehem Steel Corporation charged Russia $349 a ton, Italy $395 a ton, and Japan $406.35 a ton for identical plate…profits of the United States Steel Corporation during the war were $888,931,000, or more than the par value of its stock." (196-7)

According to House Report No. 998, 66th Congress 2nd session, "The committee finds that there has been expended for construction upon the Government's nitrate program to the present time the sum of $116,194,974.37, and that this expenditure produced no nitrates prior to the armistice, and contributed nothing toward the winning of the war. The nitrates program originated with the War Industries Board of the Council of National Defense, and is directly traceable to Mr. Bernard M. Baruch." Lundberg continues, "Although the nitrate plants were not necessary, as there was an abundant supply of Chilean nitrate, their construction entailed the placing of huge orders for steel, lumber, copper, cement, dynamos, etc. The Du Ponts were given $90,000,000 to build a nitrate plant at Old Hickory, Tennessee, on a cost-plus basis; after the war this plant was sold to the Nashville Industrial Corporation for $3,500,000." (197)

Then there's this page:

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"Up to September 1, 1919, the War Department spent $18,501,117,999, and, judging by the Graham Committee's findings at least one third of this was dissipated in channels that had no relation to a successful prosecution of the war…The basis for many prosecutions was laid by the Graham Committee, and there were indictments of various minor figures. But there were no convictions. By November, 1925, the last of the indictments was quashed." (201)

Early American Corps vs. The Public

Apologists for free markets often seem to forget that corporations are not people. They are a civic construct, and that means there is a social contract. Maybe it's easier to see this if we look at the early history of corporations in America, as I did this week with my Environmental History class.

The Common Law tradition America inherited from England contained a long list of precedents that guided judges in arbitrating between the claims of people whose interests conflicted. Some of these precedents dated back to the Roman Empire, giving judges a clear basis for deciding between the claims of individuals. But society wasn't made up only of individuals. The Americans had left behind the royalty and hereditary nobility of British society, but there were still some tasks that seemed bigger than individuals. Towns raised militia when needed, and the national government directed an army and a navy. The states ran criminal and civil courts. But who was going to build colleges, hospitals, and bridges? Things society needed but no individual had the wealth to take on alone.

Early America's answer was the corporation. Corporations in England had been quasi-public organizations that were given a royal charter to do a particular job. The Virginia Company and the Massachusetts Bay Company had been royally chartered corporations. They earned profits for their shareholders, but they also had -- or at least claimed to have -- an important social function that transcended mere business. Without this social dimension, businesses -- even large ones -- were normally organized as partnerships or sole proprietorships. State legislatures in early America carried on this English tradition, and chartered corporations to do particular tasks in the public interest. Colonial governments began this practice very early in our history, when the Massachusetts legislature established Harvard College in 1636 and then chartered the Harvard Corporation, America's first corporation, in 1650. In 1640, the Massachusetts legislature declared its authority to make laws regarding the environment when it gave Harvard a license to run a ferry between Boston and Charlestown across the Charles River, to raise money to operate the college. When the State of Massachusetts granted a corporate charter to the Charles River Bridge Company in 1785, to build the first bridge across the river, the charter specified that the company had to pay Harvard 200 pounds per year to compensate the college for the revenue the old ferry operation would lose.

The Charles River Bridge was a privately operated toll bridge. Originally conceived as a corporation that would provide a social benefit, the bridge company was wildly successful. The corporation, which had originally been capitalized at $50,000, collected $824,798 in tolls between 1786 and 1827.  Although the original plan had been to eliminate the tolls once the bridge had paid for itself, the shares had been sold and the new owners decided to continue profiting from their monopoly. So the legislature chartered the Warren Bridge Company to build a second bridge next to the Charles River Bridge. The new charter specified that the Warren Bridge would only be allowed to collect tolls for six years or until it paid for itself, whichever came first. Then ownership would revert to the Commonwealth and the bridge would be toll-free.

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Early map of Boston showing the Charles River and Warren Bridges (next to each other at top, Warren Bridge highlighted).


