9 The Age of Corporations Begins

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Forensic History
Chapter Nine: The Age of Corporations Begins

 

Several different types of societies have existed in the more than 3 million years humans have been on the planet. For most of the time, humans had relatively simple societies based on the intuitive principles of natural law. These societies raise children to believe that the planet we live on is our keeper; it is above us all, and we depend on it for existence. It doesn’t belong to anyone.

Since no one owns the planet, no one owns the good things it produces. These good things are gifts from nature. The people who live in each area must set up some sort of system to distribute these gifts among themselves.

We were born into societies built on entirely different premises. The societies that dominate the world today are built on what is commonly called ‘western beliefs,’ or beliefs that originated in the western part of the eastern hemisphere. (In other words, the underlying beliefs behind the societies we were born into originated in Europe, not Asia, Africa, or any offshore island.) These societies started with a belief that everything in existence is ownable by human beings. Anything that has not yet been claimed is open to anyone who wants to claim it; the first group with the ability to take it and hold it is its owner.

We have seen how many of the important structures of these societies came to exist.

But there is one important group of players on the global scene in our world today that was not a part of early sovereign law societies, but which plays a critical role in the realities of the societies we were born into. Before we can get a full understanding of the important realities of existence in the present era, we need to introduce these players, see how they came to be a part of our world and see how they gained the power and position that they have in our world today. The final players that have to be introduced are a special type of cooperative venture called ‘state supported corporations.’

 

What are Corporations?

 

In their simplest form, ‘corporations’ are nothing but groups of people who agree to work together on a project. People have worked together on various projects from the beginning of history. For the simplest example, consider that human babies have a far longer period of helplessness than any other animal on Earth. If at least two adults work together to raise the babies, the babies have a far greater chance of surviving to be old enough to have children of their own than if only one adults work on the project. You could think of ‘raising children’ as a project.

The simple principle of evolution (natural selection in Darwin’s words) guarantees that such cooperative ventures will exist. If a group of humans exists that have a propensity for several people to work together to raise children, that group’s children will be far more likely to survive than those of another group that did not cooperate. The group that did not cooperate would not have as many children that lived long enough to have children of their own as the group that did cooperate. Any genetic or social characteristics that kept people from working together on this project would die out, while any characteristics that led to greater cooperation would be reinforced and grow stronger over time. You could think of a ‘family’ as a kind of corporation. The laws of nature tell us that at least some principles of cooperation would have been a part of human existence from very early in the more than 3 million year existence of our race.

During Roman times, there were corporations. (The Roman term for corporation was ‘publican.’) But these corporations were not like the corporations that exist in the world today, in that they weren’t supported by governments, and their rights weren’t enforced by the various enforcement organizations that nations have, including police and armies. In our world today, corporations are formal organizations, created under the laws of nations, with rights that are protected by the courts and laws of the nations. I will call the type of corporation that exists in the our 21st century world ‘state supported corporations.’ To avoid having to repeat this term over and over, in all discussions of corporation that follow will refer to the kind of corporation that exists in the 21st century: corporations with legal rights that are protected by governments.

These corporations have immense power. All nations in the world today support corporations. (Communist nations actually have the largest and most powerful corporations in our world today, because these corporations were formed in partnership with governments and are entirely or mostly owned by governments.) Corporations do immense harm to our world today. Virtually all weapons made in the world today, together with all raw materials needed for weapons, come from corporations. The huge majority of environmental destruction in our world today originates with corporations. Corporations control the press and other media sources, and use their immense power to control public opinion; they also have immensely powerful lobbyists, political action committees, and other political organizations that give them immense power over the governments of nations, states, and other sovereign entities. Corporations also do immense amounts of good in the world today: Virtually all manufactured goods made in the world today are made by corporations; these corporations are responsible for the financial systems that dominate the world, the transportation systems, the distribution systems, and the great majority of the value creation that takes place in the world today.

We can’t really understand how we got to the particular types of societies that exist today without understanding this special type of corporation. The next two chapters explain how these corporations came to exist and how they gained the almost unimaginable amount of power that they have in the world today.

Before I go into the history of corporations, I want to make one side point: Most people have very strong opinions about corporations. Some people hate them and believe they are evil incarnate. Others love them and believe they are the source of all wealth. Others are ambivalent, seeing corporations as evil but tolerating them as an evil necessary to support the 7.5 billion people who now inhabit the planet. No matter how we personally feel about corporations, it is a fact that corporations (of the type described above) are a part of our world. They were a part of our world long before anyone now alive was born. To use poker terminology, they are a part of the ‘hand we were dealt.’ Good poker players don’t spend their time at the table crying over cards they got, they play what they have and make the best of it. The same is true for corporations. They were a part of the hand we were dealt. As you will see, if we understand where they came from, how they came to exist, what they do, and how they do it, we can use corporations to our advantage.

To understand the origin of the type of corporations we have today, we have to start back in the early years of the 1400s, when the first politically connected multi-national business enterprise came to exist. I like to think of the Bank of Medici, the first such business, as the ‘mother of all modern corporations.’ It both created the modern corporation and built the foundation that all modern corporations are built on

 

The Bank of Medici

 

From the year 322 until the reign of Pope Urban V, the Catholic Church had ruled the Holy Roman Empire absolutely. Laws came from the Bible. The Catholic Church’s investigative body was The Inquisition. The Inquisition enforced the laws of the Bible. The Bible discusses lending money at interest several times, and it is totally unambiguous: Lending money at interest is an ‘abomination.’ There is one penalty for this ‘abomination:’ death.

