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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.

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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.

http://www.reclaimdemocra...
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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)

http://www.psychologytoda...
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UPDATE:

Watch "The Corporation" documentary Free,

http://youtu.be/Y888wVY5hzw




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yes, it would be good if this could happen--

but the power that these corporations have is so overwhelming--

it's hard to be awake; it's easier to dream--

But

The point of contention seems to be the 'personhood' and the liability being limited to the assets of the corporation. In other words, the owners/shareholders can only lose what they have invested in the company. How is that rectified?

wolfe's picture

Simple.

Stop letting the government invent person fictions. People could still own/operate a business and let it grow as large as they wanted and could handle. But they would be responsible for the actions of the company, as well as every individual responsible for his/her actions.

This is how business already functions in the US, except when the business switches to a Corp from a sole prop, partnership, etc.

Only that which has a mouth can speak. Only that which can act can be held responsible.

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

Do you understand...

...the difference between limited liability for contractual obligations and limited liability for torts?

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

This is a naive view on how

This is a naive view on how businesses work. How many businesses have you started and run? Have you ever tried to raise capital from investors? Have you ever hired or managed employees? None of these things are simple and there are huge liabilities associated with each. Under the scenario you prefer, businesses would flee the US in a heartbeat.

wolfe's picture

lol...

I have owned 4 corporations and two sole props. I have hired and managed many people, and departments including managers, business people, developers, etc, and been a director in other companies.

I am not naive or unaware, and you do not make an argument to refute my statements. You simply claim that I do not know what I am talking about, but I do.

And who cares if the corporations fled the US. The work still needs to be done, the people still need goods and services and their are plenty of people in the US that would stop being slaves and start being business people themselves.

Business would not flee, because it must exist. Only corporations would flee, except they wouldn't even exist here.

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

I'd love to see them flee

and see all the local businesses that pop up.

I moved from a large metropolitan city with strip malls and corporate owned businesses everywhere and now live in a mid-sized city with primarily locally owned businesses everywhere.

For the most part, the quality, variety, and service is above and beyond any corporate company at these local businesses.

I think it's incredibly naive

I think it's incredibly naive to think we are ever going back to local business and mom and pop diners. With the internet and all the abilities it lends you for buying and selling and setting up and controlling business miles and miles away if you want. Especially if there is a freer market, competition will not limit itself to local business.

My main question is what reconfiguring does a corporation have to do when you strip them of personhood and state priveleges? Or do you force them to dissolve? Are they taxed as any sole prop or partnership then, or like an individual? Can they just purchase insurance to cover any liabilities beyond the companies assets?
I just don't think they just all up and leave and we return to Mayberry, so I'm interested in seeing what you think the changes you want would result in.

This all made me think of something else as well. If a corporation is a person, and has all the rights of a person, how can we OWN another person? Isn't that slavery? Isn't it illegal to buy and sell people?

No it's not. Local Cities and Towns can make it happen.

They can create laws that favor local businesses just like the feds help promote corporations. It can and has been done.

It IS naive to think either the gov't or corporations will go away anytime soon.

But there ARE ways to make things better if people choose that.

Most people (especially in the south) love their brand-names and feel a special connection with some corporations and will probably always stick up for them, but I think that the majority of others could be swayed with education.

As far as your questions? I don't have the expertise to answer those, hopefully someone else can jump in.

Seriously?

Dude.

So are you a Democrat or something? You want to force out corporations and then have cities create protectionist laws to limit competition? So then you can have local businesses being price and wage setters, that sounds alot better to you huh. I highly doubt that is the scenario anyone else on this site is talking about. In case you didn't know, competition is a good thing and barriers to entry, tariffs, subsidies, etc. are not.

I understand the problem with corporations now, I get it, but seems like alot of people are talking about "ideal" scenarios that are never going to happen or are no better a solution. What you are talking about fits both I think.

I'm calling for more competition, not less

Do you REALLY think these corporations became the behemoths that they are without colluding with government and getting their assistance??

You seem to be making way too many assumptions with all of this.

"Local businesses" are also corporations

Do you understand how businesses are formed? Please take a moment to investigate, because these comments illustrate that you do not currently understand.

wolfe's picture

You do not understand.

First, not all local businesses are corporations. You make the same error that many make in equating the two concepts as being equal.

Second, any small business that goes through the process of incorporation as S or C, or files for LLC status does so because there is little choice in the current environment.

If the government is handing out bricks of gold, you would be stupid to voluntarily turn it down. But that doesn't mean it is ok for the government to steal and subsequently hand out bricks of gold.

The amount of work and overhead required to maintain a corporation, quite frankly sucks which is why you hire people to do it for you. Except that small businesses usually can't afford to hire it out so waste a lot of time and effort in maintaining it themselves.

