CHAPTER 6
BUCCANEERS AND PRIVATEERS

Advocates of capitalism are very apt to appeal to the sacred principles of liberty, which are embodied in one maxim: The fortunate must not be restrained in the exercise of tyranny over the unfortunate.

BERTRAND RUSSELL

The presidency of Ronald Reagan is commonly referred to as the Reagan “revolution,” which sought a restoration of traditional conservative values and free markets. The aggressive deregulation efforts begun under Reagan and carried forward by the Bush and Clinton administrations did indeed restore some traditional conservative values, but perhaps not the ones most U.S. conservatives intended.

Note that the term conservative originally referred to the monarchists who fought efforts to establish the democratic accountability of kings. As Wall Street was deregulated, the economy regressed to a state reminiscent of an earlier day when the seas were ruled by buccaneers and privateers.

Buccaneer is a colorful name for the pirates of old. The ultimate libertarians, they pursued personal fortune with rules of their own making. They were in their time an iconic expression of “free market” capitalism in its purest form.

Privateers, the forerunners of publicly traded corporations, were pirates to whom a king granted legal immunity in return for a share of the booty.

Wall Street hedge fund managers, day traders, currency traders, and other unlicensed phantom-wealth speculators are the independent, unlicensed buccaneers of our day. Wall Street banks are the commissioned privateers who ply a similar trade with state backing. The economy is their ocean. Publicly traded corporations serve as their favored vessels of plunder, leverage is their favored weapon, and the state is their servant-guardian.

Here in brief is the fascinating story of the adventurous forebears of today’s Wall Street swashbucklers.¹

LAUNCHING THE COLONIAL ERA

From the decline of the Roman Empire until 1500, Europe was burdened by the turmoil of endless and pointless wars in which rival noble factions fought one another to exhaustion in a competition to expand their personal power. Imperial rulers enlarged their domains primarily by pushing their borders outward through the military conquest of contiguous territories. The vanquished people and their lands were brought under the central military and administrative control of the city in which the ruling king or emperor resided.

Continuing violence and chaos led to a yearning for monarchs with the power to restore order within stable borders, giving rise to what historians call the modern era. Once the continent was divided into relatively stable domains, Europe’s kings satisfied their ambitions for imperial expansion by projecting their power over long sea routes to establish dominion over distant lands, peoples, and resources.

National military forces and colonial administrations remained important to this new model of empire, but for the most part the European kings of the modern era projected their power and augmented their treasuries by granting commissions to favored adventurers, brigands, and corporations who worked for their own account.

Thus began the historic transition from rule by imperial monarchs to rule by imperial corporations, and from the rule of the sword to the rule of money.

ADVENTURERS ON THE HIGH SEAS

Most of us know the period of Europe’s drive for colonial expansion primarily by the names of the great adventurers commissioned and financed by their sovereigns to carry out expeditions of discovery, plunder, and slaughter.

In search of a westward sea route to the riches of Asia, Christopher Columbus landed on the island of Hispaniola (present-day Haiti and the Dominican Republic) in the West Indies in 1492 and claimed it for Spain. Hernando de Soto made his initial mark trading slaves in Central America and later allied with Francisco Pizarro to take control of the Inca empire based in Peru in 1532, the same year the Portuguese established their first settlement in Brazil. Soto returned to Spain one of the wealthiest men of his time, although his share in the plunder was only half that of Pizarro.² By 1521, Hernán Cortés had claimed the Mexican empire of Montezuma for Spain.

The vast amounts of gold that Spain ultimately extracted from South and Central America ruined the Spanish economy and fueled inflation throughout Europe. With so much gold available to purchase goods produced by others, Spain became dependent on imports and its productive capacity atrophied. The result was an economic decline from which Spain never recovered.

The pattern is disturbingly similar to that of the current import-dependent U.S. economy — the primary difference being that U.S. imports are financed not by stolen gold but by foreign debt.

Although licensed by the Crown, the celebrated adventurers of old operated with the independence and lack of scruples of crime lords, competing or cooperating with one another for personal gain and glory as circumstances dictated. Their mission was to extract the physical wealth of foreign lands and peoples by whatever means — including the execution of rulers and the slaughter and enslavement of Native inhabitants — and to share a portion of the spoils with their sovereigns.

The profits from Spain’s conquests in the Americas inspired the imperial exertions of the English, Dutch, and French, who soon divided Africa, Asia, and North America into colonies from which to extract plunder and profits from the monopoly control of trade for the benefit of the mother state.

PRIVATEERS

The competition for foreign spoils among the European powers led to the embrace of the ancient practice of privateering — essentially, legalized piracy — as a major instrument of state policy and a favored investment of both sovereigns and wealthy merchants. Why endure the arduous exertions of expropriating the wealth of foreign lands through conquest and trade when it was much easier to attack and plunder the ships carrying the spoils expropriated by others on their way back to European ports?

Monarchs often found it advantageous to grant a license to privately owned, financed, and captained armed vessels to engage in this profitable enterprise. These privateers offered important advantages to cash-strapped rulers. They provided revenue with no cash outlay, and official responsibility could be disavowed more easily than if the warships of the Crown had pillaged the victim vessels.

