Chapter XVI. The Corporations and Status Law

CHAPTER XVI The Corporations and Status Law Concurrently with the specific extension of political power, the production system is disorganized, directly and indirectly. The Civil War had far-reaching consequences in economic life. The "reconstruction" of the South loaded the Southern states with debt contracted by the camp-followers of government by conquest, the carpetbag administration. Repudiation ensued; whether or not the bonds could have been paid, the Southerners felt no moral obligation, and it is not difficult to understand their position. They may have been in error none the less j repudiation of debt grounds the transmission line of energy, and the South remained economically prostrate while the rest of the nation went ahead. The Civil War also prompted the Federal government to finance railroads, by land grants and cash subsidies. With this the era in which business was charged with corrupting politics was well under way. Now business cannot corrupt politics. The glib retort would be that corruption cannot be corrupted. But political organization is not corruption within its right limits, which are approximately indicated by the margin where the alleged corruption by business begins. It is certainly politics that corrupts business, and must do so to the degree of its over-extension. Business consists of production and exchange. These are spontaneous activities, which must be carried on in freedom. Hence individual private property is requisite for a high energy system; the owner does not have to wait for permission to put it in use. The field of business is primary.

Politics consists of the power to prohibit, obstruct, and ex165 166 THE GOD OF THE MACHINE propriate. Its field is marginal; but for this reason it always tends to encroach on the primary field of freedom, in such manner that the producer may be compelled to obtain permission before he can get to work. Where permission is required, or expropriation possible, a consideration may be extorted. Does the element of corruption inhere in business or in politics? Is it wrong to produce something or to process or exchange the products? No. Then it cannot impart corruption to anything else. Is it wrong to restrain, obstruct, or seize the goods of another? Yes. It is always wrong if done by initiating action (instead of recoil action). The potential of corruption then lies in politics, not in business. When politics are notably corrupt, it is an infallible indication that there is too much political power, extending beyond its proper marginal field of action.

The political power, both obstructive and expropriative, was so extended in respect of the railroads. To bring in the West, the Federal government made huge land grants and gave a cash subsidy for a transcontinental railway. But for the Civil War, probably the Federal government would not have taken such action. If it had not, no one can say how long it might have been before a transcontinental line went through, if ever 5 but indisputably there would have been some years' delay. Here is the combination of circumstances and sequence of events which lends plausibility to argument for political action extending into the primary field of economics. Was there not a positive gain, at least in time? Indeed, how could a transcontinental line have been built at all, through the long stretch of wilderness, without Federal subsidies? To dispose of the last question first, if the political power had merely permitted anyone who wanted to build a transcontinental line to acquire title to the necessary right of way on the same terms as any settlers in virgin territory, whether by purchase or by entry, use and record, a railway would THE CORPORATIONS AND STATUS LAW 167 have been built as soon as there was a reasonable prospect of sufficient traffic, or perhaps a little too soon.

Still, in the existent circumstances, there was the chronological "gain in time." Development by private capitalism works on a selfadjusting time space equation of local energy circuits and the long circuit. The solitary frontier trapper was an advance guard capitalist. He might bring a pack of furs to trade only once a year 5 then they went by wagon freight. It might be said that he was a year or more away from the market. On the other hand, a year was his production and exchange time anyhow, more or less; he could get along for a couple of years if he had to. But if fur prices and freight rates warranted, competitive transport would be attracted, in a year or two. Farming also advanced into the wilderness by private enterprise at a selfadjusting rate, whatever the surplus production would pay for in time and distance (transport). If a group of farmers had "gained" time, in terms of distance, into the wilderness, they would have been that much worse off. Throughout the private economy, the costs and risks are self-evident, and the conditions are open to choice. Errors are self-liquidating.

There was a peculiarity of the slave economy, that it was incapable of pioneering, being unable to go beyond the limits of established political authority, of its own kind. If a slave-owner had compelled his slaves to assist in conveying himself and his goods beyond the scope of the collective power by which he enforced his commands—which in fact made them slaves—he would have had no further control over them. He could not have got back nor sent his goods back on the same terms as he came. So it would have been with anyone who used the slaves in like manner by favor of the owner. Travelers in Africa have recounted how they were supplied with bearers by command of some native chief, and the bearers carried the burden for a certain distance, and then ignored further orders. Whether the travel168 THE GOD OF THE MACHINE ers had "gained time" or not can be reckoned only by the time it took them to find some other means of transport to get out of their plight.

