Corporations, therefore, are necessary, but they necessarily separate the ownership of wealth from its management. To invest is generally to entrust your money to another, and those who invest in corporations, unless they control them, are economically disfranchised, because the stockholders in all large corporations almost never influence the management of their property, and as a rule do not know anything about it. They don’t because they can’t. A few years ago a very large number of people were much worried by the exposure of some [pg 83]scandalous doings by the managers of certain great life-insurance companies. They would have been very glad to combine and choose better managers if they could; but they couldn’t. Laws were passed for the purpose of enabling the policy-holders to select their trustees, but the only result has been a ridiculous and rather expensive fiasco. As in politics, the rank and file select the managers selected for them by a few men who understand the situation. When many thousands of people own stock in a concern, they live all over this continent and in foreign parts, and it is a physical impossibility to bring them together. They do not know one another, and very few of them know much about the affairs of the concern, and if they know anything of the candidates that may be suggested, it is generally only by hearsay.
How many of the eighty-eight thousand stockholders in the Pennsylvania Railroad, for instance, have ever attended a meeting? For that matter, how many of them have ever studied the report of the railroad? Not one in ten could spare the time to read it, perhaps not one in a hundred could master it. The report may be read in a few hours; it would take as many months, if not years to verify it. Very nearly half these stockholders are women; the average holding is 120 shares, (par $50), and one-sixth of the stockholders own less than 10 shares each. Ten thousand of them are abroad. Much stock is held by trustees, whose beneficiaries are probably very numerous, and totally incompetent to understand railroad management. There are also more than twenty thousand holders of stock in subsidiary corporations controlled by the Pennsylvania Railroad. No one can tell the number of bondholders; perhaps there are as many as there are employees, making an aggregate of almost half a million.
Sometimes trustees abuse their office; but on the whole they have done pretty well, and whether they have or not, [pg 84]there is no other way in which large capitals can be managed. All civilization rests on confidence. Such a vast fabric could not be built on confidence unless confidence was deserved. As a matter of fact, a man invests his money just as he invests in a surgeon. He does not think of directing the surgeon how to operate. If the operation does not succeed, he tries another surgeon next time—if there is a next time.
Of course all this applies chiefly to the large corporations. There are many thousands of small ones, having few stockholders, who reside where the business is established. These stockholders know more or less of the details of the business; they can judge to some extent how it is carried on, they are often acquainted with the managers, or are the managers themselves, and if not, they are able sometimes to combine and change the management. And I will anticipate a little and say here that the property of such a corporation located in a small town is often to some extent not politically disfranchised, because the people of the town understand that they are directly interested in the prosperity of the business. But it seems almost impossible for the stockholders to change the management of a large corporation. It has been done a few times. Mr. Harriman notoriously did it by using the money of one concern to buy the stock of another, and that is almost the only way in which it has been done. No doubt there has been an immense deal of combination which has resulted in change of management, but this has not been because the stockholders combined to oust their trustees, but because they thought they saw a good chance to sell their stock to those who would pay high for the control, or to participate in these combinations. There have been a good many cases where an enterprising speculator has managed to get hold of a majority of the stock and change the control, and powerful bankers can sometimes get proxies enough to put a stop to bad management; but spontaneous movements of this kind [pg 85]on the part of the mass of the stockholders are extremely rare.
Beyond dispute then, the great mass of wealth held by corporations is almost wholly under the control of their managers, and not the mass of the owners. Mr. Hill has recently testified that he never knew a stockholder to attend a meeting except to make trouble; by which he perhaps meant that when a single stockholder appeared, it was to get paid for not making trouble.
It need hardly be said that no such thing as legitimate representation of corporate wealth is known in our politics, and the representation of individual wealth is very limited. The theory of government by manhood suffrage, so far as there is any theory, is now entirely personal. In early times the freemen of the town, or little commune, met and legislated according to their needs. To be a freeman one had to own property; to “have a stake in the country.” Nowadays nearly all the men who have no property can vote, and some that have property cannot. In England, they are doing away with “plural voters.” Heretofore it was thought just, when a man owned land in more than one place, that he should have his say in the government of all; but this is now forbidden. The right was never recognized in this country, partly because formerly men seldom owned property in two places, but as transportation improved the conditions changed. The “commuters” are legion. Their business and their capital are under one jurisdiction and their dwellings and families under another; but they can vote in only one. Many thousands of men own houses in both city and country. They could help in the government of both, but are disfranchised in one or the other. Under our complicated systems of registration, they are often disfranchised at both.
Of course when population increases, the town meeting becomes a physical impossibility. There is no more direct [pg 86]legislation; it has to be delegated. The power is transferred to the city councils, and to the state and national legislatures. In other words, the interests of the owners of wealth are put in charge of trustees. According to Hamilton, the theory of our government is that the people will “naturally” choose the wisest of their number to represent them. There is not much basis for this assumption. Rousseau scouted it. According to him, the volonté générale could be ascertained only in the town meeting, and he seriously maintained that the ideal government for the Roman empire was by the gangs of rioters that the politicians marshalled in the Forum at Rome under the name of comitia. All that the theory of our government requires, is that our rulers shall be such men as are designated by the majority of the voters. That they should be wise and good men may accord with the theory of aristocracy; it is no part of the theory of democracy, and is certainly a very small part of the practice.
When I say that half of the property of this country is disfranchised, I mean that the nature of this property is such that it is peculiarly subject to the power of rulers, and that the owners of it have hardly any legitimate way of defending it against the arbitrary exercise of this power. The corporation is created by the legislature; men cannot combine their capitals and avoid unlimited liability for the debts of the combination, unless the law specifically authorizes the proceeding. Of course, if the legislature has power to make such grants, it must have power to alter them. In short, property held by a corporation is held at the will of the legislature, and in a way and to an extent that property held by an individual is not. It is not very easy for the legislature to plunder or blackmail individuals, even when they are disfranchised, because it has to be done by general laws, and direct methods arouse direct opposition. But, as we have seen, stockholders as a class cannot defend their rights, and as things are now, their trustees cannot have much to say concerning [pg 87]the laws that affect their property. Managers of large corporations are now commonly denounced as unfit to be legislators, and are practically excluded from the halls of legislation. In some states they are even specifically disfranchised, so far as holding office is concerned, and, under the new despotism, ironically dubbed the new freedom, every man whose wealth and ability make his aid important to many enterprises, is to be forbidden to participate in more than one. Yet property is almost entirely subject to the disposition of the legislature! not entirely, for the courts afford some protection; but even this is now threatened: we may “progress” so far as to make it unconstitutional for a judge to declare any law unconstitutional.