Studies in Legal History

Law and Agricultural Cooperation in Industrial America, 1865-1945

Victoria Saker Woeste

• Publisher: The University of North Carolina Press
• Year: 2000
• ISBN:
  9780807867112
• Topic: History
• Subtopic: North American History
• Index: History

Americans have always regarded farming as a special calling, one
imbued with the Jeffersonian values of individualism and self-
sufficiency. As Victoria Saker Woeste demonstrates, farming's
cultural image continued to shape Americans' expectations of
rural society long after industrialization radically transformed
the business of agriculture. Even as farmers enthusiastically
embraced cooperative marketing to create unprecedented industry-
wide monopolies and control prices, they claimed they were simply
preserving their traditional place in society. In fact, the new
legal form of cooperation far outpaced judicial and legislative
developments at both the state and federal levels, resulting in a
legal and political struggle to redefine the place of agriculture
in the industrial market.
Woeste shows that farmers were adept at both borrowing such
legal forms as the corporate trust for their own purposes and
obtaining legislative recognition of the new cooperative style.
In the process, however, the first rule of capitalism--every
person for him- or herself--trumped the traditional principle of
cooperation. After 1922, state and federal law wholly endorsed
cooperation's new form. Indeed, says Woeste, because of its
corporate roots, this model of cooperation fit so neatly with the
regulatory paradigms of the first half of the twentieth century
that it became an essential policy of the modern administrative
state.

Part One: Cooperation and Agriculture in American Culture 1865–1910

1: The Farm Problem

Association is the master word of modern days; it is the key to efficiency, power and equality. Corporations are associations of capital for profit; labor unions are associations for the profit of its [sic] members; co-operative associations are for the profit of all the people who choose to associate.
—Sun-Maid Herald, 1918

At the turn of the twentieth century, American farmers were in trouble. Social unrest and economic stagnation were rife in the rural sector, from dairy sheds in upstate New York to washtubs and summer kitchens on Great Plains wheat farms, from the tobacco-drying barns of the Appalachian piedmont to the irrigated drylands of California. Whatever their ties to and interests in rural life, people fundamentally disagreed not just over the solution to the farm problem but over the nature of the problem itself.

Economists and social scientists thought the farm problem stemmed from inefficiency on the individual farm. Increasing agricultural production through the application of the principles of scientific management and agricultural economics, they believed, was the key to agriculture’s survival in the industrial age: “The success of the modern farmer depends . . . upon his capacity to select and produce that crop or combination of crops which, one year with another, will make the farm yield the largest net return.” Sociologists blamed the farmer’s character for agriculture’s economic backwardness: “There must be something wrong in [the farmer’s] own make-up, some failing on his part to see what the conditions of life are. . . . The failing is in himself. If you want to reach the root of the farmers’ difficulties, you will have to begin with the farmers’ minds.” In this view, farmers held their fate in their own hands; an agricultural college professor patronizingly lectured that improved farm management would come “by improving the [moral and physical] qualities of farmers.”¹

Politicians framed the issue in ways that exploited cultural perceptions of agriculture. They thought that regardless of how the industrial economy changed, farming had to remain a small-scale, localized activity. Even Herbert Hoover, who championed agriculture’s need for better organization and a fairer marketing system, publicly cherished the Jeffersonian agrarian ideal: “Farming is and must continue to be an individualistic business of small units and independent ownership.”²

Farmers saw the matter differently. They worked hard, under difficult and unpredictable natural and economic conditions, for less money than they felt they deserved. They believed that the root of the farm problem lay not on the individual farm but in the market. Farm leaders pointed to Frank Norris’s novel The Pit as an accurate description of the market’s inherent unfairness: “ ‘If I go out there in Kansas and raise a crop of wheat, I’ve got to sell it, whether I want to or not, at the figure named by those fellows in Chicago. And to make themselves rich, they make me sell it at a price that bankrupts me.’ ” Most farmers believed that they were losing, and losing badly, in the great competitive war imposed on them by the new industrial conditions.³