The peculiar position of the Western farmers becomes apparent when their complaints are examined. Railway freight rates were so much lower than wagon freight would have been, over the same distance, that there is no comparison. Railway freight was also ten times speedier. Yet the farmers denounced the railways for their high rates; and if any delay occurred, it caused intense exasperation. Had it been suggested to a Western farmer that if he thought such charges excessive, he should use some competitive line or method of transport, he would have been indignant. There was none, nor could he wait until competition arrived. The time and distance which seemed to have been "gained" was simply the measure of his distance in time from competition; which means, from the market. The political power had intervened, and such was its necessary effect. The Western farmers, who willingly took what appeared to be the advantage of it, in so doing had surrendered their power of choice for an indefinite future period. The intervention of the political power had created a monopoly. And even its supposed beneficiaries found it odious.

Curiously, people made the correct distinction emotionally, though they failed to translate it into reason. There was a marked ambivalence in the feeling toward the railways. The sight and sound of a locomotive is still evocative to Americans of wonder, romance, and hopeful anticipation. In rural districts and small towns, everyone liked to go on a train journey. People went down to the station to see the train come in. They knew the expresses by number, listened to the whistle as a friendly sound, waved as the trains went by. They hated "the railway" only as an abstraction.* •Except perhaps in California, notably in San Francisco, where it is no exaggeration to say that people loathed even the train, the tracks, and the railway station, with objective animosity. There were special reasons for this local THE CORPORATIONS AND STATUS LAW 169 What was it then that they hated? Certainly they did not wish to abolish railways, never see one again. The distinction emerges clearly. Everything that was the creation of frivate enterprise in the railways gave satisfaction. Private enterprise mined, smelted, and forged the iron, invented the steam engine, devised surveying instruments, produced and accumulated the capital, organized the effort. In the building and operation of the railways, whatever lay in the realm of private enterprise was done with competence. The first transcontinental line was the greatest engineering job ever tackled as one undertaking. It went through with the unprecedented speed of the high potential long circuit of energy to which it belonged. The same genius for organization of high energy systems went into the operation of the lines. No previous type of business called for one-tenth the ability of this type; schedules had to be exact, continuous, and yet instantly adjustable in every detail, over time and space, handling unpredictable numbers of persons or units of goods in transit between thousands of intermediate points in a branching system, both ways, at maximum velocity. Probably the railways still represent the peak of efficiency in operating management, because no greater demand has yet been made by any other business. And, on the whole, the public respected this achievement.

What people hated was the monopoly. The monopoly, and nothing else, was the political contribution. Even in its proper application, the political power tends to cause irritation -, much more so when it is unwarranted. Life protests instantly against compulsion, arrest, or exprosentlment. California had an independent existence before the advent of the railways. Then certain railway magnates lived there, in visible enjoyment of large fortunes gained by the political subsidies which went into the railroads. Further, there were flagrant local cases of farmers positively defrauded by one railway corporation on land contracts, and they never got redress; in which again the political power was used to perpetrate the injustice. Men were actually killed for defending their property rights. The mixture of political power in economic life had the usual effect of insolent corruption.

I7O THE GOD OF THE MACHINE priation of its creative product. The black cloud of sheer hatred, vindictive despair, which obscures the civilized world at present, is evoked by the omnipresence of political agencies. The Gestapo and Ogpu or Cheka are the slimy spawn of the Absolute State. The direct consequence of the encroachment of political power on the primary field of free enterprise, in respect of the railways, was that new states were admitted to the Union before they had time to develop true regional interests and political entities. In one instance at least, a state was designated solely to secure a political majority in the nation. Being in effect creations of the Federal government rather than of the citizens of the state, the newer states tended to look to the Federal government for special legislation, including charity. The indirect consequence was quite as bad. Obviously, if public funds have been granted to endow anything whatever, on the pretext that it is for the benefit of the citizens at large, every citizen must have the right to use the resultant facilities on equal terms. (He may not want to use them at all j he might even be ruined financially in his private fortune by being unable to compete with the government-endowed corporation5 but he isn't asked about that.) Then the government must have authority to enforce such equality. (It has already destroyed the natural power of the individual to bring the corporation to terms by competition.) "Government regulation" is imposed. To be sure, it won't do the citizen any good; the result is that the railways are not allowed to make desirable improvements or discontinue wasteful expenditure.* But the power is there, and is bound to be used. (It does no good simply because the "mixed economy" leaves no basis of equity 5 there is no ethical reason *The actual improvement of railway service, and economy of management, has kept pace with the development of a competitive method of transportation, in motor cars and planes. At the same time, the railways have not been superseded, because the different modes of transport feed into one another, each having a special function.