Here is the relevant clause:

 

He that lends at interest, and takes profit; shall he then live? He shall not live. He has done all these abominations; he shall surely die; his blood shall be upon himself.

(Link to source,)

 

For more than a thousand years prior to 1400, this had been the law. There was no lending at interest, period. Since businesses couldn’t make money if they couldn’t charge interest, banks did not loan money, period. It wasn’t done.

With the renaissance that started with Pope Urban V, the church began to relax its control. Bankers figured out various tricks that allowed them to get around the law. One simple trick that allows people to lend without technically lending anything is called a ‘repurchase agreement.’ The bank ‘buys’ some business asset for a low price with an agreement to ‘sell it back’ at a later date for a higher price. This is not technically a loan at interest, but it has the same effect as a loan at interset.

To see how this works, say that you own a business and have a big order that you can’t accept because you don’t have enough money to buy the inventory to fill it. If it is easier to understand with a concrete example, say that you own a blacksmith office and have just been approached by an army buyer who will need a large number of swords and wants to order 1,000 swords from you. You could make huge amounts of money from this order, but you don’t have enough cash to buy the raw materials and hire the workers to make it. You go to the bank and ask for a loan, but are told that religious laws prohibit lending at interset. The banker does have a program that will allow you to get money however. He will buy your forge and other business assets for the money you need now, and then agree to sell it back to you one year from now for 10% more than the amount of money he paid for it. This is called a ‘repurchase agreement’ and is technically not a loan.

Before the reforms of time made by Urban V, the church would have realized this was just a loan by another name and not allowed it. But the new reformed church realized that they needed businesses to compete with enemies, the businesses needed money to do business, and banks could supply the money. As long as it wasn’t called a loan, the church would allow it.

Starting in the late 1300s, banks were able to make loans for the first time in a thousand years, by changing the names of the terms as described above. Businesses that needed money to expand could borrow it, so businesses began to expand.

Before this time, banks were simply places where people stored their money. Banks charged safekeeping fees and kept the money in their vaults. Banks didn’t make a lot of money doing this, so banks were small. There is no advantage to having lots of branches in the ‘money storage business’ so banks didn’t have any reason to open branches.

As soon as banks could lend money, however, the realities of banking changed. Banks that can loan money want to take in as much money as they can so they can loan it out. The lending side of the business is the one that banks can make big money on. They can even take in money and store it for free (many banks today offer free accounts) as long as they have the right to lend it out at interest. Bankers that were very good at making loans wanted to get as much money as they could in their banks and opened branches.

One bank that got in on this system early was called the ‘Bank of Medici.’ It started in Rome in the late 1300s and opened several branches to get more money to loan. In the early 1400s, the bank had two main offices, one in Florence and one in Rome, with several branch locations to take in deposits. The owner, Giovanna di Bici di Medici, was extremely good at making very lucrative loans. He had become extremely rich. Like many rich men, he decided to use his wealth to gain political power. In 1402, he became the mayor/governor of Florence, with control over the city-state’s administration and military.

 

The Catholic Church, the Antipope, and The Bank of Medici

 

About that time, Giovanna Medici met a very ambitious and very unscrupulous man named ‘Baldassare Cossa.’ Cossa had a plan to take over the Catholic Church and make himself the most powerful man in the Holy Roman Empire, the Pope. His plan would need a lot of money to work, and Medici’s bank had money. Cossa and Medici worked out an arrangement: Medici would supply the money, Cossa would do the dirty work. If Cossa’s plan worked, and Cossa became Pope, he would then give Medici’s bank a permanent monopoly on all business of the church in the Holy Roman Empire.

Here is the plan:

At the time, the Catholic church was involved in a power struggle that is now called the ‘western schism.’ Two men both claimed to be Pope at the same time: Gregory XII was the Pope in Rome; he had his supporters, who believed he was the true Pope. Benedict XIII was the Pope in Avignon France; he also had supporters who claimed he was the true Pope. Both men were fighting for power and the struggles were hurting the credibility of the church.

Cossa’s plan was to come in as a peacemaker between the two factions. He would present himself as a friend to both sides, with the stability of the church as his ultimate aim. He would use various methods to make secret deals with important people on both sides of the schism. Evidence that was presented several years later, after he had already been Pope for 7 years, showed that he had used very unsavory methods to gain support. Mostly, he used bribery with money apparently coming from Medici. But when bribery failed, he would terrorize people to get them to back him; if all else failed, he would murder the people who refused to cooperate. (He was convicted of all of these crimes; see text box below.)

After he gained enough allies, he called a general meeting and claimed it was not possible to heal the schism without getting rid of both Popes. After the Popes were gone, he would claim the church needed a new unity Pope to bring everything together, and present himself as the ideal candidate.

