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"The Citizen's Share provides a thoughtful . . . analysis of the benefits of encouraging greater employee ownership of businesses."—Dean Zerbe, Forbes Magazine
THE AMERICAN VISION
Men are ever better pleased with laboring on their own farms, than in the workshops. Even the mechanics who come from Europe, as soon as they can procure a little land of their own, commonly turn Cultivators.... I rejoice in the belief that intellectual light will spring up in the dark corners of the earth; that freedom of enquiry will produce liberality of conduct; that mankind will reverse the absurd position that the many were made for the few and that they will not continue slaves in one part of the globe, when they can become freemen in another. President George Washington, fragments from drafts of the first inaugural address, April 1789
The property of this country is absolutely concentred in a very few hands.... I am conscious that an equal division of property is impracticable. But the consequences of this enormous in e quality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind.... But it is not too soon to provide by every possible means that as few as possible shall be without a little portion of land. The small landholders are the most precious part of a state.
Thomas Jefferson, letter to James Madison about France, Fontainebleau, France, October 28, 1785
In a country where we have no wealthy incorporated companies of merchants—where we have no nobles with great estates, permanent in the family line—where we have no royal prerogative supported by an enormous civil list and numbers of dependents—I say in a country where we have no counterpose to correct its influence or control its enormities by their own—shall we grant such an institution? Shall we give such an artificial spring to concentrated wealth? By no means.
Representative William Findley, the General Assembly of Pennsylvania, 1786
On Saturday, April 1, 1786, in Independence Hall in Philadelphia, the Pennsylvania General Assembly debated whether to give a corporate charter to the Bank of North America. Benjamin Franklin chaired the meeting as president of the Pennsylvania Executive Council. The Bank of North America, one of the first banks in the United States, is where the Continental Congress held money to clothe and feed the army in the Revolutionary War and to pay the soldiers' wages. Its building still stands at the corner of South Sixth and Chestnut Streets near Independence Hall. This was one of the first debates about "the corporation" in U.S. history.
At issue was whether the bank was "compatible with public safety, and that equality which ought ever to prevail between the individuals of a republic." Representative William Findley of Westmoreland County, echoing Washington's and Jefferson's thoughts on the broad ownership of property, thought it was not. At that time, a corporation needed a charter from the legislature to operate, and even the great moral philosopher Adam Smith, later recognized as the father of modern economics, was suspicious of the corporation as an institutional form. When Smith published The Wealth of Nations, in 1776, most English firms were partnerships: each partner bore all the profits and losses directly. Smith doubted that managers of "other people's money" would treat it as carefully as they did their own funds. Seeing the British government granting monopolies to entities like the royal charter trading companies, he viewed corporations as a danger to a market economy. The proponents of the Bank of North America's charter wanted the limited liability and protection from personal risk that a corporate charter would assure them.
Findley argued that allowing the bank to incorporate violated the state constitution because it promoted economic in equality. He feared that the bank would give "undue and impartial advantage to one set of men," who would "monopolize economic power and undermine the government because of its large concentrated economic power." A powerful corporation violated "the government, the laws, and the habits of the state." If the assembly approved the charter of the bank, it would break the "great deed of trust between those in government and the citizens." In Findley's view, the purpose of democratic government was to make sure that everyone could "share in the fruits of their labor." Findley was not antibusiness, nor were the western Pennsylvania farmers and artisans he represented: they wanted to expand their commerce and enlarge their property. Like Washington and Jefferson, they favored an economy based upon what we today would call the middle class.
Born in Ireland in 1741 and educated in parish schools, Findley had immigrated to Philadelphia in 1763. During the American Revolution, he rose from private to captain in the Cumberland County militia. He was a weaver, a farmer, a Jeffersonian Republican, and a Bible-toting Reformed Presbyterian; he was strongly opposed to slavery and "well-read in philosophical and scientific works." In 1783 he was elected to Pennsylvania's Council of Censors and became a member of the Supreme Executive Council, which managed the state government. One of the tasks of the Council of Censors was to watch for violations of the Pennsylvania Constitution, censure these violations, and, if necessary, call for a new constitutional convention. The Pennsylvania Constitution was drafted mainly by men from rural counties outside of Philadelphia. They fought to widen the base of voters by loosening the property ownership requirements for voting. This increase in the suffrage gave greater power to the western rural interests, and their voices were now heard in this raucous debate.