THE CORPORATIONS AND STATUS LAW why anyone should be entitled to a ten dollar subsidy from the public funds, any more than to a million dollars.) Successful management and productive enterprise had always been admired and respected, as they should be; presently they became liable to suspicion and resentment. The change of sentiment is easily traced to its origin. If any one business may be named, after the railroads, as having incurred this obloquy, it was the Standard Oil Company. Yet, like the railways, Standard Oil by its ordinary business operations steadily increased the comfort and convenience of existence in America—from oil lamps to gas stations. It has been managed with amazing competence; it has met every financial obligation unfailingly through hard times and kept solvent; its products have been excellent and reliable. It might be cited as a model corporation—if it had not used the political power, at one remove, by taking rebates on railway freight rates. The charge of ruining competitors would have had no point but for the means employed, which were deemed unfair, as they certainly are. If one department store prospers and another fails, the public rightly realizes that better judgment has been used in locating or managing the successful store, and that there is no sound reason why they should subsidize bad judgment. They know that capable competition does not tend to extinguish competition, but enlarges the market; the possibility of choice is what people want. But the individual taxpayer had no choice about giving rebates on a tax-subsidized "public utility." Standard Oil had used the political means; it became an object of execration. Demonstrably there was no other cause of offense, since the people who denounced it still purchased its products willingly. They approved Standard Oil as a business; they were enraged by its political connection.

Now the sole remedy for the abuse of political power is to limit it; but when politics corrupt business, modern reformers invariably demand the enlargement of the political power. There was a time when people had either more sense 172 THE GOD OF THE MACHINE or more honesty 5 but perhaps it was only that the issue could not be mistaken, as it then appeared. The corporate form obscured the transaction. In an earlier day, monopolies were granted by kings to their favorites. It was evident that a law aimed at individuals would be absurd j the effective course was to prohibit the political power from granting monopolies. But the proposal to "regulate" corporations to prevent monopolies seemed plausible. If it were mere folly, it would leave things no worse than they were 5 but it contains another element—it reintroduces status law. This was done by diverting attention from the cause to the effect, and finally legislating against the natural process which had been injuriously affected—a triple perversion.

As freak legislation, the anti-trust laws stand alone. Nobody knows what it is they forbid. Their professed object is to prevent or dissolve (with penalties) "combinations in restraint of trade." What is a combination in restraint of trade? The railroads could not be charged with that imaginary crime unless two or more railway corporations combined 5 but their monopolies existed anyhow, and they never restrained trade anyhow. They took all the traffic they could get, and did a good deal to create traffic, by drumming up immigration. Standard Oil did not restrain trade 5 it went out to the ends of the earth to make a market. Can the corporations be said to have "restrained trade" when the trade they cater to had no existence until they produced and sold the goods? Were the motor car manufacturers restraining trade during the period in which they made and sold fifty million cars, where there had been no cars before? Or did the railways restrain the motor car industry? They had no means of doing so 5 what they really did was to bring the raw materials to the motor car manufacturer, and then transport the finished cars everywhere for sale.

If two corporations do combine, and carry on all the business both of them previously handled, enlarging it if posTHE CORPORATIONS AND STATUS LAW 173 sible, are they restraining trade? The accusation has been brought against the corporations that they don't produce more than they have a reasonable expectation of being able to sell by strenuous efforts. This is "limiting" and therefore "restraining" trade. But, in the first place, any one season's production is intrinsically limited by the capital available, as well as the prospective market; and, in the second place, if they stretched that limit to its utmost one season, and did not sell the whole product at a net profit, they would not be able to produce anything next year. They would be bankrupt. They can't even eat up their capital by degrees, so much a year. Generally, their paid-up capital is in plant and equipment; while materials in process of manufacture, or in stock, represent credit (bank loans or bills payable). Even if a manufacturer were to operate strictly on his own capital, owing nobody and with money in the bank, his stock is liquid capital; and would be depleted the second year. As for borrowed capital, credit, if interest is not paid and bills for materials met, the loans must be called and no more material will be delivered; then the whole business stops at once; not by successive percentages; and the plant is rendered nonproductive. If the management should disregard these imperatives, they would be eligible for Matteawan. It is difficult to believe that anyone could make such a suggestion in good faith.