Farmers’ critique of the market was grounded in day-to-day interactions with the corporate actors and agents who determined the profits of their labor. The industrial economy permanently altered the relationship between producers and consumers. To farmers, the rise of the “middlemen” to a permanent place in the marketing system gave middle merchants disproportionate influence over agricultural prices and profits. Farmers believed that railroads, grain elevators, stockyards, and distributors unfairly restricted their access to consumers. As the economist Joseph G. Knapp summarized, the farmer “blamed much of his plight on an unfair system of ‘interchange,’ whereby he was forced to pay excessive toll in marketing his products, and excessive prices for his purchased supplies; and he was vehement in his resentment of all ‘monopolists’ and ‘middlemen.’ As the farmer saw his condition, he was ‘fleeced both coming and going.’ ”⁴

The farm protest movements of the late nineteenth century brought cooperation and the marketing problem together in ways that proved of more lasting significance for the cooperative movement than for the farm organizations that championed it. Both the National Grange of the Patrons of Husbandry (better known as the Grange) and the Farmers’ Alliance (which gave rise to the Populist Party in certain states) dedicated themselves to solving the marketing problem. Both used cooperation as the foundation of their programs for political and economic reform; in the end, however, neither was able to transform the market. These movements were fundamentally political in nature; they enlisted economic ideas in attacking the interests they claimed were oppressing farmers, but they ultimately invested their organizational capital in electing candidates to public office, particularly at the state level. Their focus on political action diverted these movements from the essential task of adapting the legal status and economic function of cooperation to new market conditions.⁵

Yet the protest movements fed the process of innovation taking place in cooperation around the turn of the twentieth century. This process proved vital in places where, as in California, it was imperative to solve the marketing problem. The sheer physical distance between horticultural producers and eastern consumers made growers determined to control processing and marketing. Between 1880 and 1910 they sifted through the varieties of cooperatives then in existence, tried out a series of legal innovations in form and practice, and emerged with a new kind of cooperation that evoked the movement’s traditional values while transforming the organization into a potent economic weapon. That the new kind of cooperative emerging in California hardly resembled the common perception of cooperation had serious implications for its social meaning and legal status. It was that common perception, arising out of a tradition that had already proven itself unworkable in the national industrial economy, that rural and urban interests alike continued to invoke to justify their reliance on cooperation as the solution to the farm problem.

The new model of cooperation raised critical questions about its place in the new economy. For one, cooperation’s origins in radical philosophical traditions made it unwelcome in the conservative marketplace of ideas in the nineteenth century. For another, organizing farmers “as perfectly as capital is organized,” as William Smythe wrote in 1905, had the potential to transform the relationships between farmers and distributors, retailers, and consumers. As farmers toyed with variations on the traditional form of cooperation between 1865 and 1910, they faced several related challenges. They had to adapt traditional cooperation to the economic needs of their industries without appearing to betray the ideals for which traditional cooperation stood. At the same time, as they created a new legal form for marketing cooperatives, they had to persuade courts and other skeptical observers that their form of collective action did not violate the prevailing norm of economic and constitutional individualism. Either way, for cooperation to gain acceptance as a legitimate mode of enterprise, farmers would have to suppress its potential for shifting the balance of power within the capitalist market.⁶

THE ROCHDALE MODEL IN AMERICA

The cooperative tradition dates back to antiquity. The salient models for American cooperation originated in western Europe and England during the nineteenth century. A pioneering workers’ cooperative store at Rochdale, England, especially appealed to Americans because it aspired to reconcile competitive capitalism with the cooperative principle of equality among participants. The U.S. cooperative movement’s gains after 1870 owed much to the promise that the Rochdale form of cooperation would solve the marketing problem while preserving free competition.⁷

The Rochdale workers transformed the basic idea of cooperation in the mid-nineteenth century by devising both a broad philosophical foundation and a specific organizational framework for it. After repeated strikes failed to bring improvements in wages and living conditions, twenty-eight weavers established a cooperative store in 1844. What set the Rochdale store apart from earlier cooperative purchasing societies was the way it governed financing, profit sharing, and membership. At once simple and revolutionary, the plan emphasized participation according to contribution of goods or patronage rather than investment of capital. Of the twelve original Rochdale principles, first published in 1860, four emerged repeatedly in subsequent practice. They included business or services performed at cost, on a cash basis, with net returns paid to members in proportion to business transacted, known as patronage dividends; democratic control—one person, one vote; limited dividends on invested capital; and ownership limited to patrons—those who patronized the store or who belonged to the occupation the cooperative was established to serve. Also popular were limits on the amount of stock an individual could own and a social duty to educate people in the tenets of cooperation.⁸

