Libertarianism within a leviathan state functions not as a governing philosophy, but as a critique of excesses, i.e. the cases in which state power is used in an unusually pernicious manner. These efforts have had varying degrees of success, depending on how well libertarians can convince major party operatives and wealthy financiers of the wisdom of restraining the state on one issue or another. Unfortunately, mainstream libertarians seem to have a blind spot, if not an outright case of political autism, when it comes to corporate power. Free-market conservatives, reactionaries, and traditionalists also view corporations far too positively. Let us examine the history of corporations, construct a case against their existence and power, and offer solutions for reining them in.

History of Corporations

The word “corporation” comes from Latin corpus, meaning “body”. Originally, it was the gods of Uruk that fulfilled the function of imaginary entities that owned property and conducted commerce. Like modern corporations, Enki, Inanna, Lagash, Shurupak, and the other deities of ancient Mesopotamia outlived any human and were not troubled by inheritance disputes, but needed humans to conduct affairs on their behalf. The ancient Egyptians merged this concept with a physical embodiment to create the concept of Pharaoh.[1]

By the time of Justinian I (r. 527–565), Byzantine-Roman law recognized several types of corporate entities, such as collegium, corpus, and universitas. The state itself was considered a sovereign corporation, the Populus Romanus. Smaller municipalities were also categorized as such, along with occupational guilds, political groups, and religious cults. The privileges of these early corporations were granted by the emperor in their charters, such as owning property, making contracts, engaging in commerce, and pursuing legal action.[2] Local governments and religious institutions were also incorporated in medieval Europe for the same reasons. Other forms of organization such as partnerships were offered by common law, which arose whenever people acted together with an intent to profit.

The era of the modern corporation began in the 17th century with the chartered companies that led European colonial ventures in India, the Americas, and elsewhere. The Dutch East India Company (VOC, from Dutch Vereenigde Oostindische Compagnie) was chartered by the Dutch government in 1602 and sold shares to investors, who traded them on the Amsterdam Stock Exchange. The charter granted limited liability to investors and allowed the company to use military force pursuant to its purposes, which it did by defeating Portuguese forces in the Maluku Islands.[3] The English government chartered corporations with a territorial monopoly. For example, Queen Elizabeth I chartered the East India Company of London in 1600 to monopolize trade with all countries east of the Cape of Good Hope.[4] Like the Dutch company, the English company would use force on the government’s behalf, becoming integrated with English and later British foreign policy. The English East India Company would become a symbol of both corporate success and exploitation.[5] Shareholders made almost 150 percent returns in 1711. Its first stock offering in 1713–1716 raised £418,000, and its second in 1717–1722 raised £1.6 million.[6]

However, the apparent success of a similar entity, the South Sea Company, turned out to be illusory. Established in 1711, its monopoly rights to trade with Spanish South America were supposedly backed by the 1713 Treaty of Utrecht. In reality, the Spanish remained hostile, only allowing one trade ship per year. Investors made the South Sea Company immensely wealthy despite the fact that it did no real business. It took on the burden of British public debt in 1717, further accelerating the share price. War with Spain in 1718 cost the company its prospects of trade profits.[7] The Bubble Act 1720, which prohibited the establishment of companies without a Royal Charter, contributed to Britain’s first speculative bubble.[8] South Sea Company shares eventually collapsed from £1000 in August 1720 to under £150 in October, causing many bankruptcies.

Modern Developments

As the 18th century ended, mercantilism was displaced by capitalism and agrarian economies became industrialized. Corporate forms also evolved to be less dependent on state direction and permission. Many business ventures during this time were unincorporated associations with up to thousands of members. Litigation was thus very difficult to coordinate, keeping the courts from being clogged with corporate lawsuits. The Bubble Act was eventually repealed in 1825. In 1844, Parliament passed the Joint Stock Companies Act, which allowed companies to incorporate by registration for only £10 without obtaining a royal charter.[9] Until 1855, company members were still fully financially responsible for their collective actions, but the Limited Liability Act changed this by only holding investors responsible up to the amount of their investment[10], thus allowing the remainder to be externalized to the public.[11] Insurance companies were excluded from limited liability at first, but the Companies Act 1862 changed this.[12] The 1897 House of Lords decision in Salomon v. Salomon & Co. confirmed the separate legal personhood of corporations by affirming that creditors could not sue the shareholders of an insolvent company for outstanding corporate debt. In 1892, Germany introduced the Gesellschaft mit beschränkter Haftung (GmbH), the forerunner of the modern limited-liability company (LLC). These were considered separate legal personalities with limited liability like corporations, but could be owned by a single person.[13]