The plan worked, at least for a time (see textbox for more about this). The exact details of Cossa’s election to Pope are so complex that, even today, historians haven’t sorted them all out, but the bottom line is this: the College of Cardinals voted to remove both popes. Pope Gregory, the Roman Pope, accepted this order gracefully and submitted his resignation. Pope Benedict, the Avignon Pope, refused to step down and was excommunicated for disobedience.

Why ‘antipope?’

Benedict continued to claim he was the true Pope and worked with his supporters to uncover evidence of Cossa’s activities while he was conspiring to become Pope. By 1417 they had put together a case against Cossa and convinced the college of Cardinals to have the Pope arrested and put on trial.

Cossa found out about the plan and fled. He was put on trial in absentia and convicted of these crimes: heresy, simony, schism, immorality, piracy, rape, sodomy, murder and incest.

The College of Cardinals seems to have wanted to make it seem as if they had never made this horrible mistake. They released the name ‘Pope John XXIII’ to be taken by another pope and when Angelo Giuseppe Roncalli was canonized in 1958 he took this name and is now the ‘official’ Pope John XXIII, with Cossa called the ‘antipope John XXIII.’

Although Giovana’s ally was no longer in power, the Bank of Medici remained treasurer of the Holy Roman Empire (technically the administrator of the apostolic camera until 1478.

On May 24 of 1410 the Cardinals ordained Cossa as a priest (a prerequisite for the papacy) and, the next day, they canonized him as Pope John XXIII.

Today, people church historians call Cossa the ‘antipope John XXIII. This is to distinguish him from another Pope John XXIII that was canonized later (see sidebar for more information.)

Although the church is not happy about this period in its history, John XXIII was the Pontiff for 7 years. He had the authority to make top-level decisions on behalf of the church. He kept his agreement with Medici and made the Bank of Medici the permanent official bank of the Holy Roman Empire. The official title of the office was ‘administrator of the apostolic camera.’ The bank held this title until 1478.

 

The First Multi-National Company

 

The Roman Catholic Church had an enormous income. Almost all of this came from its income tax called the ‘tithe;’ it was a flat tax of 10% on all income earned, with no deductions. All residents of the Holy Roman Empire had to pay this tax; failure to pay was a religious crime, punishable by death.

Parishioners paid their tax to their local church. The local priests then sent the money (gold) to the Vatican, to be deposited into the treasury of the church (the ‘apostolic camera’). Now that Medici’s bank was the administrator of the apostolic camera, all this money was deemed as having been ‘paid’ only after it had been deposited into the nearest branch of Medici’s bank. Every year, 10% of the income of everyone in the Holy Roman Empire was deposited into Medici’s bank. This was the law. People who didn’t do it were executed.

Between the time the money was deposited into the bank and the time the money had to be paid out for church projects, the bank could loan it out and collect interest on it, using the repurchase agreement method described above. The more money was in the bank, the more money the bank could loan and the more interest it could make.

By this time, the bank was so large that Medici didn’t run it himself. The bank ultimately opened division offices in London, Geneva, Bruges, Avignon, and Milan, and opened thousands of branches throughout the Holy Roman Empire to collect the enormous inflow of income tax money that everyone had to pay.

 

The First Conglomerate

 

Sometimes business borrowers didn’t repay their loans. Technically, they didn’t ‘repurchase’ the items they had sold to the bank. The bank had officially become the owner of these items earlier, but had let the business use these items for the term of the loan. When the loan wasn’t paid off, the bank could ‘repossess’ them or take them back into their possession again.

In most cases, the local offices would sell the assets they had repossessed to get back the money loaned out. But in some cases, the bank would repossess entire businesses that were viable and profitable.

Cash flow problems:

Many profitable businesses are unable to repay their loans because of something called ‘cash flow problems.’ The problem is that buyers aren’t paying for goods as rapidly as the business has to pay for the labor and raw materials it uses. Although the company is making profits on paper, it eventually reaches a point when it doesn’t have enough cash to operate and defaults on its debt.

When the bank would repossess viable businesses, it would hire people to run them. Over the course of time, the bank became the owner of a hundreds of businesses of various different kinds all throughout the Holy Roman Empire. Here is a link to a list of some of the businesses the Bank of Medici owned in as of 1460.

If business ideas were good and businesses were making money in their original locations, the bank could hire people to open additional offices anywhere they might be profitable and expand the businesses. The businesses would become international operations. The Bank of Medici became the kind of business we now call a ‘conglomerate.’ It was in hundreds of different businesses.

The Medici managers learned through experience that big businesses have very important advantages over small businesses. Large businesses can buy in bulk, for example, to get much lower unit costs than small businesses can get. They can consolidate accounting and other tasks from a great many different small branches and stores in large offices, for greater efficiency and lower operating costs. They can take advantage of ‘economies of scale’ in manufacturing and marketing, to drive down the cost of goods and steal customers (called ‘acquiring customers’) from smaller businesses.

Large businesses can use these advantages to crush their competition and gain market shares for themselves. The larger they become, the more advantages they have (there is a theoretical maximum, called the ‘maximum economies of scale,’ but few businesses reached the theoretical maximum economies of scale before the 20th century). As the 1400s and 1500s progressed, businesses got larger and larger. People who wanted to go into business would study the different methods of doing business and copy the methods that worked well for others. The Bank of Medici started the trend but, once started, big businesses were formed in many places independent of the bank.