The Rochdale principles converted the private corporation into a public, nonprofit collective. Each of the principles revised an aspect of private market relations. The first principle eliminated the need for extensive management and accounting practices and reduced interest expenses; individuals profited according to their participation rather than their wealth. The second principle ensured that no individual would have a greater say in the affairs of the organization than anyone else, regardless of invested capital, patronage, or shares owned. By restricting interest dividends and limiting membership to like-situated individuals, the cooperative could restrict benefits to participants. In short, unlike regular corporations, in which ownership was divorced from management, Rochdale cooperation maintained a close and direct relationship between the two. Rochdale cooperation had potentially radical implications but took an essentially conservative turn. The English historian of cooperation George Jacob Holyoake stressed cooperation’s conservative implications: “[British cooperation] ‘began in a desire for equality; but not by pulling down the rich to the pitiful level of the poor, but by teaching the poor how they might raise themselves to the level of the rich. The early cooperators sought equality through equity.’ ”⁹ The idea of equity did not entail systemic redistribution of capital but improvement of the lot of the poor through self-help and fair distribution of the fruits of their collective efforts. The goal was not to attack the capitalist system but to enable more people to share in its benefits.

The Rochdale emphasis on profit sharing and self-sufficiency appealed to Americans. By the time of the Civil War, the Rochdale store had become an international success story. In 1859, New York Tribune editor Horace Greeley, a supporter of communitarian alternatives to industrial society, published Holyoake’s book on the Rochdale pioneers, Self-Help by the People. The book fed the rising interest in cooperation that was developing before the Civil War. In the postbellum era, agrarian leaders believed that cooperation might teach farmers to be better entrepreneurs, raise their standard of living, and flourish in industrial society.¹⁰

The agrarian protest movements of the late nineteenth century relied on this appeal. They were less certain, however, of how to put its precepts into practice. The problem, as it turned out, was not a failure to implement the Rochdale ideals faithfully; it was that Rochdale cooperatives were designed for collective buying, whereas the primary need of American farmers was collective selling. As the Grangers and the Alliance discovered the legal and economic impediments to cooperative marketing in the late nineteenth century, farmers realized that Rochdale cooperation, however intellectually attractive, could not solve the marketing problem.

AGRARIAN PROTEST AND COOPERATION

Cooperation was one of many planks in the Grangers’ reform platform. During the 1870s, the Granger movement sought to use the political process to protect agriculture from marketing and transportation monopolies. Its primary strategy was to secure legislation regulating railroads at the state level. Rectifying the imbalances in the marketing system, while a chief concern of Grange rank and file, was a secondary priority of the national leadership. This ordering of priorities hindered the development and success of Granger cooperatives.¹¹

Beginning in 1871 and 1872, state and regional Granges in the Midwest and South set up cooperative purchasing agencies and consumer stores to deal in farm equipment. As the Grange grew, the locals expanded into marketing, concentrating in grain, cotton, livestock, tobacco, and wool. Most Granger cooperatives were unincorporated; they delegated most transactions to local agents. Many attempted to address all the needs of their members, marketing “nearly everything their members produced, from green onions to dressed beef.” The failure to specialize and to adopt a more rigorous legal form took its toll on Granger cooperatives. By 1875, most had failed entirely; others converted to purely commercial operations or were reduced to doing business for n...

Table of contents

• Cover Page
• The Farmer’s Benevolent Trust
• Copyright Page
• Dedication
• Epigraph
• Contents
• Illustrations, Maps, and Figures
• Tables
• Acknowledgments
• Introduction
• Part One: Cooperation and Agriculture in American Culture 1865–1910
• Part Two: The Legal Status of Cooperatives 1865–1914
• Part Three: The Benevolent Trust in Law and Policy 1912–1928
• Part Four: Cooperation in the Industrial Economy 1920–1945
• Conclusion
• Appendix: A Statistical Profile of Small Farms in California, 1850–1940
• Notes
• Bibliography
• Index