Monarchy vs. Democracy: The Democratic Remedy for Corporate Aristocracy

To counteract the chartered “Mushroom Aristocracy” in early corporatist America, Theodore Sedgwick demanded general incorporation, the abolition of privilege.

Editor’s Note
A

Anthony Comegna, PhD

Assistant Editor for Intellectual History

In late 1835, the New York Evening Post faced an existential dilemma. The paper, once founded by Alexander Hamilton, had been owned for some time by the radical (“Locofoco”) Democrat, William Cullen Bryant. As part of an effort to remake the Post from a staunch organ of Federalism into a rejuvenated and luminously democratic paper, Bryant hired the young literary critic William Leggett and shortly put him to work writing political editorials. Leggett’s writing, his career, and his reformist passions all caught fire in 1835, when New York abolitionists mailed sacksful of pamphlets to Charleston, South Carolina. When the local postmaster refused to deliver the mails and a mob publicly burned the sacks, the Jackson Administration kept its peace. Leggett was incensed and turned the Evening Post’s editorial pages against the administration, attacking these flagrant violations of the people’s equal right to use the federal mails. For all his radicalism, the Democratic Party’s national organ, the Washington Globe, read Leggett out of the party and Democratic leaders threatened to withdraw advertising and printing contracts with the Post if Leggett were not leashed. The fiery editor fell ill and was kept from his pen for most of the year 1836, however, and editorial duties fell to his genteel lawyer friend from Massachusetts, Theodore Sedgwick III.

Sedgwick hailed from a famous and modestly wealthy family of Federalists, and his radical ideas alienated him from much of New England life. He found an ideological homeland in New York, however, and heartily joined the Post’s ventures as well as his friend Leggett’s expeditions into abolitionism. In the following selections from Theodore Sedgwick’s time at the Evening Post, our author explores the foundational principles of voluntary government and their relationship to private associations. Sedgwick believed that the United States was, properly conceived, a voluntary democracy, and all evidence of involuntary government resulted from corruptions in the people and their leaders. One such key font of corruption was the system of granting corporate charters and reserving for the legislature’s pets the privilege of limiting shareholder liabilities. By controlling and limiting the people’s ability to organize in corporate bodies, with their own contractual schemes for limiting shareholder liabilities, state legislatures in fact established a class of American aristocrats and moved the mode of governance closer to monarchy than democracy. As a necessary corrective, Sedgwick demanded that the democratic principle be followed through by the people’s representatives: “We ask of our legislators, therefore, the unrestricted power of managing our own private concerns.”

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By Theodore Sedgwick III

New York Evening Post

Monarchy vs. Democracy, 4 January 1836

We have before shown some reasons why incorporated Insurance Companies did not afford as complete security to the publick as schemes which human ingenuity would have devised if left unshackled. This is not all matter of theory. It has been in many instances reduced to successful practice. In London, in Philadelphia, in some of the New England States, and even in some parts of the State of New York, men have begun to understand that they can manage their own affairs, without depending upon a privileged order constituted and set apart by law to rule them in this branch of business. Voluntary associations are formed by which a number of individuals agree to apportion among the whole the loss sustained by each respectively. Such an association is truly republican. It is in perfect accordance with the fundamental principles of the social compact. A nation is nothing more than an assemblage of a great number of individuals, associated for the purpose of preventing or apportioning among all collectively the risks and burdens which would otherwise fall upon some of its members individually. Each pays a certain premium for the purpose of effecting an insurance upon his most important interests. Where the management of their common concerns is placed entirely under the control of a single individual, the organization is termed a Monarchy-​-​when submitted to the regulation of a privileged class, it is denominated an Aristocracy; but where those interested undertake to manage their own affairs, it becomes a Democracy. We are all convinced of the superior efficacy of the last mode in the management of other matters-​-​Can we be doubtful as to this?

We are not acquainted with the details of the organization of all the associations of this nature already formed. The general principle running through all is, that every one who is insured joins the association and becomes an insurer. A small premium is paid at first, the object of which is to defray the current expenses of managing the business of the company. Whenever a loss is sustained by any of the members, the amount is distributed among the whole, the portion paid by each as well as the amount of the original premium being is proportioned to the sum for which he is insured.

The mode adopted to prevent a failure in the payment of a loss is different in different cases. In some instances, a promissory note, with competent indorsers, or a mortgage upon unencumbered real estate, is required, at the same time the premium is paid. In others, a sum of money is deposited proportional to the amount insured. Which ever mode is adopted, the security given is restored at the expiration of the policy, subject to the claims thereon, arising in the mean time in consequence of the losses sustained. There are no dividends-​-​the gains being realized in the diminished rates of insurance. The whole business loses the character of a gambling operation, in which great risks are encountered in hopes of great gains. Each one pays exactly as much as he should, and receives no more than he ought.