 

The First ‘Public’ Corporation

 

Some businesses simply can’t operate without enormous investments. For example, say that you and a group of friends in the 1500s wanted to open a business to trade with China. You would need a lot of ships for this. You would need a network of supply depots to keep the ships supplied, an army to protect them from pirates and thieves, and buyers and sellers in China and Europe to conduct the actual trades. This kind of business requires an enormous investment.

Normally, when people want to open businesses that require large investments, they start by going to their friends and relatives and put together an investment pool. They then share the decisions and benefits. But some businesses require so much money that even the people with the largest families and networks of friends can’t raise enough.

In the late 1590s, a group of investors in London wanted to put together a business to trade with China. They knew they didn’t have enough friends and relatives to provide the funding. They decided to set up a new kind of corporation, called a ‘public corporation.’ This corporation would be set up so that anyone in the ‘public’ could invest.

People won’t normally invest in businesses if they don’t know the people running the business. To get people to invest, the people who wanted to form the new corporations decided to create a legal framework that would protect investors. They would create a set of laws that made the corporation a legal entity with certain legal rights and responsibilities. If the corporation made promises, it would have to keep them, or the owners of shares in the corporation could file suit in court. If judges ruled against the corporation, the people in the corporation would have to comply with the ruling, or face penalties under the law. The ‘public’ would be the investors and owners of these corporations. The courts would protect the interests of the ‘public.’

The first business built on this model was granted its charter on December 31, 1600. It was called the ‘Governor and Company of Merchants of London trading with the East Indies,’ but most people today call it the ‘British East India Co.’

Any member of ‘the public’ could invest in this company. The company secretary kept a record of all shareholders, with their addresses and the number of shares they owned. When the company wanted to make decisions, the secretary sent out ballots to the registered addresses. The shareholders could fill out the ballots and send them back, and their votes would be counted. When the company had money to pay the shareholders, it would send out checks to its shareholders.

If you were a shareholder, and wanted to sell your shares, you would have to find a buyer and agree on a price. After this, you could send an order to the secretary to change the registration information, and you wouldn’t be involved anymore; the new owner would get the ballots and checks.

The idea worked very well and the company was able to raise enough money to buy a total of 2,690 ships and build all of the forts and trading houses needed to keep these ships busy. It was a very large company, but was soon to be overshadowed by an even larger company, which added a new wrinkle and became a new kind of company, now called a ‘joint stock public corporation.’

 

The First ‘Joint Stock Public Corporation’

 

The investment group that was eventually to be called the Dutch East India Company started with the same model, but added a new feature that made the stock far more attractive to investors: it issued paper ‘stock certificates’ to the owners of stock.

Investors liked this for several reasons. One was that it made buying and selling stock much easier. If they wanted to sell their shares, they could make a deal, give the buyer the certificates, take the money, and walk away.

The big advantage of the new system, however, was complete anonymity for owners. A lot of people with money don’t want others to know they have money. They want to hide money from their families, or perhaps from creditors, from thieves or extortionists (who could go to the records of a company like the British East India company and find out how rich their target was, by the number of shares the target owned) or from governments that may want to tax them.

In the new system, the stock certificates represented ownership of the company. Brokers could hold these certificates in something called a ‘street name,’ which means the stock is registered to the brokers, not the individual that owned the stock. The brokers get notices and forward them on to their clients (clients who don’t want mail—and there are many of them—merely have to sign a form to this effect and there will be no mail; many banks in current ‘bank haven’ countries like Switzerland still offer this service). The company pays out money to the brokers, who then credit their customers’ accounts for the amounts received.

VOC (Dutch East India Company) Flag

VOC (Dutch East India Company) Flag

The new company was called the Vereenigde Oostindische Compagnie, and its logo featured its giant initials, the VOC; which translates into English as the ‘Dutch East India Company.’ Investors from around the world really liked this new system and made huge investments in it. As large as the British Company was, the Dutch Company quickly became even larger. Here is a quick description:

 

The VOC eclipsed all of its rivals in the Asia trade. Between 1602 and 1796 the VOC sent almost a million Europeans to work in the Asia trade on 4,785 ships, and netted for their efforts more than 2.5 million tons of Asian trade goods. By contrast, the rest of Europe combined sent only 882,412 people from 1500 to 1795, and the fleet of the British East India Company, the VOC’s nearest competitor, was a distant second to its total traffic with 2,690 ships and a mere one-fifth the tonnage of goods carried by the VOC. (link to source).

 

The First Corporate Headquarters in Manhattan

 

The VOC was formed to trade with ‘East’ India, which referred to all nations bordering on the Indian Ocean, including India and China. The company sent ships down the coast of Africa, around the cape, and up the other side to get to the Indian Ocean. It was a very long trip. The company managers also sent explorers to search for an alternate route. They still thought that they could get to India by sailing west. Of course, they knew there was a continent in their way and it was a very long way to go around this continent to the south. But they thought that there might be a northern passage.

In 1609, managers at the VOC sent the ship Half Moon, captained by Henry Hudson to look for a northern passage across America. Other explorers (notably Giovanni da Verrazzano) had visited the port of New York and noted it was the drainage of a massive river, but no one had yet explored upriver. Hudson thought that the river might lead to a series of lakes that may eventually take him to a portage where he could cross to the other side of the continent.

