Birthed in the Fight Against Monopoly
America was birthed in a fight against monopoly.
There’s a pervasive myth in America—promoted by wealthy anti-tax activists—that the Revolutionary War was fought because colonists didn’t want to pay taxes to England. While that sentiment was certainly widespread, the spark that lit the fuse of the Revolution was monopoly and a giant tax cut for the world’s largest corporation, not an increase in taxes.
By 1773, Great Britain had a stranglehold on the economy of the colonies, enforced through the British East India Company, which held monopoly rights to much of the commerce with North America.1
The Company, whose stock was heavily held by the British royal family and senior government officials, successfully lobbied Parliament for a variety of restrictions on commercial activity in the colonies, including a ban on the manufacture of most high-end products, such as clothing, and an absolute monopoly on the wholesaling of tea to the colonies.
Up and down the East Coast, small tea shops and tea importers reacted with rage to the Tea Act of 1773, which gave the East India Company a massive tax break, eliminating all tax on their tea sold into the colonies, and expanded their monopoly on the tea business. Small importers, who’d been buying in the London markets or from Dutch trading companies to sell to teahouses from Boston to Washington, DC, found themselves undercut by the tax-free Company tea.
The citizens of Boston and surrounding areas covered their faces, massed in the streets, and destroyed the property of a giant global corporation. Declaring an end to global trade run by the East India Company that was destroying local economies, this small minority started a revolution with an act of rebellion later called the Boston Tea Party.
In a rare-book store around 2000, I came upon a first edition of A Retrospect of the Boston Tea-Party, With a Memoir of George R. T. Hewes, a Survivor of the Little Band of Patriots Who Drowned the Tea in Boston Harbour in 1773. Because the identities of the Boston Tea Party participants had been hidden (other than Samuel Adams), and all were sworn to secrecy for the next 50 years, this is the only existing first-person account of the event by a participant.
Hewes’s description suggests that the Boston Tea Party resembled today’s growing protests against corporate monopolies, as well as the efforts of small towns to protect themselves from chain-store retailers, frackers, toxic waste sites, coal-fired power plants, and factory farms.
Although schoolchildren are usually taught that the American Revolution was a rebellion against “taxation without representation,” akin to modern-day conservative taxpayer revolts, in fact what led to the Revolution was rage against a transnational corporation that, by the 1760s, dominated trade from China to India to the Caribbean and controlled nearly all commerce to and from North America, with subsidies and special dispensation from the British crown.
Hewes wrote, “The [East India] Company received permission to transport tea, free of all duty, from Great Britain to America,” allowing it to wipe out New England–based tea wholesalers and mom-and-pop stores and take over the tea business in all of America.
Hence, it was no longer the small vessels of private merchants, who went to vend tea for their own account in the ports of the colonies, but, on the contrary, ships of an enormous burthen, that transported immense quantities of this commodity. . . . The colonies were now arrived at the decisive moment when they must cast the dye, and determine their course.2
Hewes, dressed as an Indian, disguised his face with coal dust and joined crowds of other men in silently hacking apart the chests of tea and throwing them into the harbor. In all, the 342 chests of tea—over 90,000 pounds—thrown overboard that night were enough to make 24 million cups of tea and were valued by the East India Company at 9,659 pounds sterling, or, in today’s currency, just over $1 million.
In response, the British Parliament immediately passed the Boston Port Act, stating that the port of Boston would be closed until the citizens of Boston reimbursed the East India Company for the tea they had destroyed. The colonists refused.
A year and a half later, the colonists again defied the East India Company and Great Britain by taking on British troops in an armed conflict at Lexington and Concord (the “shots heard ’round the world”) on April 19, 1775.
That war—triggered by a transnational corporation and its government patrons trying to deny American colonists a fair and competitive local marketplace—ended with independence for the colonies.
The revolutionaries had put the East India Company in its place with the Boston Tea Party, and that, they thought, was the end of that.
Unfortunately, the Boston Tea Party was not the end; 150 years later, during the so-called Gilded Age, powerful rail, steel, and oil interests rose up to begin a new form of political system to benefit the wealthy and their corporations. America’s economic royalists captured the newly formed Republican Party in the 1880s and have been working to establish a permanent wealthy and ruling class in this country ever since.
