back to corporations | rat haus | Index | Search

some thoughts on corporations and how they got that way

From Wed Oct 7 09:33:05 1992
Subject: Here are some thoughts on corporations and how they got that way.
To: dave

Thought I'd put down some thoughts which relate to the `legal' versus `natural' person issues of corporate gigantism. These are some things I've come up with over the past few years, and which can be documented, if anyone cares.

  1. First is the increasing division of labor, as Adam Smith stresses in Wealth of Nations in 1776.

  2. This changing DofL leads to economies of scale, making up in sum what we call the `Industrial Revolution'.

  3. But this growth in the average size of the unit of enterprise leads to problems of (a) financing of enterprise, and (b) control or management of the enterprise.

  4. In 1776, say, there were two major forms of ownership: Propreitorship, and Partnership.

  5. Propreitorship, where the owner is identified with the property, is limited in terms of the personal fortune of the propreitor, and in terms of the hours of the day he can stay awake to manage his enterprise.

  6. The Partnership gets away from both these problems, since (in principle) there can be an infinite # of partners.

  7. Thus much money can be raised, and the partners can share out the tasks of management.

  8. But the partners are still identified with the property. And there's the rub. Tort action against the enterprise can be extended to the personal fortunes of the partners -- and their households -- which they didn't like.

  9. So the lawyers were working on another (3rd) form of ownership during the first half of the 19th Century.

  10. This was called the Corporation, and by the legal act of `incorporation' a `person' or `corpus' was created. This legal `person' was slowly accorded rights by legislation, until it got almost as many rights as `natural' persons have.

  11. Now, the way the Corporation was created, another `natural' person could own the legal `person'. And your quote from A. Lincoln is right on target, because it was about the middle of the 19th century that the lawyers prefected -- probated -- the thing.

  12. So Lincoln could see the danger of the thing, as a `legal' person which wasn't a `real' person, and Lincoln was insightful enough that he also -- perhaps -- saw the anachronism of one person `owning' another `person', even though the second person was a legal fiction. If Lincoln was busy working against one natural person owning another natural person, that is slavery, then he might have seen this as problematic.

  13. Anyhow, the Corporation was perfected (legally) and became a fixture of American, British, French, German, etc. life -- all at the same time.

  14. Now the corporation isn't typically owned by one person. That would raise the problems of financing again -- except for the case of Perot.

  15. So several persons own the Corporation, by buying `stock' of it. That is the `Joint-Stock Corporation'.

  16. Thus the possibility of giant size.

  17. Furthermore, the `natural' persons who own the stock, can shield themselves from actions against the Corporation, which is, after all, a legal person in its own right.

  18. So if you bring Tort action against an enterprise, if it is incorporated, you cannot extend your action to the owners themselves.

  19. This is the `Limited Liability joint Stock Corporation.'

  20. Thus the shareholders have no fear of extending the size of the enterprise, since they cannot be held responsible for its actions.

  21. Thus the desirability of giant size, which combined with the economies of scale, make for the virtual certainty of giant size.

  22. Now this `thing' has two properties which I think are very important: Exploitation and Externalization.

  23. Exploitation: since it is only a `fiction' it cannot have any conscience. And Corporations don't, so they ruthlessly use up their employees. This `fiction' doesn't care about its hired `hands' -- even though those are `natural' persons. Because it doesn't care about anything!

  24. Externalization: since it is a `fiction', it has boundaries -- if I step on your toes, both of us will know it.

  25. But the Corporation has no such `real' boundaries -- so it can always try to `externalize' its costs, by environmental pollution, etc. and shift those costs to others -- many of whom are `real' persons, who do have boundaries which are transgressed by this externalization by the Corporation.

  26. In a confrontation between the `natural' and the `legal' persons, the legal person has vastly more resources than the natural person, so it tends to win.


Nuff said.

Let me know what you think of all these thoughts.


I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the Republic is destroyed.

-- Abraham Lincoln (quoted in Jack London's "The Iron Heel")

back to corporations | rat haus | Index | Search