While Hudson was exploring the river, he found that it had two things that the company could make a great deal of money on: hardwood and fur-bearing animals.

Hardwood was the best source of charcoal for making steel, and is the best wood for very strong structures like ships and beams for large buildings. It takes an enormous amount of hardwood to make even a tiny bit of steel, so people had been cutting down the hardwood forests of the eastern hemisphere for 4,000 years to make charcoal for steal. All the large hardwood trees were gone and most of the forests were gone. The Hudson River valley was covered with hardwood forests, including enormous beams.

Natural animal fur made the best cold-weather clothing, but the eastern hemisphere people had hunted fur-bearing animals to extinction thousands of years earlier.

Hudson set up the first corporate offices in North America on an island inhabited by natives who called themselves ‘Manhattans’. The company bought furs from the Manhattans and other local people upriver. It brought in sawyers and charcoal makers to cut down the hardwood trees. The best trees would be made into beams; the rest would be made into charcoal for smelting steel. All of these goods went to China to be sold there. The company then filled the ships with tea, silk, gunpowder, medicines, and paper. These goods would be carried to European markets and sold there. The ships would then load up with manufactured goods that the American natives wanted and head back to Manhattan to start the trip all over again.

This was a very profitable operation. The VOC generated a free cash flow from these activities that was high enough to pay an 18% yearly dividend to shareholders each year for more than 200 years.

 

Corporations that Colonized North America

 

In 1606, the king of England approved an application for a charter for a new type of corporation. This corporation was something that is now called a ‘holding company,’ formed specifically to ‘hold’ shares of stock in other corporations. The holding company was called ‘the Virginia Companies.’

The Virginia Companies were a group of several corporations that were to work together on a gigantic project. The largest two corporations in the group were The London Companies and the Plymouth Companies. The Virginia Companies got a patent on the land on the east coast of North America. It could divide this patent (the former name for ‘deed on land’) among its companies as its managers saw fit.

The Virginia Companies split the east coast of North America into three zones in accordance with the map below.

Corporate Land Grants

Corporate Land Grants

The north zone, went to the Plymouth Companies, the south zone went to the London Companies, and the central zone remained under the administration of the holding company (the Virginia Companies) and was to be used by any company under its control, as the administrators of The Virginia Companies thought fit.

 

The Corporate Republic

 

There were two different kinds of land grants issued for colonies in America. The first were ‘proprietary’ land grants that led to the creation of Proprietary colonies. These land grants were made to nobles who had performed some service to the king or wealthy people to whom the king owed large amounts of money. Rather than pay off the debts, the king granted land in America to these people. The states that originated as Proprietary colonies were Pennsylvania, Delaware, North Carolina, South Carolina, and Georgia.

The second model was the ‘Joint-Stock Colony.’ Massachusetts Bay Company, Rhode Island, New Hampshire, Virginia, Joint-Stock Colony, New York, New Jersey, and Connecticut fall into this category. These colonies were formed by profit-motivated corporations.

In proprietary colonies, the proprietors made the rules and formed the governments. For example, Pennsylvania was given away as a personal (proprietary) land grant, made to William Penn (an individual, not a corporation) on March 4, 1681, in settlement of a £16,000 debt the king owed to Penn’s father. The rest of the grants in the 13 colonies were corporate grants.

Penn intended to make money selling land and wanted to sell land in large parcels, so he created a two-tiered government. Buyers of large parcels (at least 5,000 acres) got the right to elect members to the upper house, which had exclusive power to make legislation and conduct financial affairs. Buyers of large parcels knew the government would protect their interests, because they controlled the government. Penn also wanted buyers of small parcels to feel secure, so he set up a ‘lower house’ of government to deal with details of day-to-day operations of the state. Other states that originated with proprietary grants followed a similar pattern, with only landowners being allowed to participate in government or vote.

In Joint Stock Colonies, the corporations were entirely in charge. The directors of the corporations made the rules and formed the governments. Virginia provides an illustration for the ‘joint stock colonies.’ The Virginia government had two houses. The upper house, called the Virginia Governor’s Council, made all legislation and was allowed to enter into financial transactions on behalf of the state. All members of the Virginia Governor’s Council were appointed by the board of directors of The Virginia Companies.

The Virginia Companies made a great deal of money selling land and wanted people to buy land. The corporation wanted land buyers to know that their rights were secure, so they set up the ‘lower house’ of the government, or the ‘House of Burgesses.’ Landowners could elect members to the House of Burgesses. This system of government gave the corporation the ultimate power, but gave landowners a forum that they could use to protect their rights and advance their interests. People who were not large shareholders in the corporation and did not own land had no say in government.

Most of the people who bought land from the Virginia companies, at least at first, did not have any interest in actually living in America; they just wanted to own land there. Once they bought land, they needed to find people to actually work on it. At the time, failure to pay debts was a crime, punishable by prison or hanging. In 1597 the British Parliament passed ‘The Vagabonds Act’ which allowed corporations to pay off the debts of debtors, thereby saving them from hanging or debtor’s prison, and send them to work on foreign soil as ‘indentured servants.’ The Virginia Companies began to use indentured servants in 1607.

