I live in the Managerial Age, in a world of “Admin.” The greatest evil is not now done in those sordid “dens of crime” that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voices. Hence, naturally enough, my symbol for Hell is something like the bureaucracy of a police state or the office of a thoroughly nasty business concern.C.S. Lewis, The Screwtape Letters
I hope that we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country.Thomas Jefferson, The Papers of Thomas Jefferson: Retirement Series, Volume 10: 1 May 1816 to 18 January 1817
This massive ascendancy of corporate power over democratic process is probably the most ominous development since the end of World War II, and for the most part “the free world” seems to be regarding it as merely normal.Wendell Berry, Bringing it to the Table: On Farming and Food
A large storm system has been hugging the Florida coast, bringing days of heavy rains to our little beach town. I love stormy weather, so I spent all of yesterday curled up in a chair on our blissfully southern covered porch, watching the rain beat down on my thirsty gardens and reading. I read two books cover-to-cover in a single day. Even though I read promiscuously, I don’t think I have pulled off such a feat since the lazy days of childhood summers.
I highly recommend The Company: A Short History of a Revolutionary Idea, by John Micklethwait and Adrian Wooldridge. I can’t tell you how many books I have read, both historical and technical, on finance and the nature of corporations. This book stands out among them. It is narrowly focused on how the idea of forming corporations emerged in history – a process that began much earlier in western civilization than I suspect most would believe – and the political and economic forces that provoked changes in how corporations are treated legally.
The book is written in such a conversational tone, however, that I think a mature high school student could enjoy it and appreciate its lessons. I certainly plan to incorporate it into our homeschooling economics curriculum at some point.
A recurring theme of the book is how many of the “problems” with corporate behavior and influence that dominate modern political discourse are not modern problems at all. People have been bitching about the political and cultural influence of corporate entities since the Middle Ages, when bankers were selecting popes.
I think this is the universal experience of being an enthusiastic student of history. Anyone who reads a great deal of history chuckles when their peers complain of some new cultural malaise (technology, moral relativism, people turning away from religion, corrupt politicians, whatever). And perhaps most people know this to be true, but in the eternal tug-of-war between maintaining traditions and whatever passes for “progress” in zeitgeist of some decade, it is difficult to see the timelessness of the larger conflict.
My favorite “modern gripe that isn’t modern” is when leftists complain about corporations being treated as persons. If you ask any registered Democrat in the United States, whose historical worldview is framed by thoroughly corporate legacy media companies and thoroughly corporate influencers at legacy tech firms (yes, such a thing can now be said to exist), this concept of corporate personhood is derived from a series of unfortunate court precedents, pushed by judges brought to us by the likes of the Federalist Society and the Koch brothers, whom we are told worship at the alter of corporate greed.
I’d estimate that 90% of the concerned citizens who parrot these talking points can’t explain the origin of the Federal Society or what it stands for. I think they’d be astonished to learn what a civil libertarian believes and how thoroughly non-controversial those principles might be to anyone brought up in the United States. But they have conspiracy theories about their impact on public life just the same. And much of it hilariously revolves around the legal status of corporate personhood.
The idea of having contractual business relationships and the formation of a consortium of investors to handle the large-scale production of goods and services or to finance trade across long distances is as old as civilization. There is this tendency, I think, in American society to talk about the inhabitants of ancient civilizations as if they were intellectually primitive. They didn’t have the Internet in Mesopotamia, so obviously they could not have had anything resembling modern corporate law (or videos of cats ad nauseam). It often takes learning ancient languages and reading primary texts to appreciate how sophisticated our ancestors were and that, if anything, we are reliving their dilemmas.
From the book:
As long ago as 3000 BC, Mesopotamia boasted business arrangements that went beyond simple barter. Sumerian families who traded along the Euphrates and Tigris rivers developed contracts that tried to rationalize property ownership. The temple functioned as both the bank and the state overseer. The Assyrians (2000 – 1800 BC), a group one normally associates with biblical savagery, took this farther. One document shows an Assyrian ruler formally sharing power with the elders, the town, and the merchants (or karum, named after the word for quay, where they sat). There was even a partnership agreement. Under the terms of such contract, some fourteen investors put twenty-six pieces of gold into a fund run by a merchant called Amur Ishtar, who himself added four. The fund was to last for four years, and the merchant was to collect a third of the profits – terms not dissimilar to a modern venture capital fund.