That the debate took place in the commonwealth of Pennsylvania reflects that state's distinct position. The Pennsylvania Constitution of 1776 was the most democratic in the colonies. There was only one legislature, the General Assembly. There was no state senate, a body that in other states generally protected the interests of the wealthy. The assembly's Supreme Executive Council had a president, who acted as an executive but without the power of a popularly elected governor. Pennsylvania elected all its representatives annually. Laws enacted by the assembly became effective only after a year, so that "the people" could have a chance to form an in de pen dent opinion about them. The delegates to Pennsylvania's Constitutional Convention in 1776 had even seriously debated a clause that would allow the state to limit the amount of land any one person could hold in the city or on a farm. Even though Philadelphia's merchants had managed to defeat this clause, the merchants viewed the constitution as a radical document. Moves to limit individual ownership in Pennsylvania were part of a trend that had also cropped up in other regions. Some of the early colonies, such as Jamestown in Virginia and the Plymouth Colony in Massachusetts, had been involved in failed experiments with communal ownership rather than individual property ownership and farming.
Findley traced how the policies of the Bank of North America were harming the Pennsylvania economy. The bank charged excessive interest rates that pushed people into debt. Debt would cost them their houses. Vacant houses meant reduced tax rolls and less income for the government to make improvements. In addition, the bank financed importers who brought in consumer goods that encouraged citizens to overspend. It gave out credit to help pay for the imports, which added to the state's foreign debt. The bank's foreign investors did not have the nation's good in mind. A democratic government's purpose, Findley said, was to ensure that the "source and the support of feudal dignity are therefore taken away." "Feudalism" was a strong word to level at the bank.
It did not make sense to Findley that the bank would have a permanent charter whereas Pennsylvania's governments changed annually. The bank would become a "permanent society, congregated by special privilege," that would control the most profitable foreign markets and produce a corporate aristocracy harmful to democracy. He concluded his speech by stating that the legislature literally did not even have the power to give the bank a charter: "The laws are a common property. The legislatures are entrusted with the distribution of them. This house will not—this house has no right, no constitutional power to give monopolies of legal privilege—to bestow unequal portions of our common inheritance on favorites."
This banking debate resonates with today's economic problems. The revolving door between Wall Street and Washington, DC, in which politicians appoint bankers to top jobs who then return to the private financial sector after public ser vice, fits Findley's fears of how concentrated wealth could create a privileged elite. The term "crony capitalism" did not exist in his day, but that was the underlying issue. The Bank of North America mainly served a very small group of wealthy individuals, who could abuse their power. The bank's accountant had in fact borrowed large sums for long periods to finance personal land speculation.
Would the Pennsylvania General Assembly charter a bank corporation that would concentrate economic power? If it did, would the citizens be able to influence government decisions once the bankers and corporate leaders had amassed their power?
The record of the 1786 Pennsylvania General Assembly debate runs 130 pages. It shows that the early leaders of the American Revolution connected the American democratic ideal with citizens' ownership of property, so that the country would not be dominated by a small group of wealthy capital owners. While these ideas are associated with Thomas Jefferson and James Madison, who together organized the Democratic-Republican Party to stand for the common man, the views of the Federalists, such as John Adams, reveal similar concerns. Historian Drew R. McCoy explains why the founders of the new democracy considered it important that every citizen have an ownership stake in the economy, which in those days meant ownership of land:
American republicans valued property in land primarily because it provided personal Independence. The individual with direct access to the productive resources of nature need not rely on other men, or any man, for the basic means of existence. The Revolutionaries believed that every man had a natural right to this form of property in the sense that he was entitled to autonomous control of the resources that were absolutely necessary for his subsistence. The personal independence that resulted from the ownership of land permitted a citizen to participate responsibly in the political process, for it allowed him to pursue spontaneously the common or public good, rather than the narrow interest of the men—or the government—on whom he depended for support. Thus, the Revolutionaries did not intend to provide men with property so that they might flee from public responsibility into a selfish privatism; property was rather the necessary basis for a committed republican citizenry. Property in land also served another crucial purpose in a republican society—it stimulated the productivity of an alert and active citizenry.
At the Pennsylvania General Assembly debate, many others besides Findley spoke about the dangers of inequality to democracy. Robert Lollar, paymaster of the Pennsylvania forces during the Revolution, argued that the corporate charter would "destroy that equality which ought to take place in a commercial country." In an era when corporate charters were issued specifically for the public good—for civic projects such as turnpikes—Lollar could not fathom that the Bank of North America would have an unlimited charter to operate. What specific public good would it serve from day to day? Like Findley, he was alarmed that the assembly and its president were elected every year, while the charter of the bank would be indefinite and its directors could serve unlimited terms. John Smilie, from Fayette County, later a congressman and early opponent of slavery, called the bank "an aristocratical idea" because it granted "exclusive rights" to concentrate large amounts of capital for which there would be no "counterbalance" in the people's commonwealth. Smilie thought the bank "would be totally destructive of that equality which ought to prevail in a republic."