The Founders Challenge Monopoly
The more things change, the old saying goes, the more they stay the same. It’s true, at least with regard to giant corporate interests fighting regulation and seizing control of governments that might try to restrain them.
The year of 1776 had a huge impact on the future of the world. Not only did Thomas Jefferson and friends declare that they’d no longer submit to the military, commercial, and political power of Great Britain, but one of the world’s great analysts of capitalism, Adam Smith, published his book An Inquiry into the Nature and Causes of the Wealth of Nations.3
At the same time that the American colonists were decrying the monopoly that the East India Company held over them, Smith was criticizing the Company—and the others who had succeeded in creating monopoly—in Great Britain.
He started out by calling for a return to “natural liberty”— competition—to return to Great Britain’s economy “especially if the privileges of corporations . . . were abolished.” In order to make the economy work correctly, Smith said, Great Britain must “break down the exclusive privileges of corporations” and take from them the power to regulate employment “so that a poor workman, when thrown out of employment either in one trade or in one place, may seek for it in another trade or in another place, without the fear either of a prosecution or of a removal.”
He condemned the actions of the big corporations that then dominated Britain’s economy, noting that even military officers wouldn’t be as greedy to maintain their numbers and positions, and oppose any laws that might regulate their behavior, as were the monopolistic corporations:
Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; . . . to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us.
Referencing the East India Company, Smith wrote, “This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature.” Indeed, many members of the Great Britain legislature at that time either were afraid of the Company and its colleagues or owned so much stock in them that their votes aligned with the monopolists’ interests—a situation not unlike what we see today in our legislatures.
“The member of parliament who supports every proposal for strengthening this monopoly,” Smith wrote, “is sure to acquire . . . great popularity and influence with an order of men whose numbers and wealth render them of great importance.”
On the other hand, the Company and others routinely punished—severely—those legislators who dared call for its regulation, regardless of how much power or reputation those legislators may have had. Nothing, literally nothing, Smith said, could restrain these corporations, and everybody knew it.
If he [a legislator] opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services, can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.
Smith went on to recommend that the British Parliament take on the monopolists while preventing more from arising. “The legislature,” he said, directed “by an extensive view of the general good,” should “be particularly careful neither to establish any new monopolies of this kind, nor to extend further those which are already established.”
On the other side of the ocean, Jefferson and his compatriots eagerly read Smith, that day’s revolutionary economic thinker, along the lines of Thomas Piketty today. Jefferson so absorbed Smith’s lessons about the dangers of monopoly that he argued—and nearly took down the Constitution itself in fighting for it—that the Bill of Rights should contain an explicit ban on monopoly.
When he was the US envoy to Paris in 1786, he repeatedly attacked specific monopolistic industries. The tobacco monopolies that had been granted by Great Britain and France were particular recipients of his bile. In a January 24, 1786, letter to the governor of Virginia, he wrote,
I have been fully sensible of the baneful influence on the commerce of France and America, which this double [tobacco] monopoly will have. I have struck at its root here, and spared no pains to have the form itself demolished, but it has been in vain. The persons interested in it are too powerful to be opposed, even by the interest of the whole country.4
Jefferson wasn’t immune to fear of retribution from large monopolistic enterprises. The next sentence in his letter says, “I mention this matter in confidence, as a knowledge of it might injure any further endeavors to attain the same object.”
On May 8 of that year, he wrote to James Ross, revisiting the topic. “My hopes, therefore, are weak, though not quite desperate. When they become so, it will remain to look about for the best palliative this monopoly can bear.”5
In another letter on the same day, this one to T. Pleasants, Jefferson wrote, “I was moreover engaged in endeavors to have the monopoly, in the purchase of this article, in this country, suppressed. My hopes on that subject are not desperate, but neither are they flattering.”6
He revisited the topic in a half dozen or more letters that year.
But it was the “operating system,” or constitution, that would direct the future of America—including the economic future—that most concerned Jefferson. When James Madison sent him a first draft of the new US Constitution that they’d worked out that summer and fall in Philadelphia, Jefferson’s response was blunt.
On December 20, 1787, he replied to his protégé:
I will now tell you what I do not like. First, the omission of a bill of rights, providing clearly, and without the aid of sophism, for freedom of religion freedom of the press, protection against standing armies, restriction of monopolies, the eternal and unremitting force of the habeas corpus laws, and trials by jury in all matters of fact triable by the laws of the land, and not by the laws of nations.7
Every item except the restriction of monopolies made its way into the Bill of Rights.