Then what was the offense to be? Other complaints against the corporations comprised a triple contradiction. They were variously accused of charging too much, of underselling competitors, and of price-fixing (agreeing on prices with competitors). Exactly how much, in comparison with what, is "too much?" Is it too much if the owner asks more than somebody is willing or able to pay? Then the great majority of us ought to have a legal case against Tiffany's. Is it asking more than someone else asks for the same kind of goods? Then that other person is guilty of "underselling"; both 174 THE GOD OF THE MACHINE should be haled into court. But if they agreed to set the same price, they would be criminals as price-fixers. Nor would it be an innocent course for them to sell nothing more and starve to death peacefully; they would certainly be "limiting the market" if they held their goods or did not go on producing.

Altogether, the only acts which could be alleged against the corporations in their business transactions are simply the necessary acts of production and exchange; the Neolithic man who chipped out a flint arrowhead and swapped it for a clamshell ornament was guilty of the same crime—except that one charge of "combining" two or more corporations. Now it would have been quite possible to pass a specific law to prevent such mergers; all that was necessary was to limit their charters, and forbid one corporation to buy another, or any shares in it. Such a law might have been either senseless or somewhat harmful; it would certainly have been in restraint of trade, but the political power is restrictive; and the law would have been specific in naming the act proscribed. That was the one thing the legislators would not do. Least of all would they admit or name the real offense—the use of political power. Their object was to secure control of the corporations. It was attained by using a phrase which could be construed as covering any business transaction whatever, if a corporation were concerned in it; with the implication that such acts were to be deemed crimes, in the particular instances, according to their effects, although those effects could in no case be shown or proved. Take any such case, real or imaginary, and let the question be asked: Exactly where, when, and how was trade restrained? Was the volume of trade diminished? Was any person actually restrained from offering an article for sale, or buying an article offered if he chose to do so? What article? And what person?

When an individual is indicted for embezzlement, theft, or the like offense, the money or goods involved must have actual existence, and the owner must be named; with the THE CORPORATIONS AND STATUS LAW 175 burden o£ proof on the prosecution, the accused needing only to refute the evidence presented, if he is innocent. If a person were simply charged with "dishonesty," or "immorality," and required to account for his whole life, to bring all his correspondence into court on demand, and prove a general negative, he would be subject to the same kind of law as the anti-trust laws. Individuals were subject to that kind of law, in the Society of Status. Its modern name is Administrative Law. During the nineteenth century, it survived only in Russia, under the Czars (and was there called administrative law; travelers from free nations heard of it with astonishment and indignation). It is still the law in Communist Russia, but it is no longer confined to Russia.

Surely, if an earnest endeavor had been made to decide upon the most imbecile accusation possible against anyone— such as arresting a rabbit for practicing birth control, or a Marathon champion in the middle of the race for loitering, or Brigham Young for celibacy—nothing more preposterous could have been imagined than to fix upon the American corporations, which have created and carried on, in everincreasing magnitude, a volume and variety of trade so vast that it makes all previous production and exchange look like a rural roadside stand, and call this performance "restraint of trade," further stigmatizing it as a crime! Another aspect of the imposition of political "regulation" on economic effort is the pretext that the corporations had too much power, an economic power which also influenced politics. This is likewise imputed to large private fortunes, as an excuse for heavy death-duties. As a matter of fact, the danger inherent in large fortunes is their weakness against political power. But if it were proved that the corporations did have and exercise such undue power culpably, and a serious proposal made to remedy this condition by handing over the government to the corporation management, would it not be manifestly a lunatic scheme? Yet that is the net effect of government regulation, beyond the enforcement of conI76 THE GOD OF THE MACHINE tract law as it applies to any commercial transaction between private persons. The political and economic powers are merged, brought under a single control. Thereafter it is immaterial which group of persons exercises the joined powers (though the politicians will inevitably get the upper hand) ; the sum of power will be the same. Whether three is added to two, or two to three, the result is five. "Totalitarian government" is nothing but political control over economic life.