The Charles River Bridge Company sued the Warren Bridge Company, claiming their 1785 charter had granted a perpetual monopoly at that location. Charles River Bridge revenues disappeared, as travelers chose to pay the lower tolls on the new bridge, which became toll-free in 1836. The lawsuit failed in Massachusetts courts, and the plaintiffs took it all the way to the U.S. Supreme Court. In spite of hiring famous orator Daniel Webster to argue their case, the Charles River Bridge Company lost. The court's decision reflected the Justices' belief that the profits of the corporation and the interests of its shareholders were less important -- and legally came second -- to the right of the state to charter corporations to meet public needs. Even so, the tremendous profits taken by Charles River Bridge shareholders and their ability to push their lawsuit to the highest court signaled the beginning of a change in the way corporations viewed their role in society and the responsibilities that went with their public charters.

Walsh deserves more consideration

The Rise of the Midwestern Meat Packing Industry
Margaret Walsh, 1982

Margaret Walsh follows up on her 1972 book,
The Manufacturing Frontier, with a look at the transition (between 1840-1870 more or less) of pig butchering from a local, part-time activity to a major processing industry.  She says “pork packing is a good tool of analysis because agricultural processing early disseminated an industrial experience to newly settled farming country.” (ix)  I think this is an interesting claim, but it's not one I'm prepared to accept without some evidence. Sure, butchering a 400-pound animal and preserving the meat with salt is a strenuous process. But not much moreso than, say, butchering a bison and processing the meat into jerky. Would we call plains Indian practices industrial? Or are we just tempted to call early pork processing that because we know the end of the story?  Even so, I wonder if similar work could been done on flour milling, lumber, tanning, cooperage, and especially brewing and distilling?  By 1870, Walsh says, the Midwest was already “responsible for 27 percent of the nation’s value added.” (3)  William Cronon notwithstanding, a lot of that took place outside Chicago, and the things that made Chicago an interesting subject for Nature's Metropolis might also make its example less applicable to smaller, more "regular" places.

Early packers, Walsh says, were usually merchants in towns like Chillicothe, Hamilton, Circleville, Ripley, and Maysville Ohio, Terre Haute and Lafayette Indiana. (17)  Although she doesn’t elaborate much on the farmers raising these swine, Walsh says by the 1840s they had moved past semi-wild “razorbacks” to “foreign pigs, such as the Suffolk, Berkshire, Yorkshire, Irish Grazier, Poland, Essex, Chinese, and Chester Whites...They debated the merits of the different breeds...[and knew] the defects of particular strains could be countered by crossbreeding, a practice that most farmers quickly advocated” (19, sources for this include Towne and Wentworth, Clemen, H.D. Emery, Arny, and
The Prairie Farmer). But the same thing could be said about the breeding enthusiasm of the chicken fanciers who launched the "Hen Fever" of the 1840s. Most of them were not big producers or industrial in any sense of the word (I'll have more to say about chickens in a later post).

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A closer look at the supply side of  pork packing would help explain what was happening on farms during this period.  Walsh shows farmers were making business decisions about the market by the 1840s, calculating “the value of corn when sold in the form of pork” to determine whether to fatten hogs or sell their grain. (23)  This calculation required knowledge of feeding yields and prices, but also of transportation costs and risks. And it involved either knowledge of or guesswork about demand in faraway markets.  So, farmers needed to be aware of the wider world even before the railroads came to town. But as I've seen reading the Ranney brothers' letters to each other, farmers in Western New York and Michigan had ready sources of information. And at least some of them had access to markets and even financing through relatives left behind.

The operational costs Walsh reports for even a medium-scale packing operation were substantial.  Fixed costs were low, especially relative to “machinery plants or textile factories;” but the cost of hogs meant that a “country pork merchant in the Middle Ohio Valley in the mid-1840s might need $45,000 to process 6,000 hogs.” (27) The “city capitalist in Cincinnati, Louisville, or Madison might process 15,000 hogs...[and] needed between $100,000 and $125,000 to carry out his season’s work in the mid-1840s.”  (28)  This suggests two things.  City packers had the backing of capitalists (Walsh traces several of these formal and informal relationships), and rural packers had extensive networks of trust and credit.  Assuming the average general store owner could not raise the money to do a cash business, his ability to pack hogs testified to extremely solid relationships between farmers, packers, and possibly retailers in remote cities.