Indenture Servant Contract

Indenture Servant Contract

Here is a sample of the reports of the way indentured servants were treated that was coming back to the eastern hemisphere, from the academic paper ‘Indentured Servitude in the Americas:’

 

Conditions for the workers were hard. One observer commented, in explaining the colony’s high rate of mortality, that "the hard work and the scanty food, on public works kills them, and increases the discontent in which they live, seeing themselves treated like slaves, with great cruelty."

The response of some workers was to run away to live with the Indians. The Company clearly felt that this action threatened the continued survival of their enterprise, for they reacted forcefully to this crime. In 1612, the colony’s governor dealt firmly with some recaptured laborers: "Some he appointed to be hanged, Some burned, Some to be broken upon wheles, others to be staked and some to be shott to death." The underlying motive of maintaining labor discipline was apparent to an observer, who remarked on the punishments that "all theis extreme and crewell tortures he used and inflicted upon them to terrify the reste for Attempting the Lyke." (Link to source.)

 

You may understand why the people imported to America tried to run away to live among the American natives: the natives had plenty of food and shared it; they had clean, comfortable and well-heated housing, and they did not require people to work the standard 60 hours per week required of the indentured servants.

Both proprietary and joint stock colonies used indentured servitude. The system worked out quite well for England and Colonists in Bondage: Indentured Servants in America by Barbara Bigham states that about 70% of criminals in England were sent to America as Indentured servants. This quote describes the way these people were disposed of:

 

By the time the servants reached the colonies they were dirty, sick, and weak. Those with prearranged indentures were taken off the ship by their new masters, while those indentured to agents were readied for sale. Fresh clothing, clean water, and good food were enough to erase most of the visible ill effects of the voyage, and within a few days the cargo was ready for sale. Newspaper advertisements or broadsides announced the arrival of "a number of healthy indented men and women servants…a variety of tradesmen, good farmers, stout laborers…whose indentures will be disposed of, on reasonable terms, for cash." The buyers arrived on the day of the sale, and the servants were brought out for inspection. Strong young men, skilled workers, & comely women sold quickly, but the sick or old were harder to dispose of, and at times were given away as a bonus with more desirable servants. In later years, it was not uncommon for one buyer to purchase the indentures of all, or a large part, of the human cargo. These "soul-drivers" loaded their merchandise on wagons and drove through the countryside selling it door-to-door the way the drummer sold sewing needles (link to source).

 

 

Massachusetts

 

In 1619, a London corporation in London, John Pierce and Associates, a subsidiary of the Merchant Adventurers Company, made an agreement with the Virginia Company to create a plantation in a part of the Virginia Company’s land that had been allocated to the Plymouth Company, along the west side of the Hudson river in what is now ‘New Jersey.’ The corporations intended to call this plantation ‘The Plymouth Plantation.’

The Merchant Adventurers, working with a company called the Planters and Adventurers, did the recruiting for the journey. The companies were able to recruit 55 people from debtor’s prisons in London, but this wasn’t enough to fill the ship.

The Virginia Companies had been in contact with a member of a church group in Lieden Holland that wanted to emigrate to either to Virginia or Guiana and had been negotiating for land in Virginia. The corporation sent an agent, Thomas Weston, to Holland to recruit additional people. He found a total of 47 people in Holland willing to take the trip.

The people in Holland weren’t debtors. Some of them were even able to pay their passage over to America. However, the company would not allow them to go unless they signed indentured servitude contracts for 7-year terms. They would work along with the other indentured servants for this time. If they completed their terms, each person 16 years old or older at the start of the trip would get one share of stock in John Pierce and Associates in exchange for their 7 years service. People who paid their own way—by paying 10 pounds of sterling sliver per person—would get an additional share of corporate stock for each 10 pounds they paid. Here are the terms of the agreement with ‘The Leiden contingent’ from William Bradford’s 1628 book, ‘Of Plymouth Plantation.’

 

1. The adventurers & planters doe agree, that every person that goeth being aged 16. years & upward, be rated at 10li., and ten pounds to be accounted a single share. [note: ‘li’ stands for ‘libra’ which means 10 pounds of sterling silver]

2. That he that goeth in person, and furnisheth him selfe out with 10li. either in money or other provissions, be accounted as haveing 20li. in stock, and in ye devission shall receive a double share.

3. The persons transported & ye adventurers shall continue their joynt stock & partnership togeather, ye space of 7. years, (excepte some unexpected impedimente doe cause ye whole company to agree otherwise,) during which time, all profits & benifits that are gott by trade, traffick, trucking, working, fishing, or any other means of any person or persons, remaine still in ye com̅one stock untill ye division.

4. That at their coming ther, they chose out such a number of fitt persons, as may furnish their ships and boats for fishing upon ye sea; imploying the rest in their severall faculties upon ye land; as building houses, tilling, and planting ye ground, & makeing shuch com̅odities as shall be most usefull for ye collonie.

5. That at ye end of ye 7. years, ye capitall & profits, viz. the houses, lands, goods and chatles, be equally devided betwixte ye adventurers, and planters; wch done, every man shall be free from other of them of any debt or detrimente concerning this adventure.

