The Industrial Revolution and the Rise of the Market-Driven Economy
Laissez faire capitalism coincided with the rise of manufacturing and the Industrial Revolution. The Industrial Revolution 3 represented a transition from agriculture and handicraft production of goods to mass production of goods. The rise of manufacturing, followed by the conversion of manufacturing technology from cottage industry to capital-intensive, mass production of goods, was based on a series of inventions, including the cotton gin, improvements in weaving that supported the growth of the textile industry in England and the steam engine, for example.4
Alvin Toffler, in his book The Third Wave,5 identified the factors underlying and facilitating the Industrial Revolution. He called these factors āthe code of the second wave.ā According to Toffler, the Industrial Revolution is based on the following ācodeā: 1) standardization (of parts), 2) specialization (of labor), 3) synchronization (of tasks), 4) concentration (of capital), 5) centralization (of decision making), and 6) maximization (of profits). Two other factors, the discovery and harnessing of electricity enabling the mass production or high volume production of goods using capital equipment,6 and the development of railroads, enabled the distribution of the mass produced goods to remote markets, far away from the site of production.7
The Rise of Corporations. Corporations were chartered during the period of mercantilism as entities licensed by the monarch to claim the lands discovered by expeditions and to exploit the natural resources of the newly discovered and claimed lands. Modern corporations derived from the British trading companies. One of these trading companies, the British East India Trading Company, played a significant role in both the Indian sub-continent and American history. The Boston Tea Party, which was a factor leading to the American war of rebellion against Britain, was instigated by the tea tax levied by the British East India Trading Company.
Prior to 1844, corporations were chartered by the crown or by special act of Parliament.8 The passage in England in 1844 of the Joint Stock Companies Act of 1844 and then The Limited Liability Act of 1855 facilitated the development of the modern business corporation, organized specifically for economic purposes. The Joint Stock Companies Act of 1844 provided a mechanism for the establishment of a corporation (a joint stock company) without a charter from the crown or special enactment by Parliament. The Limited Liability Act of 1855 provided that the financial exposure or liability of members of a joint stock company would be limited to their investment, thus managing and limiting the risk of undertaking new ventures. Corporations became the vehicle for the emergence of new ventures, including steamship lines, railroads, and other enterprises that furthered economic development during the Industrial Revolution.
The Civil War further spurred the growth of industrial enterprise. In the post-Civil War United States, corporations were recognized as legal persons. In the decision Santa Clara County v. Southern Pacific Railroad Company, the United States Supreme Court case decided in 1886, corporations came to be recognized as legal persons.9 The taxes levied by Santa Clara County on the fences along the railroad tracks were at issue in the Southern Pacific Railroad case. The Southern Pacific Railroad was part of the complex of railroad networks that created the transcontinental railroad. At the time, railroads threw sparks along the tracks, which sometimes caused fires. It was the practice to construct fences along the railroadās right of way to protect the adjacent lands. The railroad argued that the fences were not taxable and that the taxes levied by the county violated the rights of the railroad to equal protection of the laws, guaranteed to persons under the Fourteenth Amendment.10 The implication that corporations are legal persons is that the rights extended to persons by the Fourteenth Amendment of the United States Constitution, including equal protection and due process, are granted to corporations.
The application of the Fourteenth Amendment to corporations was an unanticipated legal development of the law. All the rights and privileges extended by the United States Constitution to persons were thereby applied to corporations. For example, one of the basic rights of persons under the Constitution of the United States is the right of free speech. The right of Nike Corporation to free speech was at issue in the Nike v. Kasky case, discussed in Chapter 7. Nike asserted that it did not operate sweatshops and Kasky argued that Nike must be held to a ātruth in advertisingā standard. Nike countered that it was engaged in political speech, where opinions are permitted, rather than commercial speech, where a ātruth in advertisingā standard is applied. The participation of corporations in the political process, also guaranteed to persons under the First Amendment, is discussed in Chapter 6.
