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Why Were Corporations Illegal Before 1819?

While many here believe that Corporations are part of a healthy Free Market, it should be noted that our founders fought the British Corporations AS WELL AS the British Government.

So when you think it's "libertarian" to defend corporations like Monsanto, think again.


When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country's founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.

Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end.

The states also imposed conditions (some of which remain on the books, though unused) like these:

* Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.

* Corporations were often terminated if they caused public harm.

* Owners and managers were responsible for criminal acts committed on the job.

* Corporations could not make any political or charitable contributions nor spend money to influence law-making.

But aren't corporations just part of the free market? Isn't that what capitalism is all about - corporate interests driving the economy?

Actually, no. Corporate libertarians would have you believe that somehow corporate dominance is entirely consistent with the values and vision of the Founding Fathers, but this is pure myth. The framers believed in limited government and free markets, but corporations were almost non-existent in the early days of the Republic. Unlike today, one could not form a corporation simply by filing a few papers with a government office; instead, permission from the government was needed (usually via an act of the Legislature)


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Corporations =

Corporations = prosperity

regulations/ subsidies/ taxes = cronyism

Profit = good thing

Government = bad thing

One of my car magnets says it best, "Government ruined the economy, freedom takes the rap."

The problem with big business today isn't that they are big. There are some great corporations who don't abuse the apparatus of the state aka the monopoly of violence that the government has..... the problem is when the government intervenes in the economy which leads to cronyism.


Litigation is the problem. Not corporations.

Everyone should enjoy immunity from excessive litigation, not just corporations.

If a business causes harm to you then take your business elsewhere and tell everyone about it. Don't ask the government to help you.

Likewise, don't demand health insurance to combat corporate medicine. Demand tort reform!

That's anti free maker One of

That's anti free maker

One of the most important aspects of capitalism is the protection of property rights.

When a business harms your property rights/ your right to live/ yourself, then there is cause to stop them.

Come on, Man

So if a truck from a corporate trucking company destroys my family with incompetence I should just move on.....They should keep up the good work.
Just how in the hell do you propose to protect God given property rights without any government in your anarchist utopia......

Good Grief !

One of my favorite topics too

The primary crime of corporations is the idea that the government can bestow immunity to individuals from the damages they cause to third parties, parties with whom they have no contract. Every other aspect of the corporation is available in common law, derived from individual rights. This last power is a holdover from feudal grants of power and nobility from the king. It should be eliminated. One of the primary socialist arguments against capitalism would go away with ending the ability of individuals to acquire immunity from damages they cause to third parties-- externalites such as pollution. With enhanced individual liability, greedy and unprincopled individuals would be restrained by the risk to their wealth that is posed by excessive pollution.

Limited liability ...

... is absorbed in business costs.

A bank knows that 3% of its loans are going to default. So, you pay a fraction of a percent higher to absorb that cost.

As I have shown, individuals who act as officers or directors of corporations WILL be held accountable if they commit a crime.

But if we are talking about monetary damages over something that is a valid disagreement, I don't see how anyone can defend unlimited liability in that case.

I am against crony corporatism. I am against big government and their favors. I am against taxation in principle. But I am also against unlimited liability as the default position. I think that would do more harm than good, but it is a theoretical debate.

What is not a theoretical debate, IMO, is the idea that limited liability, PER SE, is the cause of crony corporatism. No, big government is the cause, and that is where the focus should be.

I have said what I have to say. It was good debating with you.

Part of the cost is not absorbed

This part is known as "market externalities". These costs are real and must be borne by the population at large. However, once the responsible parties are legislated to be immune from prosecution, a law based on individual rights has no mechanism for acquiring this money needed to pay these costs. This forces the government to take powers beyond enforcing individual rights, creating institutions such as the EPA, OSHA, FDA etc.

Big Government....

...is a cop out.

Let us say we have a very small central government. Yet this central government still capitulated its monetary duties to a banking cartel.
The people would pay low taxes and receive little in benefits while the banking class could live on new money, prop up all these so called business geniuses and devise these risk instruments to be dumped on unsuspecting free people.
Small business would dry up and the cronies would be in charge.

Who buys favor with the prostitute government? Big business supported by a banking cartel. Reducing government as the "answer" is either very disingenuous or a slip of the tongue......