6. Whosoever cometh to ye colonie herafter, or putteth any into ye stock, shall at the ende of ye 7. years be alowed proportionably to ye time of his so doing.

7. He that shall carie his wife & children, or servants, shall be alowed for everie person now aged 16. years & upward, a single share in ye devision, or if he provid them necessaries, a duble share, or if they be between 10. year old and 16., then 2. of them to be reconed for a person, both in trāsportation and devision.

8. That such children as now goe, & are under ye age of ten years, have noe other shar in ye devision, but 50. acers of unmanured land.

9. That such persons as die before ye 7. years be expired, their executors to have their parte or sharr at ye devision, proportionably to ye time of their life in ye collonie.

10. That all such persons as are of this collonie, are to have their meate, drink, apparell, and all provissions out of ye corn on stock & goods of ye said collonie.

 

The Mayflower Compact

 

The agreement between Pierce and Associates, Merchant Adventurers Company, and the Virginia Companies allowed the company to build a plantation on land owned by the Virginia Companies in what is now the state of New Jersey. The ship actually landed in Massachusetts, some 300 miles north of its intended landfall. When the passengers found out they had not arrived on corporate land, they tried to claim that their servitude contracts were null and void and they were free. They wrote out a document claiming they were free and therefore able to form their own government and live as they pleased. This document is called ‘The Mayflower Compact.’

The corporate managers found out about the revolt of their indentured servants when the ship returned on May 6, 1621. Pierce and Associates’ attorneys realized that they didn’t have any authority in Massachusetts and filed papers to get ownership of the land where the ship had landed. The British government issued a ‘patent’ or deed to this land in 1621. Here are some quotes from the land grant, called ‘the Pierce Patent of 1621:’

 

This Indenture made the First Day of June 1621 And in the yeeres of the raigne of our soveraigne Lord James by the grace of god King of England Scotland Fraunce and Ireland defendor of the faith etc. Betwene the President and Counsell of New England of the one partie And John Peirce Citizen and Clothworker of London and his Associates of the other partie.

Witnesseth that whereas the said John Peirce and his Associates have already transported and undertaken to transporte at their cost and chardges themselves and dyvers persons into New England and there to erect and build a Towne and settle dyvers Inhabitantes for the advancemt of the generall plantacon of that Country of New England Now the sayde President and Counsell in consideracon thereof and for the furtherance of the said plantacon and incoragemt of the said Undertakers have agreed to graunt assigne allott and appoynt to the said John Peirce and his associates and every of them his and their heires and assignes one hundred acres of grownd for every person so to be transported besides dyvers other pryviledges Liberties and commodyties hereafter menconed.

 

The patent reestablished corporate control and allowed Pierce and associates to take back authority over the Plymouth Plantation. The ‘Mayflower Compact’ therefore had no force whatever; it was simply an attempt by a group of bondage slaves to revolt against their corporate masters. As soon as the corporation heard about it, they took their case to court and got full authority back. The Compact had no impact on any laws or rules in Plymouth or anywhere else.

Why do children’s schoolbooks focus on the story of freedom-seeking people fleeing oppression and establishing democracy immediately upon arrival, when the facts don’t confirm this?

Earlier chapters discussed Socrates’ analysis of the basic needs of societies built on the idea of ‘sovereign nations’ (‘republics’ to use his term). People who run these societies have to indoctrinate children for the simple reason that wars will eventually come and people need believe they are fighting for something noble and worthwhile. People raised to believe that America was built by freedom-seekers who created true democracies can be persuaded to fight, kill, and even give their own lives if necessary to protect America, and the principles they were told it was built on. The actual records of the period don’t conform to the story children are told. This wasn’t a problem for the authorities until recently, because the actual records weren’t available. Now that they are, it is possible to trace the sequence of events that got us to the point in history where we are now.

 

The Real Government of Massachusetts

 

Massachusetts was formed as a ‘Joint Stock Colony.’ The corporations associated with the Plymouth Plantation, only ended up with small land grants, and therefore had only limited authority in the formation of Massachusetts.

The bulk of the land grants went to two truly enormous corporations, both formed in 1626: The Dorchester Company and the Massachusetts Bay Company. These corporations were granted all remaining land in what is now western Massachusetts and Rhode Island. The two companies merged in 1627, under the name ‘Governor and Company of the Massachusetts Bay in New England.’ In 1629, the shareholders of the Governor and Company of the Massachusetts Bay in New England’ approved a corporate resolution called the ‘Cambridge Agreement.’ Under this agreement, all shareholders would move to the ‘plantation’ and live there. Here is the relevant portion of the resolution:

 

Now, for the better encouragement of ourselves and others that shall joyne with us in this action, and to the end that every man may without scruple dispose of his estate and affayres as may best fit his preparation for this voyage; it is fully and faithfully agreed amongst us, and every of us doth hereby freely and sincerely promise and bind himselfe in the word of a christian and in the presence of God, who is the searcher of all hearts, that we will so really endeavour the prosecution of this worke, as by God’s assistance, we will be ready in our persons, and with such of our several familyes as are to go with us, and such provision as we are able conveniently to furnish ourselves withall, to embarke for the said Plantation by the first of March next, at such port or ports of this land as shall be agreed upon by the Companie, to the end to passe the seas, (under God’s protection,) to inhabite and continue in New-England: Provided always, that, before the last of September next, the whole government, together with the patent for the said Plantation, be first, by an order of Court, legally transferred and established to remain with us and others which shall inhabit upon the said Plantation. (Link to source.)