But Jefferson couldn’t let it go; he’d been thinking about this for years, and he had written about it in some of his private papers such as his diary, and spoken about it in conversations with close friends. A constitution, after all, would become the supreme law of the land for generations to come.
Although the Constitution had come into effect on March 4, 1789, six months later he was still writing about the matter to Madison. On September 6, 1789, he opened his letter by saying that he was compelled to reach out to Madison “because a subject comes into my head.”
At its core, Jefferson said, was “[t]he question, whether one generation of men has a right to bind another” because “it is a question of . . . the fundamental principles of every government.”8
Among those principles was the need to prevent monopolists from rising up and taking over America, locking us into a rigid class system that kept small economic players out of the marketplace while encumbering working-class families with multigenerational debt (like student loan debt is, by law, today, thanks to George W. Bush’s 2005 bankruptcy “reform”).
Noting how quickly wealth and business interests can corrupt government, Jefferson wrote, “Various checks are opposed to every legislative proposition. Factions get possession of the public councils, bribery corrupts them, personal interests lead them astray from the general interests of their constituents.”
The solution? Among other things, Jefferson said that the Constitution should address “monopolies in commerce.”9
Like Adam Smith, he never lived to see the day.
Madison’s Vision: Government to Fight Factions
Government is the agency that we collectively create (at least we do in a democratic republic) to manage the natural monopolies that we all use, share, and/or need: the atmosphere, water and waterways, septic and waste, public roads and skyways, police and fire, and, most broadly, the entire infrastructure of commerce and the public good.
The whole idea of government grew out of ancient families, tribes, and clans, who worked together to protect the youngest, eldest, and weakest members of then-hunter-gatherer communities.
Particularly since the agricultural revolution, what we call government has often been twisted and manipulated by the very wealthy (kings/empires/fascism/feudalism/etc.), but its core functions when it works best are still found in the Preamble to the US Constitution: to provide for justice, defense, tranquility, liberty, and the general welfare of the people.
If any one faction—to use Madison’s word from Federalist, no. 10, to describe people who would put their own interest above those of their fellow citizens—were to rise up and dominate a government, the republic would inevitably be weakened. Madison wrote, “By a faction, I understand a number of citizens . . . who are united and actuated by some common impulse of passion, or of interest, adversed [opposed] to the rights of other citizens, or to the permanent and aggregate interests of the community [emphasis mine].”10
Madison’s idea was that the core function of government was to fight factions, as he laid out in both Federalist, no. 10, and many of his commentaries on the Constitution. In this regard, there was virtual unanimity among the Founders and the Framers of the Constitution. They’d fought a war of independence against a government that was in cahoots with the world’s largest corporation and had no intention of letting such a monopoly happen again on these shores, as documented earlier. Only government, they knew, had the power—essentially, the police power and rulemaking power—to defy the economic elite.
The monopolists know this truth as well. If government were directly responsible and responsive to The People, it wouldn’t dance exclusively to the tune of the very largest corporations. But if the monopolists could convince The People that the government was their enemy, then they would be able to wrest control away from The People. More on that in the chapter “How the Monopolists Stole the US Government.”
The Founders on Patents and Copyrights
There are two basic types of monopoly: those created by a business growing so large that it controls a marketplace, and those explicitly created by government. At the time of the writing of the Constitution, the term monopoly was generally used to describe either corporate monopolies like the British East India Company or government-created ones like patents and copyrights.
Much of this book is devoted to the East India Company types of monopoly, but the monopolies created by patent and copyright laws are important as well, particularly because these systems can either foster or stifle innovation and markets.
The US Constitution, in Article 1, Section 8, explicitly authorizes Congress to pass laws, “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
In both cases, these government-granted monopolies were intended to “promote the progress of science and useful arts” by two mechanisms. The first incentivizes authors and inventors to produce useful works by giving them a financial reason, since their monopoly patent or copyright can be assigned or sold to others. The second, particularly with regard to patents, is to encourage inventors to publish (via the Patent Office) and share with the world the details of their inventions so they can be expanded on or inspire other inventions.