In the United States, corporations were usually formed by acts of Congress until the late 19th century. The captains of industry therefore made more use of the trust model than the corporate model, under which Rockefeller’s Standard Oil and Carnegie Steel Company became enormously successful.[14,15] State governments had more permissive corporate laws than the federal government in the 19th century, but most were designed to prevent corporations from gaining much wealth or power.[16] In the 1890s, New Jersey and Delaware adopted enabling corporate statutes.[17,18] Around this time, mergers and holding companies led to larger corporations, and governments responded with anti-trust and anti-monopoly legislation. Forming corporations was also made easier in most jurisdictions, though some places had many state-owned corporations that effectively nationalized certain industries. In recent decades, many countries have moved toward privatizing state-owned corporations, though ownership was transferred to politically connected oligarchs in many cases.[19,20,21]

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References:

  1. Harari, Yuval Noah (2015). Homo Deus: A Brief History of Tomorrow. HarperCollins Press. Ch. 4.
  2. Berman, Harold Joseph (1983). Law and Revolution (vol. 1): The Formation of the Western Legal Tradition. Cambridge University Press. p. 215–6.
  3. Prakash, Om (1998). European Commercial Enterprise in Pre-Colonial India. Cambridge University Press.
  4. Imperial Gazetteer of India vol. II (1908), p. 6.
  5. Keay, John (1991). The Honorable Company: A History of the English East India Company. MacMillan-New York.
  6. Ibid., p. 113
  7. Carswell, John (1960). The South Sea Bubble. London: Cresset Press. p. 75–6.
  8. Harris, Ron (1994). “The Bubble Act: Its Passage and Its Effects on Business Organization”. The Journal of Economic History. 54 (3): 610–627.
  9. Davies, Paul Lyndon (2010). Introduction to Company Law. Oxford University Press. p. 1.
  10. Mayson, S.W; et al. (2005). Mayson, French & Ryan on Company Law. London: Oxford University Press. p. 55.
  11. “Limited Liability and the Known Unknown”. Social Science Research Network. 2018.
  12. Pulbrook, Anthony (1865). The Companies Act, 1862, with analytical references and copious index. London: Effingham Wilson.
  13. Limited Liability Company Reporter (2001, Jun. 4). “Historical Background of the Limited Liability Company”.
  14. Dies, Edward (1969). Behind the Wall Street Curtain. Ayer. p. 76.
  15. Nasaw, David (2006). Andrew Carnegie. p. 578–88.
  16. Smiddy, Linda O.; Cunningham, Lawrence A. (2010). Corporations and Other Business Organizations: Cases, Materials, Problems (7th ed.). LexisNexis. p. 228–31.
  17. Ibid., p. 241
  18. The Law of Business Organizations. Cengage Learning.
  19. Nellis, John; Menezes, Rachel; Lucas, Sarah. “Privatization in Latin America: The rapid rise, recent fall, and continuing puzzle of a contentious economic policy”. Center for Global Development Policy Brief, Jan 2004. p. 1.
  20. Faiola, Anthony (2005, Oct. 15). “Japan Approves Postal Privatization”. Washington Post.
  21. Megginson, William L. (2005). The Financial Economics of Privatisation. Oxford University Press. p. 205–6.
  22. Citizens United v. Federal Election Commission, 558 U.S. 844 (2010)
  23. Santa Clara County v. Southern Pacific Railroad Co., 118 U.S. 394 (1886)
  24. Roser, Max; Ritchie, Hannah (2018). “Technological Progress”. Published online at OurWorldInData.org.