Corporations and History

I was reading a post over at Dean Esmay’s blog where he asserts that corporations are a creation of the state and have no natural existence outside of what the state grants them. Upon some reflection, I have to conclude that he’s wrong. Before I get to my real points, though, I want to point out Mr. Esmay is committing the unpardonable sin. To wit:
This is a simple, indisputable fact of history and law.
I call bullshit right here. Nothing concerning law is ever indisputable. That’s why there are so many lawyers. Similarly, no historical fact can be considered indisputable. There’s always room for debate, folks.

There are many aspects of the question that I can go into here, but the most important one is definitional. What, exactly, is a corporation? If you define a corporation in the same fashion as the law does, yes, a corporation exists only under the aegis of the state. No state, no law, no corporation. Easy enough. I think the mistake that Dean makes is in assuming that the legal status of a corporation is what defines the body in question as a corporation.

A corporation in the simplest form is nothing more than a collective that has an independent existence apart from the individual members of the collective. This model existed long before the rise of the modern nation-state, and is in fact the basic multi-family human organization. (Think “tribe” or ”clan”.) If the collective body is organized in some fashion acceptable to the state, it becomes a legal “corporation” with all the rights the state has granted it. Given the amazingly long history involved, the assertion that common law has nothing to say on the subject is probably incorrect. Given that the original corporate body is the Church, I find it difficult to believe that common law had no provision for such organizations. Given the heavy interdependence of church and state, you might quibble whether such law is independent of law relating to the state itself.

I also question the history of the corporation expressed by some of the commenters. If I recall correctly, which is always doubtful, corporations developed out of the need to pool funds and share risks involved in long distance over-ocean trade. A group of merchants would pool funds using a share-based mechanism to equip a trading venture. This spread the risk out over the group instead on concentrating it in one individual. The concept of limited liability also developed out of this organizational model. Once you have put up your funds for the equipping of the venture and the boat sailed, your liability was fixed. No further liability accrued to you. Admittedly, this is mainly due to practical reasons rather than anything enshrined in law, for what should be obvious reasons. The chartered corporations like the Dutch East India Company were unusual not for the organization of the company but rather for the monopolies granted them by the state.

If you feel, as I do, that this is the history of how corporations developed in the period of roughly 1300-1700 AD, you have to question the view of privileges being granted by the state. I consider it much more likely that early corporate law simply formalized existing conditions. People were organizing in collectives and contracting on that basis before the state caught up with the concept.

And you know what? It’s just as likely as Mr. Esmay’s storyline. Given that he’s asserting a bunch of things as fact and history and providing no links or documentation to buttress his arguments, why should I?


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