Similarly, Robert Whitehill, who helped write the Pennsylvania Constitution and, according to some historians, had drafted language that James Madison used in the Bill of Rights, called the bank "an engine of destruction" that would "enable a few men to take advantage of their wealth." He went on: "But the government of Pennsylvania being a democracy, the bank is inconsistent with the bill of rights thereof, which says that the government is not instituted for the emolument of any man, family, or set of men.... It [the bank] is inconsistent with not only the frame but the spirit of our government." Whitehill emphasized that the states encouraged broad holding of property through "long credits, and ... slow methods for recovering debts." He favored the practice in which Americans "divide our estates, both real and personal, more equally among our heirs, than the laws or habits of any country that I know of" and therefore had "no kingly prerogative ... no hereditary nobles ... no feudal law." Whitehill tied a tight knot with his conclusion: "Enormous wealth, possessed by individuals has always had its influence and dangers in free states.... Wealth in many hands operates as many checks.... Every man in the disposal of his own wealth will act upon his own principles.... If our wealth is less equal than our kind of government, how absurd must it be for government to lend its special aid in so partial a manner to wealth.... Democracy must fall before it."
Tench Coxe, later Hamilton's assistant treasury secretary, wrote a series of essays against the bank. Coxe came from a rich Philadelphia family and was a respected political economist. He criticized the Bank of North America as a monopoly and attacked its corporate governance as aristocratic. There is no question but that he was an interested party. The bank had blocked his own attempt to set up a rival bank that would be more open to small property holders—artisans and farmers—to whom the bank rarely gave loans.
On the other side of the debate, the bank's directors lobbied the assembly and sought to convince the citizenry that the bank was necessary for economic development. The opponents intimated that the bank's allies engaged in bribery, but historians have found no evidence supporting that claim.
When the assembly voted on the corporation charter issue, the vote was 41–28 against the charter. However, that was not the end of the matter. Pennsylvania elected assembly members every twelve months, and the charter fight became a major issue in the 1786 election. Supporters of the bank marshaled petitions, arguing that the bank would help finance economic expansion. They obtained the support of Benjamin Franklin and, in a stunning coup, that of Tom Paine, the legendary populist pamphleteer of the American Revolution. Paine believed that the bank would promote economic development that would eventually extend economic opportunity to all citizens.
These arguments convinced voters that the benefits of the bank exceeded the dangers of the concentration of capital. Artisans split with farmers and supported the bank in the hope that it would give them financing. The electorate voted many of the charter's opponents out of office, replacing them with bank supporters. On March 17, 1787, the new assembly reversed the previous year's decision and approved the bank's charter. As it turned out, the artisans had made a sensible decision. Some years later, half of the bank loans were to artisans. Arriving in Philadelphia only a few weeks later to chair the Constitutional Convention for the United States, which would also struggle over the issues of property, democracy, and equality, George Washington had dinner at the home of Thomas Willing, the bank's president.
The issues behind the bank debate went beyond a single corporate charter. Findley, Whitehill, and their colleagues were aligned with the proponents of the populist Pennsylvania Constitution, which sought to shift power in the state from a small group of propertied men to a wider body of citizens. The directors of the bank were aligned with the Federalist Party, which had opposed the 1776 Pennsylvania Constitution. These men of commerce were horrified by the discussion of allowing the state to limit property ownership.
The difficult economy that followed the end of the Revolutionary War strained relations between the two sides. Farmers wanted paper money, to make it easier to pay their debts, and easy credit to develop their commerce. Merchants wanted bank credit to allow them to expand their businesses. The broader fight was over whether the United States would maintain its land-centered economy of yeomen farmers or encourage a wider change that would shift the economy toward industry. The latter would necessarily concentrate wealth and increase the bankers' economic power.
The ability of corporations to amalgamate huge sums of capital to invest in new economic activities was necessary for economic development, even when corporate charters did not specify their exact public purpose. Eventually, the laws regulating corporations relaxed: corporations did not have to ask permission to exist, and their years of operation were not limited. Different states competed with each other to attract corporations. These firms accumulated vast amounts of capital, which became another ocean of property beyond the country's vast lands. Citizens could acquire ownership stakes in corporations as they could in land, though corporate ownership was more concentrated among the few, with potential undesirable consequences for democracy. The tension between the concentration of capital for investment, presumptively necessary for rapid economic development, and the democratic ideal of equality of citizens (for those with the suffrage at a given point of time) that upset the Pennsylvania General Assembly is recurrent in U.S. history, from the founding of the United States to the present day.
Excerpted from THE CITIZEN'S SHARE by JOSEPH R. BLASI, RICHARD B. FREEMAN, DOUGLAS L. KRUSE. Copyright © 2013 Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse. Excerpted by permission of Yale UNIVERSITY PRESS.
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1 The American Vision.................... 16
2 Examples.................... 57
3 Citizen Shares in the United States.................... 109
4 How It Evolved.................... 123
5 Evidence.................... 167
6 The Road to Increasing the Citizen's Share.................... 195
Posted April 18, 2014
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