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some thoughts on corporations and how they got that way
From GWELTY@vega.wright.edu Wed Oct 7 09:33:05 1992
Subject: Here are some thoughts on corporations and how they got that way.
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.
- First is the increasing division of labor, as Adam Smith stresses
in Wealth of Nations in 1776.
- This changing DofL leads to economies of scale, making up in sum
what we call the `Industrial Revolution'.
- 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.
- In 1776, say, there were two major forms of ownership:
Propreitorship, and Partnership.
- 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
- The Partnership gets away from both these problems, since (in
principle) there can be an infinite # of partners.
- Thus much money can be raised, and the partners can share out
the tasks of management.
- 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.
- So the lawyers were working on another (3rd) form of ownership
during the first half of the 19th Century.
- 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.
- 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.
- 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.
- Anyhow, the Corporation was perfected (legally) and became a
fixture of American, British, French, German, etc. life -- all at
the same time.
- Now the corporation isn't typically owned by one person. That
would raise the problems of financing again -- except for the
case of Perot.
- So several persons own the Corporation, by buying `stock' of it.
That is the `Joint-Stock Corporation'.
- Thus the possibility of giant size.
- 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.
- So if you bring Tort action against an enterprise, if it is
incorporated, you cannot extend your action to the owners
- This is the `Limited Liability joint Stock Corporation.'
- Thus the shareholders have no fear of extending the size of the
enterprise, since they cannot be held responsible for its actions.
- Thus the desirability of giant size, which combined with the
economies of scale, make for the virtual certainty of giant size.
- Now this `thing' has two properties which I think are very
important: Exploitation and Externalization.
- 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!
- Externalization: since it is a `fiction', it has boundaries --
if I step on your toes, both of us will know it.
- 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.
- 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.
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")
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