So while I don't accept her claims and conclusion uncritically, I think
The Rise of the Midwestern Meat Packing Industry explores a great topic and asks questions that deserve more consideration.

The Manufacturing Frontier

The Manufacturing Frontier: Pioneer Industry in Antebellum Wisconsin, 1830-1860
Margaret Walsh, 1972

This is an interesting book which isn't read enough by American Environmental Historians, possibly because the author is neither an American nor an Environmental Historian. In her introduction, British Economic Historian Margaret Walsh says resource-frontiers such as farming, mining, lumbering, “even the military frontier” have been well covered by historians, but the “development of an urban and a manufacturing frontier...begun contemporaneously with the cultivation of land” has not. Exceptions she notes are Richard C. Wade,
The Urban Frontier and James D. Norris, Frontier Iron (v). The industries she's talking about on the manufacturing frontier were mainly “primary processing industries -- lumber planed and sawed, flour and grist milling, brewing, leather tanned and curried, and meat packing -- industries whose existence have been ignored, or have been dismissed as being merely ʻpre-industrial,ʼ even though they were of major importance” (vii). She notes:

There was no clearcut dichotomy between an industrial East and an agrarian West. The existence of new and relatively quick modes of access to other parts of the country, using first the seasonal water routes and then the year-round railroad, meant that the frontier no longer needed to be a series of self-sufficient communities, nor did it have to go through cumulative stages of growth. A more complex process of economic growth ensured the co-existence of several kinds of economic activity. (viii)

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For example, Grant County lead mining began 1826; peaked in 1845 at 54.5 million pounds. (2) Grant County "was settled at an earlier date than other parts of Wisconsin, and often by Southerners traveling up the [Mississippi] river.” (70) "Crops cultivated in Wisconsin -- corn, oats, barley, wool, and tobacco -- served mainly for local consumption either directly or indirectly, as did the small amount of dairy and cattle production.” (5) “In 1840 those counties south of a line drawn from Green Bay to the Mississippi River contained 85.2 percent of the...population...in 1850 the percentage was 93.1...and in 1860 it was 82.7 percent.” (7) So apparently the growth in German population in the northern part of the state (see Gannett maps from 1910 census) happens after the Civil War. Importantly, rivers and the lake meant that “even before the construction of railroads in the 1850s, most settled areas of Wisconsin were able to reach outside markets.” (8)

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Jefferson County, located in the heavy wheat-growing region of southeastern Wisconsin, might be regarded as typical of many western pre-railroad counties. The main resource was land, the main occupation was farming. Yet there also developed a remarkable range of small-scale manufacturing (in a note on her selection of counties, Walsh summarizes central place theory, 31). Wheat production “provided a basis for industrial development...in the stimulus given to the primary processing industries, notably flour milling and, to a lesser extent, tanning, meatpacking, brewing, and wool carding. But agriculture also functioned as a market as well as a source of inputs.” (38) Farming quickly became commercial, meaning farmers needed specialized tools and the things they no longer made at home.

The market remained relatively local, Walsh says, and “Even when the railroad came, it merely brought merchandise manufactured in other places” (39). I'm not sure this distinction makes sense to me. Manufactured elsewhere but sold by a local merchant still seems significant. But maybe the question she's pointing at has to do with how did the Jefferson County farmers pay for this merchandise? Unless sheʼs saying they sold agricultural products outside the county, but not manufactures. “There was little room for the development of even a rudimentary kind of division of labor. Most firms in Jefferson County were very small operations, employing one or two skilled artisans.” (42) “Within [the] processing group flour milling contributed the largest share -- almost 40 percent of the value added -- and lumber planed and sawed furnished 20.6 percent. Jefferson County was concentrating on processing its local products.” (46) ...for local consumption... Manufacturers like furniture-makers worked “often in exchange for lumber or farmersʼ produce. But cabinetmakers...did not enjoy a monopoly, for by 1847, retail merchants...were advertising ready-made goods at competitive prices.” (63) Did the difference between cash and farmersʼ-produce markets keep some of these little guys in business?