I would suggest the simplest answer is a just and sustainable government.

Morality matters


Big government litigation is the problem, not the companies that try to seek protection from it.

Statues should derive from individual rights.

Immunity from damages caused to third parties with whom the business has no contract cannot be justified for the executives who order the policy and immediate agents that perform it. This is the grant of power the state gives to the corporate officers. The only historical basis for the idea that government can grant additional rights to a class of individuals is from feudalism. Its effect is to undermine equal rights.

Immunity from what?

A court system granted statutorial rights to redistribute your property for largely their own benefit? You betcha.

Ultimately, we must get government out of the business of protecting private property. Otherwise, we will get the police state we ask for. If you think you own it then you better be prepared to defend it.

How do you escape the "right of the strongest"?

The only way I can think of to prevent the right of the strongest from overriding all my rights is to band together into communities. THe community I would prefer would be one that was governed by a published set of rules rather than be dependent on the decisions of a single man or woman. Furthermore I would want those rules backed up by the force of the community so I could have a sense of peace within the community so that I could be protected from the stronger within and without. In case of where opinions conflict I would want a public arbitration process for deciding how to apply the rules. Then I would want that decision enforced.

wolfe's picture

Skip my response if you want since you are done...

But do me a favor... Take some time, let the debate roll around in your head a bit and then come back and actually watch the movie.


"A bank knows that 3% of its loans are going to default. So, you pay a fraction of a percent higher to absorb that cost."

That is not limited liability. That is risk analysis to protect itself and it's investors. You are mixing concepts.

"As I have shown, individuals who act as officers or directors of corporations WILL be held accountable if they commit a crime."

You have shown no such thing. You pointed out an article where the corporate veil was pierced. That is a rare occurrence and does not have anything to do with the questions at hand. Nor did it result in criminal penalties. Only investor damage is prosecuted criminally, or situations that can truly be isolated to a single individual with deliberate malintent, which is virtually impossible.

"But if we are talking about monetary damages over something that is a valid disagreement, I don't see how anyone can defend unlimited liability in that case."

It is not unlimited. It is limited to the courts decision on how much harm you caused. Just as you cannot artificially decrease liability, only shift it, it does not artificially go up just because you want to prove a point.

"What is not a theoretical debate, IMO, is the idea that limited liability, PER SE, is the cause of crony corporatism. No, big government is the cause, and that is where the focus should be."

No, moral hazards are. They are the root of all evil. Moral hazards are created by government, because nothing else has the power. The moral hazards that cause corporatism are lack of accountability and responsibility which are generated from ll and personhood.

The Philosophy Of Liberty -

Another question for those of you opposed to corporations

Corporations are considered persons under the law. Note, they are considered "persons" and not "people." The term "person" is a legal term of art. It does not mean they are viewed as individual human beings. It just means that in court and other legal issues, they are viewed as a person that is a separate (though artificial) entity for legal purposes only.

Now then, there are other entities that are also "persons" under the law. These include trusts, estates, business trusts, partnerships, limited partnerships, and limited liability companies. Are you also opposed to these being considered "persons" for legal purposes? Do you oppose limited liability for them? If someone sues a trust, should the trustees and beneficiaries and settlors be the ones who are the defendants?

What if you set up a trust for your child's education and later you get in a car accident. If you lose, should your child's education funds built up in that trust go to your creditor?

In addition, governments are also considered "persons" under the law. After all, governments are legal fictions, just like corporations. Since there are no "owners," only employees, if someone sues the government should the gov't employees be the ones at risk? Should Barry and Nancy and John Boy and Mitch be the ones who get sued? Of the thousands of lawsuits against government each year, should ALL government employees be sued and put their assets at risk?

Also, individuals, including YOU, have limited liability in some cases. States have homestead laws and wage garnishment laws to limit how much a creditor can get. Let's say you don't pay your bills. Should your creditor (the evil banker) get to garnish 100% of your paycheck until he is paid in full, with interest, with court costs, with attorneys fees, with penalties? How will you survive if all of your paycheck is taken to pay a judgement?

Many retirement funds are protected from seizure by creditors. If you spend a lifetime building up a retirement fund, and then get into a car accident and lose in court, should you lose 100% of your retirement funds?