The cry against "competition," the senseless phrase, "production for use and not for profit,"—as if there could be any profit if the product were not used; did Standard Oil pour its products down the sink? or did the management of General Motors wear their product on their watch chains?—are all approaches to political control and absolute tyranny. Competition cannot be eradicated; in productive or creative effort it is beneficial. If it is penalized in such desirable manifestations, it finds mean and futile expression. At royal courts, where status is rigidly defined, and there is no productive field, trifles become objects of competition; courtiers will stand on their feet all day so that sitting down may become a privilege; princes will squabble ignominiously over the distinction of walking first through a door. A man who makes a better car than another, or makes it at less cost, is competing usefully; even a man who wants to make more money than his neighbor, in a free society, will find the largest fortunes are made by large-scale production. It is only in the political field that competition is for power over other men, even to slaughter more of them in war. Individualism alone gives legitimate and creative play to the competitive instinct to increase and improve production.

Government cannot "restore competition," or "ensure" it. Government is monopoly; and all it can do is to impose restrictions which may issue in monopoly, when they go so far as to require permission for the individual to engage in production. This is the essence of the Society of Status. The reversion to status law in the anti-trust legislation THE CORPORATIONS AND STATUS LAW 177 went unnoticed. Probably the politicians did not know exactly what they had done; but they knew what they wanted. They had secured a law under which it was impossible for the citizen to know beforehand what constituted a crime, and which therefore made all productive effort liable to prosecution if not to certain conviction. Because it was imposed at first through corporations, its actual incidence was not realized. Whoever said that "a corporation has neither a body to be kicked nor a soul to be damned" had a glimpse of the truth, which is that any law whatever must bear upon 'persons. The acts of a corporation are necessarily performed by persons; the assets of a corporation belong to persons; the punishment must fall upon persons. And if such acts are liable to penalty, the law can and will shortly extend to include strictly individual effort in its scope.

It is in that extension that the naked purpose becomes apparent. The full import of any extension of the political power consists in the field of action which it covers, not in the particular act first forbidden. I.e., if government is morally competent to prohibit the sale of intoxicating liquor, it must have power to prescribe every item of diet to citizens. After centuries of freedom, such an assertion will seem vaguely absurd; but it was put in practice in Sparta. The field of action which the anti-trust laws invaded was that of production and exchange; the first crime alleged was "restraint of trade." But the power invoked was necessarily comprehensive; and when it was applied to individuals, the charge was "overproduction!" Once again, it is deemed a crime to work, a crime to produce. It is even a crime to give away food grown by the donor on his own land, by his own labor. It is not yet a specific crime for a man to eat the food he has grown—as it is in Russia—but that is the inevitable next step. Already the primary right of human beings to mere existence has been denied; since farm quotas, priorities, and ration cards cover all the processes of production and exchange, by which existI78 THE GOD OF THE MACHINE ence is supported, life is made to depend upon daily and hourly permission.

In the famous Dred Scott case, which men understood correctly as defining the issues on which the Civil War was precipitated, the decision rested upon a stated axiom 5 and the axiom repudiated the Declaration of Independence. Technically, it was found that the Court had no jurisdiction; and the reason given was that a Negro could not be a citizen, not even by birth nor though his parents were not in formal bondage. He might indeed be allowed to reside in the country, and to hold property, but only by favor, not of right. If he were not a citizen, he must be liable to deportation. Yet having been born in the United States, he had no other country, no place to which he could claim admittance. Then he could nowhere enjoy the first benefit of property, which is standing ground. There was no place on earth where he had a right to be 5 which is to say, he had no right to be> if that decision contained the truth.

In Dred Scott's case, his material condition was deduced from a primary assumption, a denial of the birthright of a human being. By the opposite approach, when the acquisition, possession or use of every material object is made permissive, then every productive action of which a man is capable can be performed only by permission. As such actions constitute a man's mode of being, the primary assumption is implicit; he has been reduced to the nameless plight of Dred Scott. If he has no right to act, to produce, to exchange, he has no right to be. So the ruling upon Dred Scott has been pronounced upon all humanity, by the denial of every attribute of birthright. Men are presumed to exist only by permission. At long last, the persistent purpose of the non-producers has been attained, with no reservations, no limitations; and most extraordinarily, with no other claim than that of their own incompetence. They have got a strangle hold on the producers.