Racine and Milwaukee became urban and industrial very quickly, in Walsh's story. By 1850, Racine, “well- placed for the development of...[an] industry focused on the prosperous wheat-growing region,” was making a third of the stateʼs farm machinery. (150, 142) The market expanded, and “By the mid-1850ʼs [J.I. Case] threshers were known throughout the West, especially in Iowa and Minnesota, and in 1860 he even shipped six machines to California.” (155) This was bad news for blacksmiths, who “in Racine County...were ceasing to be regarded as manufacturers. They either took on general service and repair functions or began to specialize...the more ambitious turned to other craft trades, such as making plows or wagons.” (169)

Milwaukeeʼs population was “20,061 in 1850 and 45,286 in 1860.” (171) Its industry was uncharacteristically (for Wisconsin) diversified. “In 1850 six branches of manufacturing -- flour milling, clothing, construction materials, iron, furniture, and boots and shoes -- were responsible for half the countyʼs value added.” (172) “Several large firms...employed from fifty to eighty workers, often using machinery to fabricate articles for mass consumption. But at the other extreme there was a proliferation of shops run by owner-operators or craftsmen and their one apprentice.” (176)

“The...manufacture of lager beer, was the third leading processing industry in the county in the antebellum years and indeed was the fourth-leading industry in Wisconsin. Its origin and steady growth lay not so much in the accessibility of agricultural crops...but rather in the presence of an ethnic group -- the Germans -- both as producers and consumers.” (185-6) “Consumption...was high among the working class of Milwaukee, and especially among the German element, which formed about one third of the cityʼs population...Most of the successful brewers were German [and] were experienced in the business.” (187)

Lots to think about here. Given that Walsh wrote well ahead of others such as Cronon and Steinberg (William Cronon cites her work pretty extensively in
Nature's Metropolis, as a matter of fact), it's too bad Walsh's books aren't more widely read by Environmental Historians.

After Horwitz, Steinberg

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Nature Incorporated: Industrialization and the Waters of New England Theodore Steinberg, 1991

This book was originally Ted Steinberg’s dissertation. His advisors were David Hackett Fischer, Morton Horwitz, and Donald Worster (nice committee!). Steinberg’s thesis is that “industrial capitalism is not only an economic system, but a system of ecological relations as well” (11). This idea goes beyond the obvious (but important) recognition that the environment influences social and economic choices, toward a more subtle discussion of how “the natural world came to represent new sources of energy and raw materials [that were] perceived more and more as a set of inputs.” Steinberg mentions Environmental Historians William Cronon and Carolyn Merchant in this context, but the thrust of his argument develops Horwitz’s theme of “an instrumental conception” of both resources and the “law that sanctioned the maximization of economic growth” (16). Basically, Steinberg takes Horwitz’s argument that the law became a servant of economic progress and extends it to the natural world, which also became an “instrument” of particular human designs rather than a common ground shared equally by all.

I assigned Steinberg’s Introduction to my EnvHist class last semester, and my lecture video incorporated much of the story Steinberg tells of the takeover of the Charles and Merrimack Rivers by textile industrialists, and the associated shift in social ideas of the public good and the changing role of incorporated organizations from providers of public services to private, for-profit business. A key issue in Horwitz’s
Transformation of American Law, which Steinberg picks up, is that this sneaky hijacking of common law and attitudes toward ownership, along with the confusion of public and private sectors that springs from it — all these changes have distributional and social justice consequences. So the point is not only that over time it became “commonly assumed, even expected, that water should be tapped, controlled, and dominated in the name of progress,” but that the rewards of this control legitimately belonged to the few, to the exclusion of the many. This was a big change, and it opened the door for the modern world.