A trust is different than a corporation

Trusts are a very borderline case. I would say for a trust to be valid there must be a real surrender of ownership of the money to the trust. If the trust involves no surrender of control than it is difficult to see how a person gains a moral release of liability by registering a trust with the government. Control would consist of the right to liquify the asset--if it looks and acts like a bank account then it is a bank account. For instance if the person does not have the right to liquify the asset, then transferring its ownership to the damaged party has no value. To see this simply ask if a person who puts his money in a trust to pay for his child's education has any superior moral standing to a person who puts his money for his child's education into a separate savings account. You cannot legislate away risk to third parties with whom you have no contract. That creates two classes of people. One class acquiring more rights by paying extra fees to the government and lawyers.

noone should have legal rights and be considered persons except

individual human beings.

when government gets sued, who pays? we do. we pay the salaries of the officials, so we are the ones who pay the settlement.

Christians should not be warmongers! http://www.lewrockwell.com/vance/vance87.html

Why should we pay?

Why shouldn't government employees pay?

You can't be against limited liability in corporations but in favor of limited liability in government.

Governments are artificial figments of the imagination, too.

no problem with limited liability

Big problem with limiting liability to people with whom you have no contract. You can have explicit and implicit contracts with people you do business with to limit your liability. But you cannot expect to have limited liability from damages you cause to people with whom you have no contract. This is the case of pollution and other forms of third party damage. I dont like the limited liability of government but one could claim a social contract basis for it, a position no more vile than taxes.

the employees pay with the money WE pay them, so it is really

us paying. i am against both. sorry i didn't make myself clear.

Christians should not be warmongers! http://www.lewrockwell.com/vance/vance87.html

I think you're breaking into the area of insurance

Many of the situations you're proposing, both here and below, should be taken care of by private insurance. I'm personally against it because it's also state monopolized but in theory, if a company is subject to more risk than they can absorb, they pass that risk off to a company who profits from the law of averages and a bunch of people who are way too intimate with actuary tables.

However, make no mistake. Even in the case of passing your risk off to them, you effectively do not. They will make you pay for every bit of risk they take.

When discussing this in reality, even the insurance CORPORATIONS get a pass. When Katrina hit and devastated their payment pool, who was there to legally dissolve their responsibility while leaving them financially whole? Yep. Taxpayers.

Thank you for making my point

The Katrina thing was a situation where POLITICALLY-CONNECTED businesses got SPECIAL FAVORS from ... the GOVERNMENT.

What SHOULD have happened is that the insurance companies should have been forced into bankruptcy and their assets liquidated. Future insurance companies (and their investors) would then have to figure out a better way to contain risk.

What happens is homeowners reduce their risk by buying insurance. Then, insurance companies reduce their risk in TWO ways.

Most people know about insurance companies reducing risk by having a large pool of insured over a large geographic area. The problem is that state insurance laws make this difficult. These laws interfere in what would otherwise be a free market.

So, when something like Katrina hits, the "poor" insurance companies blame the state insurance laws (which they wrote -- cronyism) for preventing them from adequately reducing risk. It is the "old boys club" and keeps big insurance companies making big bucks.

But what is not talked about much is that the other way insurance companies reduce risk is through other means, such as re-insurance, credit default swaps, etc.. This is insurance for the insurance companies, junk bond companies, mortgage-backed securities buyers, etc.).

When the mortgage crisis hit, guess who was the largest issuer (on the financial hook) of credit default swaps for mortgage-backed securities? It was AIG. So, if AIG went under, so would a lot of other companies. (They SHOULD have gone under, and in the future the risk would have been spread even more so that not just one company could monopolize this maket.)

And guess who AIG's biggest customer was? Goldman Sachs. So, AIG got bailed out partly to save them and also largely to save Goldman Sachs, whose executives run the government's Treasury Department and influence the Federal Reserve.

So, it is the POLITICS that causes these cronies to get away with things.

It is not the corporations, and certainly not the investors who bought stock in all these companies thinking they were solid investments. If these companies were allowed to fail, then investors would start looking for more protection. But because of the bailouts, you get the moral hazard.

The Congress has no constitutional authority to do what they did. And THAT is the problem.


