Wall Street History

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Wall Street History

05/04/2001

The Grange

So I set out to do a little story on the rise and fall of the
Montgomery Ward department store chain, when I realized you
can''t really tell the story without first going into a little history of
the Grange movement.

In 1866, following the Civil War, President Andrew Johnson sent
a clerk from the Bureau of Agriculture, Oliver Kelley, out into
the field to assess the economy of the South. Kelley returned
with deep impressions of the poverty, isolation and
backwardness of the farmers of the region and determined that
they should organize in some form for the purposes of softening
the harsh conditions in which they lived.

Kelley and his group of government clerks then founded the
Patrons of Husbandry, commonly known as the Grange (an old
word for granary), or Grangers. It started out mostly as a social
organization, but with the collapse of farm prices in 1868, there
was a bit of an agrarian revolt, and the Grange began to promote
farmer-owned cooperatives for buying and selling. Their ideal
was to free themselves from the conventional marketplace.

Specifically, the Grange proposed "To develop a better and
higher manhood and womanhood among ourselves.To foster
mutual understanding and cooperation.To buy less and produce
more, in order to make our farms self-sustaining.To
discountenance the credit system, the mortgage system, the
fashion system, and every other system tending to prodigality
and bankruptcy."

One of the secrets of its initial success was the policy of
admitting women to membership, and for farmers'' wives the
Grange, with its social structure of meetings, picnics, and
lectures, was a welcome respite from the drudgery of farm work.

The Grange embarked upon various business ventures, and, in an
attempt to eliminate the middleman, they established hundreds of
cooperatives (particularly creameries and grain elevators), based
on the "Rochdale" plan, whereby profits were divided among the
shareholders, in proportion to their purchases.

By the end of 1870 there were Granges in 9 states, and by 1875
the movement had 1.5 million members within 20,000 chapters.
And so it was that the Grange became a political movement of
some success. This took various forms, including the election of
legislatures and congressmen sympathetic to the farmers''
demands.

The chief political goal was to win relief from the rates charged
by the railroads and warehouses. In his book, "A History of the
Supreme Court," author Bernard Schwartz writes that the outrage
grew out of the "Highly speculative railroad building,
irresponsible financial manipulation, and destructive competitive
warfare (which) resulted in monopolies, fluctuating and
discriminatory rates, and inevitable public outcry. The
grievances against the railroads were especially acute in the
Midwest, where the farmer was dependent upon them for moving
his crops, as well as on the grain elevators in which those crops
were stored."

The Grange, through its political movement, thus brought
about the passage of "Granger Laws," initially in the states of
Illinois, Wisconsin, Minnesota, and Iowa, which included
schedules for maximum rates that the railroads could charge, as
well as a ban on higher fees for short hauls over long. And there
were other irritants they sought to abolish, such as a ban on free
passes for public officials, and anti-consolidation laws to
maintain competition.

Business fought back and in 1877, U.S. Supreme Court Chief
Justice Morrison Waite ruled in the case of "Munn v. Illinois,"
one which Justice Frankfurter would later say "places it among
the dozen most important decisions in our constitutional law."
It upheld the power of the states to regulate the rates of
railroads and other businesses - a principle that stands to this
day, and which has served as the basis for governmental regulation
in many different fields.

In the key case, the principle was established that any business
could be regulated, since the conduct of it affected the
community at large. Justice Waite:

"Property become(s) clothed with a public interest when used in
a manner to make it of public consequence, and affect the
community at large. When, therefore, anyone devotes his
property to a use in which the public has an interest, he, in effect,
grants to the public an interest in that use, and must submit to be
controlled by the public for the common good, to the extent of
the interest he has thus created."

Munn v. Illinois was not only a victory for the Grange, it
transformed the course of business law. As one Supreme Court
justice noted later on, "There is scarcely any property in whose
use the public has no interest." So you can thank the Grange for
more competitive business practices to this day.

But the Grange movement itself proved to be short-lived. During
the midterm elections of 1878, Grange candidates (as represented
mostly by the Greenback party), garnered 15 congressional seats,
but by 1884, the Grange had disintegrated.

And what the heck did Montgomery Ward have to do with all of
this? Well, in 1872, Aaron Montgomery Ward, a clerk and
traveling salesman who thought he could sell goods directly to
people in rural areas by mail, established the first mail order
business in America, sending out a one-sheet leaflet that offered
various bargains.

Of course there is a lot more to the Monty Ward story, and, next
week, we will focus on how after World War II, management
made some critical errors which led to its collapse some 50 years
later.

Sources:

"A History of the Supreme Court," Bernard Schwartz
"A History of the American People," Paul Johnson
"America: A Narrative History," Tindall and Shi
"The Growth of the American Republic," Morison, Commager,
Leuchtenburg

Brian Trumbore

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