Similar to the associations already described is the Alliance Mutual Assurance formed in this city, and which we regard as a spontaneous tribute paid to the superiority of the free trade system. In great difficulties, men turn their eyes to what they sincerely believes the surest source of relief. In trivial complaints they may employ as a physician some family relative, some personal favourite, or some cheap-​serving quack; but when life is at stake, economy, personal partiality, and family friendship are overlooked, and resort is had to the ablest and the best. On the recent occasion, when general ruin seemed to threaten large classes in this community, where did they look for succor? Did they call on the pretended Hercules to help them? No; they put their own shoulders to the wheel-​-​they threw aside their slothfulness, their prejudices-​-​they overlooked even the superior advantages Monopoly would still have conferred upon some of their number, and established a truly democratic association, wherein the people become their own defenders, and common dangers are encountered by common sacrifices.

We approve these institutions, and sincerely wish there were no obstacles to impede their general introduction. But our laws have interposed the most serious discouragements to the formation of such compacts, but which we trust will be speedily removed. We cannot believe that the policy of our government, or the interests of any considerable portion of our citizens, is opposed to the formation of these associations; but still our present laws, in effect, absolutely prohibit their establishment, except in an indirect manner. The principal obstacle thrown in the way is the disability to act in all cases in a corporate capacity. The laws grant no power by which associations of this kind can sue or be sued, without joining in the suit the names of every one of its members. It is true this inconvenience is thought to be obviated by the Alliance recently formed in this city; but great circuity was necessary to the attainment of that object, and after all some cases may be found to have been unprovided for. Now, this trouble is all unnecessary. There is good reason why a company doing business under a particular name should not be allowed to sustain actions at law in that name. A simple modification of the present law in this particular would remove one of the principal obstacles to the object we are seeking to accomplish. We shall resume this subject to-​morrow.

Untitled Continuation, 5 January 1836

We stated yesterday that one of the principal impediment to the formation of Mutual Assurance Associations in this State resulted from their incapacity to act as a body corporate. Another obstacle arises from the fact that the law makes no provision by which individuals, associated in this manner, may limit their liabilities to any thing short of their whole private fortune. This should be otherwise. Any person should be allowed to inform those with whom he transacts business what security he gives for the fulfilment of his engagements; and if he does not deviate from the path he has designated, the law has no right to interfere in the matter. It is every man’s business to look out for his own interests; and if, with his eyes open, he has entered into an engagement which has been honestly fulfilled, he has no right to call upon the law to remedy the effects of his indiscretion.

It is the same in case of a company or corporation. If they inform their creditors of the precise amount pledged for the fulfilment of their engagements, no matter how small the fund set apart for that purpose may be, the law has no business to interfere in the transaction farther than to prevent or punish fraud. What we contend for, therefore, is, that all persons associated for this purpose should be allowed, upon certain general conditions, to constitute themselves a corporate body, with power to limit their liabilities to any specified amount, and make any other regulations among themselves, provided due notice thereof be given to all the parties concerned. This is but extending the law of Limited Partnerships, with slight modifications, so as to embrace the subject of Insurance.

We hope ultimately to see every subject upon which human ingenuity or enterprise is exercised, placed in the same predicament. We believe there is no good reason why banking, as well as any other branch of business, should not be left to be regulated by the laws of trade, and why every reasonable facility should not be extended to persons engaging in that species of traffick. The object we hope eventually to accomplish, therefore, is, the enactment of a general “corporate partnership” law, enabling men to associate for every honest purpose, and when so associated, that they should possess most of the powers and privileges now conferred by special acts of incorporation.

It may not be deemed prudent, even by many of the disciples of the free trade school, to make this change immediately and all at once. They believe that the country is hardly prepared as yet to throw open the doors to universal freedom of competition in the business of banking,--that the small notes are not yet sufficiently curtailed, and that there is not yet the necessary amount of specie in the country.

But whatever difference of opinion there may be on this subject in regard to banking, we think there can be no reasonable objection to opening the door to practical free trade in the business of insurance. We say practical free trade, for we are well aware that there is no positive prohibition preventing any individual or company from engaging in this business; but such legal discouragements are thrown in their way, and such superior privileges given to incorporated companies, as to drive the former entirely out of the market. We destroy the equilibrium as effectually by adding to one scale of the balance as by taking from the other.

The object for which we are contending is one in which the whole state-​-​the country as well as the city-​-​feels a deep interest. Every little village in the interior ought to have its association for Mutual Insurance, the terms of which they should be allowed to fix at their own pleasure, and to suit their own convenience, or even caprice. They should have the power to form contracts of this nature without risking more than they severally choose. They should be enabled to enter into these engagements boldly, straightforward, and by daylight, without proceeding in a sly, stealthy circuitous track, by which one seems to evade the law with which he in unable openly to grapple. We ask of our legislators, therefore, the unrestricted power of managing our own private concerns. We are no longer infants-​-​our leading strings are long since laid aside. We need no guardians to protect our interests from the effects of our own indiscretion. Give us the power of preventing or punishing injustice, and leave our own private interests to be watched over by ourselves. We shall make more vigilant and zealous sentinels than those whose fidelity is not secured by their interest. Yes, WE THE SOVEREIGN PEOPLE ASK OF OUR SERVANTS A RESTORATION OF THE POWER OF CONDUCTING OUR OWN AFFAIRS. We shall now see whether our good natured indulgence has emboldened our stewards to arrogate the functions of masters.