We completely agree on the what but not so much on who's to blame. You want to blame the government-insurance company relationship exclusively and I want to blame the fact that government regulates them. I believe this because it is by those regulations that a small business becomes certified as qualifying for certain benefits.

The big benefit that you just referred to but missed is that insurance pools can cross state lines whereas insurance companies cannot. How that works is through holding companies. State Farm Holdings can easily shift pool money from State Farm North Dakota to State Farm Louisiana to pay increased costs of a major event. But they can also claim that State Farm Louisiana doesn't have the pool large enough to pay off a Katrina. They get the best of both worlds.

But it gets better for them... (which is why they lobbied for that law in the first place) Because it takes a significant sized company to cover all the states under a holding company, small competitive start-up companies cannot compete on the state level (which they are bound to by the law). There is simply not enough market share in one state to create the pool that's required to average a profit. In this way, the majors who are effectively an oligopoly will always remain so. And it is by government rules and certifications that this has happened. They didn't need to be in bed with Congress regarding Katrina for it to happen because their industry got the rules put in place long ago.

In both your case and mine, ending all government interaction and special status would decimate the oligopoly and bring in lots of new competition.

wolfe's picture

Insurance companies also...

purchase reinsurance. Which basically is a policy that says, "if you get hit with a catastrophic number of claims, we will pay you X".

This re-insurance helps mitigate risk even for insurance companies. I consider insurance companies to be scams myself, but that is a topic for another thread... :)

The Philosophy Of Liberty -

Yes, but ...

... that does not completely solve the problem.

See my comment above about AIG.

wolfe's picture

Insurance is a completely different animal.

That I don't really want to digress into as that is a very lengthy topic, in and of itself.

But I will simply say this. When I hear AnCaps promoting insurance companies as an alternative to government, it about makes me piss my pants with laughter.

And one of the two reasons I refer to myself as an anarchist and never as an ancap, though technically some might try to label me that way, since I believe in anarchism and markets.

The Philosophy Of Liberty -

Well ...

... if you believe in anarchism and capitalism, then how are you not an anarcho-capitalist? That's what an AnCap is.

You wouldn't be an anarcho-communist or left-anarchist. You wouldn't be a minarchist.

Insurance companies, regulated by the free market and not the state, is just one way AnCaps theorize that legal rights could be adjudicated in a stateless society.

What do you suggest instead?

wolfe's picture

I suggest nothing.

Which is the second reason I do not label myself ancap.

To theorize, guess or try to solve what humanity will do is the job of governments, politicians, and other malcontents.

My job is to bring freedom in the ways that I can. And what people do with it is their business, as is the only real definition of anarchist.

To try to say, I believe in no state but think things should/would be X is to diminish the statement of the first.

I believe in markets because they are a fundamental law of nature. If people chose to voluntarily control markets, that is also no business of mine so long as it is all voluntary.

LL, personhood are not voluntary because they require an externality, and a -default- contract be in place. These things require a government to exist.

Now, if a group of people decided to only do business with one another, and behave like fascist idiots, it wouldn't be my place to stop them. But I won't participate or support their actions. It would eliminate the -default- nature of the contract, because to be a part of that community would require foreknowledge, and if they wanted to leave it, they could (in theory).

Same goes for personhood (it's a fantasy, invented by government, as most things are that it does).

Those are theories which inform my belief on current law. I apply my purist principles to what we have to work with. Which says that LL and personhood are a perversion of nature.

The Philosophy Of Liberty -

Very true

And there are derivatives to cover the reinsurance companies! LOL It's like 'how deep does the rabbit hole go' in asking what level of removal from productivity can one be and still get counted as productive by the government (GDP)?

I'd love to have this group's comments on my latest post if you could. It's at: http://www.dailypaul.com/274256/what-the-root-solution-could-be

wolfe's picture

"An appeal to emotion"

Is that really all you have left for your argument?

"What about the children?"

"Limited Liability" is artificially produced by the government and does not actually produce less liability, only transferred liability. It cannot exist in the real world.

What about the poor guy that you put in a wheel chair for the rest of his life? Should he care about your daughter's education? You were the one that took the risk in driving, and apparently made poor choices since the assumption in your example is losing in court.

Because in your example, that is where the liability was transferred to (the victim).

The Philosophy Of Liberty -