Steinberg’s story of the beginning of textile milling in Massachusetts calls attention to the contested nature of all the changes the mills tried to make to the flow and control of rivers like the Charles. How and why people reacted to these sneaky changes in the social contract was the element missing from Horwitz’s story (why we don't remember these challenges better in US History is a question yet to be addressed). Steinberg begins filling in the details, including the story of how the Boston Manufacturing Company used the legal system to settle what amounted to a class-action lawsuit in 1848, by paying just $26,000 to get permanent uncontested control of the Merrimack River. In 1850, as a consequence of their uncontested control of what had once been a common resource, the BMC made $14 million. I stressed this moment in my lecture, because it seemed so typical: a corporation (which is technically immortal) uses the courts to buy off the people it has injured with a pile of cash that seems significant to them, but is actually minuscule in comparison to the damage the corporation has evaded responsibility for. How many superfund sites, oil spills, and industrial accidents have been bailed out over the years by this trick, I wonder?

Like Horwitz, Steinberg also shows how much the changes in our society’s understanding of property rights and commons owed not to free competition in the market, but to government interference on behalf of the rich, through the courts. This is another important thing for students to understand, I think. Current debates about the relationship between businesses and the environment are too often framed as a sort of
Atlas Shrugged episode, with “statist” environmentalists trying to infringe on the rights of “individualist” businesses. Steinberg’s story of the textile industry helps explain that building corporate power was a social process — the BMC was given power in the elaborate set of choices Steinberg describes. And some people objected, but the changes went ahead despite the regular complaints of area farmers and upstream fishermen. This led many people in places like the Charles River valley in the early 1790s to believe “their natural rights [had been] stolen from them, and their best property at the mercy of one or two Millers, still the lucky favorites & likely to remain, so long as the rage for Factory at every place, whether others sink or swim, continues the rage of Government” (37). Interesting that these complaints were made early in the story, when Massachusetts residents were still filled with the “Spirit of ’76” and the populist understanding of natural rights that led to the Revolution. By the end of the story in the middle of the 19th century, the language of resistance had been forced to change because the things people were resisting hadn’t even been dreamed of in the Revolutionary era.

Steinberg describes the Boston Associates’ campaign to control Lake Winnepissiogee, the destruction of fisheries and then the capitalists’ attempts to reintroduce fish and manage what was formerly a common good, and the problem of industrial and urban pollution in rivers controlled by the industrialists. Each of these topics have been expanded by others, along the lines Steinberg suggests. The only flaw in the book, for me, is the Thoreau-ian wrapper Steinberg adds at the beginning and end. As recorded in the 1849 classic,
A Week on the Concord and Merrimack Rivers, Henry David Thoreau was horrified by what he saw happening in New England, but I don’t think Steinberg shows how Thoreau represents any type of viable alternative. Of course, Thoreau is familiar to most students from High School, and my students got a bit caught up in the Thoreau thing -- so it works. At the conclusion of the book, Steinberg admits that “greater command over…nature in general, had its positive points.” But, he concludes, “this aggressive, manipulative posture toward the natural world [is] a problem that penetrates to the core of modern American culture” (271). Like Thoreau, this sentiment is easy to agree with but difficult to act on. In addition to the sneakiness of the legal and social changes, our inability to see how things might have gone leads to a sense of inevitability. So when I taught this segment last semester, I tried to frame the story with Robert Owen. At the beginning of the story, Nathan Appleton and Francis Cabot Lowell went to Scotland to visit Owen’s mill city New Lanarck. By the end of the story, the BMC had built cities on the Merrimack, made millions, polluted the water, and then took their money and left when the industry went into decline, leaving behind permanent social and environmental problems. Owen, on the other hand, had left industry to found the cooperative community New Harmony in America and became the father of the Cooperative movement in Britain. It’s not a perfect counterpoint, but Owen’s story compared to Appleton’s and Lowell’s at least suggests that things could have gone differently in Lawrence and Lowell.