The Corporation Problem The Public Phases of Corporations, Their Uses, Abuses, Benefits, Dangers, Wealth, and Power, With a Discussion of the Social, Industrial, Economic, and Political Questions to Which They Have Given Rise William W. Cook Of the New York Bar, Author of “A Treatise on Stock and Stockholders and General Corporation Law” Originally published 1893 This edition published 2004 Batoche Books [email protected] Contents Preface ...........................................................................................................................5 Chapter I: Introductory ..................................................................................................6 Chapter II: Various Controversies to Which Corporations Have Given Rise ..............9 Chapter III: Remedies for the Railroad Problem ........................................................40 Chapter IV: Corporations as the Owners of Natural Monopolies ..............................59 Chapter V: Trusts ........................................................................................................68 Chapter VI: Corporations and the Republic................................................................77 Notes ............................................................................................................................80 Preface The author, in the course of the preparation of a treatise on corporation law, became familiar with many facts and principles relative to corporations, which, however, did not come within the scope of a work on law. The law of corporations is a subject distinct from that of the public phases and business methods of corporations. Accordingly the author separated the two, and having completed a treatise on the former, he now presents a book on the latter. The many questions, social, political, industrial, and economic, that have arisen in connection with corpo- rations, constitute together what is known as “The Corporation Problem.” This problem embraces the uses, abuses, benefits, dangers, wealth, and power of corporations, and no attempt has been made heretofore to consider these matters collectively and by themselves. The task has proved somewhat difficult, and, in order to shed as much light as possible on the subject, frequent quotations from others are given in connection with the text. If the work results in awakening a more general interest in those topics than now exists, the author’s purpose will have been answered. No. 15 Wall St., New York, June 1, 1891. Chapter I: Introductory Corporations are a creation of modern times and their rise has been as rapid as it has been remarkable. In the colonial days of America no instance of a corporation for business purposes can be found. The Bank of North America was organized in 1781, while the Massachusetts Bank and the Bank of New York were not incorpo- rated until the year 1784. In those days there were no railroads, no telegraphs, no manufacturing, mining, or business corporations, and merely the germ of the idea of a corporation was in existence. In Great Britain there were the Bank of England, the Bank of Ireland, and three banks in Scotland. Business was done on a small scale and large enterprises were not undertaken. The century of industrial development, of great affairs, and of colos- sal projects had not yet been entered upon. Since that time such projects have demanded new and improved business methods. Corporations have arisen from the necessities of business. Partnerships and individuals have been unable to furnish the aggrega- tion of capital required for modern undertakings. Moreover the partnership has been found to be clumsy, dangerous, and insufficient. If unsuccessful it brings ruin upon all of its members, because each partner is liable absolutely for all debts. Any member may bind the firm by his contract and each one has an equal voice in deciding its policy. Its capital and credit, and consequently its amount of business, are limited necessarily by the capital and credit of a very few men—the members themselves. The death of a member or the transfer of his interest dissolves the firm. Any member may arbitrarily cause a dissolution at any time, and the insolvency of a member renders the partnership property subject to levy of execution for his debt. Upon the death of a partner the surviving partners have the sole charge of winding up the business and the executor of the deceased partner is not allowed to come in. A partner may withdraw his money only at a sacrifice, or by long and expensive proceedings. He cannot conveniently sell his interest or borrow money upon it. New partners cannot readily or safely be admitted. The partnership is restricted in its capital, dangerous in its liabilities, narrow in its exclusion of new members, too free in its mode of making contracts, and too contracted in its opportunities for withdrawal. It is becoming obsolete as a mode of doing business on a large scale. In a corporation all this is changed. The members are not liable for the debts. The amount already invested may be lost, but the private fortunes of the stockholders are not involved. The business is done and contracts made, not by all, but by a select few, called directors. A large capital is created by the union of funds from many sources. A person may safely invest in many enterprises and yet not take part in the management nor watch the business of any one of them. The leading spirit in an enterprise may hold a majority of the stock and may admit associates, employees or strangers, as holders of a minority of the stock, and yet he will retain the management as though he were the single owner of the concern. Persons may easily buy into or retire from the enterprise. Dissolution is not brought about by the death or withdrawal or dissatisfaction of a stockholder. The insolvency of a stockholder does not affect the business of the corporation. Upon the death of a stockholder his executor votes his stock and has a voice in the continuation of the business. A stockholder may sell or pledge his interest readily and intelligibly by reason of the reports, dividends, and market quotations of his stock. The corporation is a protection in that the liability is limited; it is capable in that it renders possible the collection of a great The Corporation Problem / 7 capital; it is efficient because the directors and they alone govern its policy and its contracts; and it is convenient because it is easy to sell or buy or pledge or bequeath one’s interest in the concern. Under its protection and concentrated power men will undertake great enterprises involving great risks or losses or gains. The corpora- tion has rendered possible the modern era of industrial development. It is by reason of all these facts that corporations have come into universal use. They have absorbed the railroad, banking, insurance, manufacturing, mining, telegraph, telephone, gas, express, waterworks, commer- cial, turnpike, bridge, canal, steamship, financial, and other industrial business of the country. They have built the railroads, dug the canals, established the factories, carried the ocean commerce, taken charge of the banks, assumed the risks of insurance, constructed the telegraph, the telephone, the water-works, the gas plant, the electric lights, and the street railroads, and are conducting some of the largest of our mercantile interests. They are acquiring the wealth of the country and are the means of investment for the savings of the poor as well as the capital of the rich. The railroads alone of the United States are over 167,000 miles in length; cost over $9,000,000,000; employ over 700,000 men directly, and indirectly over 1,000,000 men, being one twelfth of the adult male population of the country; receive annually about $1,000,000,000; and distribute this vast sum in wages, improvements, interest, and dividends. And, in addition to this, the banks, insurance companies, manu- facturing companies, and the multitudinous corporations of the land all have their capital, employees, and earnings. The benefits derived from corporations are undoubted. They have cheapened the necessaries of life, given quick and easy connection between distant points, developed agriculture, mining, manufacturing, and com- merce; created employment for labor, marketed the products which before were not worth the cost of transpor- tation, lowered the cost of living in Europe and America, transformed the uninhabited wildernesses into rich farms, towns, cities, and States; found land worth nothing and made it worth millions, and caused an inter- change of the manufactures, luxuries, literature, arts, sciences, and ideas of the world. As an intellectual spur and stimulus, the railroads have done for this century that which the discovery of America did for the sixteenth century. They have brought the ends of the country together, excited ambition, opened avenues for enterprise, developed community of interest, and made a nation diversified in its pursuits and ideas, yet homogeneous in its government and progress. They have quickened the intelligence and broad- ened the minds of men. Not only have they created energy and intellectual activity among the people, but they have peopled the country itself, and in some instances have caused rude and ungovernable communities to put aside their violence, provincialism, feuds, and uncouth manners for the life of the civilized world. Corporations have given wealth to man, and thereby given to him the opportunity for intellectual growth. And even