As Sir Isaac Newton wrote to his then-friend Robert Hooke in 1675, “If I have seen further, it is by standing on the shoulders of Giants.”11 Inventions don’t just spring wholly formed from the forehead of inventors the way Athena did from Zeus in Greek mythology; they’re almost always built on something preceding them.
And encouraging inventors to publish their inventions in detail—as the patent process requires—means that other inventors can metaphorically stand on the shoulders of their predecessors. The same is true of ideas presented in copyrighted books, songs, movies, and so on.
Although ancient Greece and Venice in the 1400s tried patent monopolies, at the time of the founding of our republic these were still considered novel ideas. As Thomas Jefferson noted in a letter to Isaac McPherson, “[I]t is a fact, as far as I am informed, that England was, until we copied her, the only country on earth which ever, by a general law, gave a legal right to the exclusive use of an idea.”12
Nonetheless, following the Patent Act of 1790, Jefferson marveled at the result. He wrote to Benjamin Vaughn,
An act of Congress authorizing the issuing of patents for new discoveries has given a spring to invention beyond my conception. Being an instrument in granting the patents [Jefferson worked on the panel that approved patents for a short time], I am acquainted with their discoveries. Many of them indeed are trifling, but there are some of great consequence, which have been proved by practice, and others which, if they stand the same proof, will produce great effect.13
The following year, 1791, France followed the United States and created a patent law, and over the following decades the practice spread across Europe and, eventually, the entire industrialized world.
In the United States there are two kinds of patents, “design” and “utility.” Design patents, valid for 14 or 15 years, are basically protection for how things look, be they an iPhone or an ornamental filigree pattern. The far more common utility patents protect the actual function of a device: technically, they protect compositions, processes, and machines, and they last for 20 years from the filing date.
Patents and their terms have been relatively short since the founding of America and have thus encouraged innovation and invention; the same can’t be said for copyrights, which have a pretty amazing history, largely influenced, apparently, by Mickey Mouse.
The Copyright Act of 1790 set copyrights for writing and art at 14 years, with a 14-year renewal if the author or creator was still alive. In 1831, the initial period was doubled to 28 years, with a 14-year renewal if the author was still alive. The renewal period was equalized to the initial copyright in 1909—28 years initially with a 28-year renewal for living authors or creators.
A few years later, in 1928, Walt Disney created a cartoon character, Mickey Mouse, and his copyright under the law at the time could have lasted 56 years—the initial 28 plus the renewal—until 1984.
Eight years before Mickey would have expired, Congress acted, making the initial term of copyrights the lifetime of the creator or author (Walt was still alive) plus an additional 50 years after his or her death, and granting to corporations like Disney retroactive application of the new term with a 75-year renewal term. This pushed Mickey’s expiration out to 2003.
But the mouse maintained his popularity, and Disney wanted to prevent anybody else from getting in on the act. Thus, in 1998, one of Los Angeles’s congressmen decided to help Disney with the Sonny Bono Copyright Term Extension Act, extending the copyright on works owned by an individual to the life of the author plus 70 years, and corporate-owned works to 95 years from the first time published or 120 years from the time the work was created (but not published), whichever came first.
Thus, Mickey now expires in 2023, so any day now there will probably be another update to the law.14
Jefferson shared some thoughts on the topic of government-granted monopolies such as patents and copyrights in his previously mentioned letter to Isaac McPherson:
He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper [candle] at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.
There’s no record of any of the Founders, however, ever weighing in on cartoon mice.
The Monopolists Rise Up
When, in the 1880s, the state of Ohio began threatening Standard Oil Trust of Ohio with the corporate death penalty, breaking up and dissolving the corporation and selling off its assets, John D. Rockefeller and his monopolist buddies publicly called for states to change their corporate governance laws to get around all of the restrictions that Ohio and most other states had placed on them.
New Jersey heard the call and thus became the first state to engage in what was then called “charter-mongering”—changing its corporate charter rules to satisfy the desires of the nation’s largest businesses. In 1875, its legislature abolished maximum capitalization (size) limits.
In 1888, the New Jersey Legislature took another huge and dramatic step to help out Rockefeller by authorizing— for the first time in the history of the United States—New Jersey–chartered companies to hold stock in other companies. The Standard Oil Trust was legally still in business (Ohio outlawed trusts in 1892, but by then Rockefeller had moved his company to New Jersey), renamed Standard Oil of New Jersey. (It’s now BP.)