The Athenians took that partnership idea and made it (1) open for international investment and (2) built on the rule of law, rather than the will of a king. Athens attracted extensive outside investment precisely because the fairness of their financial system provided opportunities for social mobility. The authors note a banker and ship owner Pasion, who arrived in Athens as a slave and died a fantastically wealthy merchant.
But modern societies inherited the legal concept of corporate personhood from the Romans, and it derived from economic necessity:
The societates of Rome, particularly those organized by tax-farming publicani, were slightly more ambitious affairs. To begin with, collecting taxes was entrusted to individual Roman knights; but as the Empire grew, the levies became more than any one noble could guarantee, and by the Second Punic War (218 – 202 BC), they began to form companies – societates – in which each partner had a share. These firms also found a role as the commercial arm of conquest, grinding out shields and swords for legions.
(That sounds akin to American defense contractors, lol.)
Lower down on the social scale, craftsmen and merchants gathered together to form guilds (collegia or corpora) that elected their own managers and were supposed to be licensed.
William Blackstone, the great eighteenth-century jurist, claimed the honor of inventing companies “belongs entirely to the Romans.” They certainly created some of the fundamental concepts of corporate law, particularly the idea that an association of people could have a collective identity that was separate from its human components. They linked companies to the familia, the basic unit of society. The partners – or socci – left most of the managerial decisions to a magister, who in turn ran the business, administered field agents, and kept tabulae accepti et expensi. The firms had some form of limited liability.
These limited partnerships were not as durable as companies that arose in the Middle Ages and later in the age of chartered corporations. But the basic legal framework they created has endured across millennia.
I rather enjoyed reading about the corporation-bashing that took place in medieval Venice and Florence. The stories of the Medici family are well-known, but it was interesting to learn about how the notion of forming partnerships to finance voyages (and bringing treasure back home) was modeled on the Muslim muqarada, minus the “don’t shit where you eat” ethos.
In the Middle Ages, muqarada were partnerships constructed to finance and manage a single voyage, which might last for several months. (The Italians took this concept and extended it to firms that would finance multiple voyages for profit.) In modern Islamic finance, the term muqarada still exists, but it refers to bonds that are structured where investors are repaid exclusively from the cash flow of a project (like strict project revenue bonds or private equity in the US). There is nothing new under the sun.
Incidentally, most “bankers” in the medieval world were a lot like pawnbrokers and payday lenders. They were so despised that they were forbidden (alongside prostitutes) from receiving holy communion. The grossi banchi like the Medicis were massive conglomerates who could settle bills of exchange across government jurisdictions, like Athens on crack. Edward III defaulted on his debts to Italian banks in 1339, and prompted the collapse of two of Florence’s largest banks.
One of the biggest innovations of the Medicis was having “branches” of their banking operations in different legal jurisdictions to limit their financial liability. They essentially created a franchise, such that when one location went under, the larger structure could remain intact. (This later morphed into the holding company in the age of Standard Oil, Flagler, and Rockefeller.)
I think this structure must have been imitated by the Roman Catholic Church – the Medici bank picked four popes, after all – because the Catholic Church still essentially operates as a franchise from a financial perspective. Each diocese in the Catholic Church is a distinct financial entity, and its liabilities do not extend back to the Vatican. (You can buy the bonds of a Catholic diocese, but don’t expect them to be secured by any Michelangelos.) In the era of massive lawsuits and settlements over predatory priests, this structure has shielded the church financially, allowing the larger church to continue as a going concern even as local faithful toss out billions to affected families. Thank you, Medicis.
Anyway… I have always kind of wondered what it is that leftists even think they are arguing when they say they think corporations should not be granted a legal status akin to personhood. “I want corporations to exist, but I don’t want them to have enforceable property rights.” Sure, okay. Let me know how that works out for you.
The authors make a persuasive argument that the concept of a corporation – to be able to raise capital, settle disputes among investors in legally enforceable and predictable ways, and to limit liability – is the reason western societies came to dominate the rest of the world financially over the last thousand years. (With the exception being Japan, which fully embraced the idea of the corporation.) Most of the trade and settlement that happened could not have occurred without these elements being in place.
The Virginia Company and Massachusetts Bay Company were not unlike Elon Musk’s Space X in their day. They took a lot of capital to get off the ground and the human risks were enormous. Without a means to crowdsource funding and manage risk, they would have never happened. But they did, and the wealth of nations grew exponentially, as did the quality of life of the people who lived in those nations.