Monarchs often found it advantageous to grant a license to privately owned, financed, and captained armed vessels to engage in this profitable enterprise. These privateers offered important advantages to cash-strapped rulers. They provided revenue with no cash outlay, and official responsibility could be disavowed more easily than if the warships of the Crown had pillaged the victim vessels.

Crew, captain, private investors, and the commissioning king divided the revenues from the booty while the king’s license lent a patina of legality to the acts of plunder and granted the ships safe harbor in their home ports. A new era was in gestation, from which Wall Street eventually emerged.

Some privateers operated powerful naval forces. In 1671, Sir Henry Morgan (yes, appreciative kings did grant favored privateers titles of nobility in recognition of their service) launched an assault on Panama City with thirty-six ships and nearly two thousand brigands, defeating a large Spanish force and looting the city as it burned to the ground.³

Tax records for 1790 indicate that four of Boston’s top five taxpayers that year obtained their income in part from investments in privateering — they included John Hancock, famed for his outsized signature on the Declaration of Independence.⁴

In 1856, the major European powers, with the exception of Spain, signed the Declaration of Paris, declaring privateering illegal. The United States, which relied heavily on privateers as its primary source of naval power and as a major source of commercial profits in its early years, did not stop commissioning privateers until the end of the nineteenth century.⁵

CHARTERED CORPORATIONS

Eventually, the ruling monarchs turned from swashbuckling adventurers and chartered pirates to chartered corporations as their favored instruments of colonial expansion, administration, and pillage. It is instructive to note that in England this transition was motivated in part by the country’s incipient step toward democracy.

By the beginning of the seventeenth century, the English parliament, whose establishment was one of the first modern efforts to limit the arbitrary power of the king, had gained the authority to supervise the Crown’s collection and expenditure of domestic tax revenues. Chafing under this restriction, sovereigns such as Elizabeth I, James I, and Charles I found that by issuing corporate charters that bestowed monopoly rights and other privileges on favored investors, they could establish an orderly and permanent source of income through fees and taxes that circumvented parliamentary oversight. They also commonly owned personal shares in the companies to which they granted such privileges.⁶

In addition, chartered corporations sometimes assumed direct responsibility for expenses that otherwise would have fallen on the state, including the costs of maintaining embassies, forts, and other naval, military, and trade facilities. English corporations were at times even given legal jurisdiction over Englishmen residing in a given territory.

Corporations chartered by the British Crown established several of the earliest colonial settlements in what later became the United States and populated them with bonded laborers — many involuntarily transported from England — to work their properties. The importation of slaves from Africa followed.

The East India Company (chartered in 1600) was the primary instrument of Britain’s colonization of India, a country the company ruled until 1784 much as if it were a private estate.⁷

In the early 1800s, the East India Company established a thriving business exporting tea from China, paying for its purchases with illegal opium. China responded to the resulting social and economic disruption by confiscating the opium warehoused in Canton by the British merchants. This precipitated the Opium War of 1839–42, which Britain won.

The Dutch East India Company (chartered in 1602) established its sovereignty over what is now Indonesia and reduced the local people to poverty by displacing them from their lands to grow spices for sale in Europe. The French East India Company (1664) controlled commerce with French territories in India, East Africa, the East Indies, and other islands and territories of the Indian Ocean.

The new corporate form was a joint stock company, which combined two ideas from the Middle Ages: the sale of shares in public markets and the protection of owners from personal liability for the corporation’s obligations. These two features enabled a single firm to amass virtually unlimited financial capital, assured the continuity of the firm beyond the death of its founders, and absolved the owners of personal liability for the firm’s losses or misdeeds beyond the amount of their holdings in the company.

Furthermore, separating owners from day-to-day management allowed for a unified central direction that was difficult when management control was divided among a number of owner-partners.

It is no exaggeration to characterize these forebears of contemporary publicly traded limited liability corporations as, in effect, legally sanctioned and protected crime syndicates with private armies and navies backed by a mandate from their home governments to extort tribute, expropriate land and other wealth, monopolize markets, trade slaves, deal drugs, and profit from financial scams.

Publicly traded limited liability corporations of gigantic scale now operate with substantial immunity from legal liability and accountability even in the countries that issue their charters. They have become the defining institutions of our day. Wall Street is their symbolic seat of power, and they have reversed their relationship to the state.

Wall Street now commissions the state to finance and field the armies that protect its interests and to staff the diplomatic establishment that negotiates treaties in its favor. From time to time, using its ability to crash the economy at will, it extorts protection money in the form of bailouts and Federal Reserve cash infusions. To maintain the state’s loyalty, it begrudgingly shares a fraction of its booty in the form of taxes and offers tribute to its politicians as travel perks and campaign contributions.

As did their swashbuckling forebears, Wall Street’s buccaneers and privateers seek self-enrichment by plundering wealth they had no part in creating, enjoy substantial legal immunity, and acknowledge no duty or accountability other than to themselves. Their success carries a heavy price tag for the rest of us.