As New Jersey and then Delaware threw out old restrictions on corporate behavior, allowing corporations to have interlocking boards, to live forever, to define themselves for “any legal purpose,” to own stock in other corporations, and so on, corporations began to move both their corporate charters and, in some cases, their headquarters to the charter-mongering states.
By 1900, trusts for everything from ribbons to bread to cement to alcohol had moved to Delaware or New Jersey, leaving 26 corporate trusts controlling, from those states, more than 80% of production in their markets.
There was pushback in New York, though. In 1894, the Central Labor Union of New York City campaigned for the New York State Supreme Court to revoke the charter of Standard Oil Trust of New York for “a pattern of abuses,” and the court agreed and dissolved the company.
By 1912, New Jersey Governor Woodrow Wilson was alarmed by the behavior of corporations in his state and “pressed through changes [that took effect in 1913] intended to make New Jersey’s corporations less favorable to concentrated financial power.”15
But as New Jersey began to pull back from charter-mongering, Delaware stepped into the fray, passing in 1915 laws similar to but even easier on corporations than New Jersey’s. Delaware, over the next few decades, continued to strip away its corporate accountability rules so that today, Harvard Business Services notes on its website devoted to incorporating in Delaware that more than two-thirds of all corporations listed in the Fortune 500 are Delaware corporations, including fully 80% of all companies that did public offerings in 2017. Just the year 2016 saw more than 200,000 new companies starting as Delaware corporations or LLCs, bringing the state’s total up to over 1.3 million.16
Progressives Fight Back
In reaction to public disgust over the predatory and monopolistic behavior of these corporate giants, the “Progressive Era” of Teddy Roosevelt’s presidency (1901–1909) saw numerous laws passed that were designed to restrain bad corporate behavior. The most well-known was the Tillman Act of 1907, which made it a felony for corporations to give money to federal politicians’ campaigns.
The Tillman Act was based, in part, on numerous state laws, like this one that Wisconsin passed in 1905 (and was taken off the books in 1954):
Political contributions by corporations. No corporation doing business in this state shall pay or contribute, or offer consent or agree to pay or contribute, directly or indirectly, any money, property, free service of its officers or employees or thing of value to any political party, organization, committee or individual for any political purpose whatsoever, or for the purpose of influencing legislation of any kind, or to promote or defeat the candidacy of any person for nomination, appointment or election to any political office.17
The penalty for an individual (even a lawyer or lobbyist representing a corporation) breaking this law on behalf of a corporation was not just a large fine but a two-year prison term, and if the corporation itself was found to have violated the law, it faced the corporate death penalty: “dissolution of the corporation and sale of its assets.”
But 1921 saw the end of all that, when Republican Warren G. Harding successfully ran for president on a platform of tax cuts, deregulation, and privatization. His twin slogans were “More business in government [privatize], less government in business [deregulate]” and “Return to normalcy [take taxes back down to where they were before World War I].”
When elected, he lowered the top tax rate from 91% to 25%, producing a huge sugar high for the economy. It kicked off the Roaring Twenties and led straight to the Great Crash of 1929, which was made much worse by Harding’s successful deregulation of the banks and brokerage houses.
During the Republican Great Depression of the 1930s, the American business landscape was littered with failed and failing small- and medium-sized companies. They were easy pickings for those larger enterprises that were still cash rich and could buy the struggling companies out of near-bankruptcy. Another strategy many monopolists employed was to simply compete directly with the struggling companies and run them out of business.
Since the Trump Crash of 2020, we’ve seen a similar dynamic at work. Giant corporations got massive bailouts and trillions in loans from the Fed, while small enterprises have struggled and failed by the millions. The result is a substantial further consolidation of American monopoly that will impact our business landscape for a generation.
Between the 1920s and the 1980s, all US states amended their constitutions or changed their laws to make it easier for large corporations to do business without having to answer to the citizens of the state, without size limits, and with infinite life spans.
Part 2 of this book shows how, during that same period, corporate America accumulated massive amounts of wealth and turned that wealth toward legal and political power that has destroyed America’s middle class and wiped out Main Street businesses across the country.