 

Before this time, Massachusetts had been governed from London. After, the government would be moved to Massachusetts. The book ‘The records of the Governor and Company of the Massachusetts Bay in New England contains that original laws of what is now the state of Massachusetts. Here is a link to the full book. The first 20 pages contain the text of the original corporate charter. The rest of the book, some 400 additional pages, explain the laws the company passed and (very painful-to-read) descriptions of hangings, brandings, tortures, and other punishments inflicted by the corporation against violators of the corporate laws.

Virginia and Massachusetts were the two giant Joint Stock Corporations that were eventually broken up to form the colonies of Massachusetts, Rhode Island, New Hampshire, Virginia, New York, New Jersey, and Connecticut. These colonies were formed by profit-motivated corporations, the governments were created by corporations, and the legal systems that dominated these lands as of 1763 (when the next important change takes place—this is described in the next chapter) were created by corporations.

The states that originated as Proprietary Colonies were Pennsylvania, Delaware, North Carolina, and South Carolina. As noted above, the proprietors could make their own rules in these places. They all accepted bondage slavery (indentured servitude) and, when the cost of slaves from Africa finally fell below the cost of indentured servitude, they all switched to African slaves.

The only state that broke the mold here (for a period of time) was Georgia. Georgia was under Spanish control until 1732.

The penal colony was not a success and, in 1749, the British government began steps to convert the colony into Proprietary colony along the model of the Carolinas. The land was then granted to nobles who sold very quickly to Carolina plantation owners seeking additional land.

As a proprietary colony, the land was no longer British soil, it was under the control of the proprietors. They wanted slavery and, as soon as they had the legal right to do so, passed specific laws legalizing slavery.

That year, the British declared a part of the land that is now Georgia a penal colony and began giving debtors who had been sentenced to hang the alternative of moving to Georgia. They would get indentured servitude for 7 years, where they would work a 50-acre parcel for the benefit of the government, in exchange for sustenance. If they completed their servitude they would be freed and given the 50 acres they had been working.

This meant that, unlike the other colonies, the Georgia colony was not granted to either a Proprietary or Joint Stock Corporation. As a result, it was considered officially British soil. This has important implications, because it means that Georgia was the only colony that operated under the laws of England, albeit only for a short time (from 1733 to 1749).

 

British Soil

 

Many of the corporate and proprietary laws were entirely different from the laws of England. One important example here is slavery.

Slavery had never been strictly legal in England. The current British laws on the issue of slavery rest on a 1559 ruling in ‘Cartwright’s case.’ In this ruling the judge held that ‘England is too pure an air for a slave to breathe in.’ Slavery could not exist there.

Joint Stock and Proprietary charters granted corporations and proprietors the rights to make their own laws. The book ‘an Inquiry into the Law of Negro Slavery in the United States’ describes the way the slave laws came to exist in the United States. (Link to source.) The people who got the land made laws that served their own interests. It did not serve their interests to prohibit slavery, so none of the colonies prohibited it.

Several important British court cases involving slave litigation established that the colonies in America were not British soil and therefore slavery could exist there, but on British soil, it could not exist.

In these cases, several important rulings became a part of British law that will have an important impact on the events described in the next chapter. The first was in the case of Chamberlain v. Harvey. Chamberlain had claimed that the ruling in the Chartwright’s case did not apply because the slave in the Cartwright case was white and his slave was black. The judge disagreed and ruled that the law didn’t recognize black people as having different rights than other people. This ruling led to a significant difference in law between the colonies (where different races were given different rights) and England (which accepted that all races were equal under the law.)

The second important ruling, in Smith v. Brown and Cooper, involved the different status of slaves in the colonies. Chief Justice Holt held that ‘although blacks could be bought and sold as chattels in Barbados, that was not the case in England.’ His ruling includes the phrase that many people recognize: ‘as soon as a negro comes into England, he becomes free, one may be a villein in England but not a slave’.

The ruling in Smith v. Brown and Cooper made it very clear that the colonies were not ‘British Soil.’ This ruling was made by the Chief Justice of the Supreme Court, who made it very clear that different laws existed in the ‘colonies’ than on British soil.

 

Why I am stressing the fact that America was not British Soil:

In order to understand the events described in the next chapter, it is very important to understand that America was not British soil originally, and British laws did not apply there. This changed in 1763, when the terms of the Treaty of Paris made the eastern half of North America British soil. As you will see, the government immediately made plans to alter the laws of America to make them conform to the laws in England. The British laws did not allow ‘property slavery.’ British laws did not recognize different races as not being people under the law. British laws granted all human beings equal access to courts. British courts enforced contracts (including peace treaties made with indigenous people, which are enforceable contracts under British law) without regard to the skin color or racial heritage of the parties. As you will see in the next chapter, the corporate lands in America officially became British soil in 1763, and England tried to change their laws, the people in the corporate lands ultimately decided it was better to go to war against England than accept English laws.

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