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

Don't get hung up on the

Don't get hung up on the legal definition of "corporate personhood" because it doesn't mean what you think it means (or what you seem to think it means... or you're just being sarcastic):

http://en.wikipedia.org/wiki/Corporate_personhood

"The basis for allowing corporations to assert protection under the U.S. Constitution is that they are organizations of people, and the people should not be deprived of their constitutional rights when they act collectively.[5] In this view, treating corporations as "persons" is a convenient legal fiction which allows corporations to sue and to be sued, provides a single entity for easier taxation and regulation, simplifies complex transactions which would otherwise involve, in the case of large corporations, thousands of people, and protects the individual rights of the shareholders as well as the right of association."

indeed--

.

it's hard to be awake; it's easier to dream--

wolfe's picture

Me too.

What is funny, is that the folks that argue that the special rights are required for progress fail to acknowledge what happens from that growth. So let's look at the largest corporations on the planet, and how that "progress" has worked out for us.

Food Producers: We are dying, literally from our food supply.

Pharma: They can treat every symptom known to man, but no illness, and causes more/worse health problems and they financially rape us in the process. And in some cases, literally kill people (I think it was Bayer that did a cost/benefit oversees and decided not to recall a lethal product).

Military Industrial Complex: Their business is murder.

I could go on, and site specific cases all day... But I think I am preaching to the choir on that... :)

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

The problems with corporations are not limited to

the special rights and privileges they receive from the government.

They go much further, to the detriment of the company. By enticing business owners into incorporating, the banking system gains tons of control over these companies, most of which is hidden and rarely even noticed.

First off, there's the new requirements. You can't run a corporation with one man in charge. You have to have a board of directors and officers to hold various positions. This does two things.

First here is that it massively increases the cost to operate the overhead portion of the company. This keeps them basically poor unless they have a really awesome product margin.

Second, this 'poverty' during startup means they will need to go to some financial track to get funding. Guess who controls most of those? Yep, the banks. They either fund it directly with loans or they broker the investments for private investors. Should a public IPO be involved, they usually gain preferred share voting rights while the general population buys non-voting shares.

Third, this compartmentalizes the structure and separates the money counters from the operations people. By doing this, those bean counters, which always cite shareholder value as motive, ensure that most decisions are directed toward short term gains. This then places more profit back into the banks' hands because they got a cut.

The second main reason it's bad for a company to use all this diversified control is that it's virtually impossible to track any external influence in the decisions. As such, companies can pass the buck between departments and even down dept chains, to avoid personal liability. Keep in mind that the liability I'm referring to isn't just legal or harmful, it's industry wide collusion to create oligopolies.

If corporations...

...are at such a disadvantage relative other types of firms, then they would be driven out of business on a free market. And anyway, I don't think anyone is arguing that there ought to be corporations (why would we care?), we're just arguing that corporations shouldn't be prohibited.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

We've got a double bingo!

That's the exact point I've been trying to make for years now. When you take away the protections for a corporation, all they're left with are the negatives (that I mentioned above) and they'll quickly see what a scam it is to go public (at least under others' control). As a response, they'll either eliminate the bloated overhead or their competition will eat them alive. Either way, it's a win-win for us.

Who is "us"?

Non-bankers

aka, we the people.

What about those of us who

What about those of us who actually have businesses? We're people too, you know.

wolfe's picture

There would be MORE businesses...

If we eliminated the government based corporate construct, not less.

The corporate construct allows consolidation of power due to the moral hazards it generates.

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

Your comment demands an

Your comment demands an explanation.

If liability-limiting corporate structures were eliminated, how would "more businesses" be created?

Are you assuming all other forms of businesses (LLC's, etc.) would still exist, just not S-corps, C-corps, and the like?

Provide evidence based in reality. Point me to an instance where types of businesses were deliberately limited, and in turn led to an explosion in business overall. I could imagine underground and "off the books" business exploding, but those kinds of businesses are far less likely to have legal recourse in cases of fraud, aren't they? Should business only be conducted at flea markets? Or should business structures be allowed in the many and varied forms they are now (and possibly in other ones we haven't even thought of yet)?

wolfe's picture

Good question.

And I would love to go into detail. I am running late for dinner and won't be back until Sunday night, so I promise to give more detail then, but for now, here are some quick points:

1) Artificially reducing liability allows corporations to grow beyond their means to self police.

2) There are no legitimate means by which a corporation can be held accountable due to it's separation of it's nature from the people running it. Fines do nothing, but you can't inprison a corporation.

3) All other forms of business, in whatever incarnation, including ones available today, and potentially new forms, should of course not be prohibited. In fact, we are not talking about prohibiting anything at all. We are talking about an end to the special rights afforded to corporations.

4) If I ran a lemonade stand and decided to lace the lemonade with anti-freeze to increase my profit margin, I would go to jail. This does not happen with corporations because the structure has become so complex it is impossible to pinpoint responsibility and therefore, a fine is levied.

5) More businesses existed throughout all of history when the corporate structure was not present. They tended to be smaller, and more manageable, however, it would not prevent size. Just require people be held responsible for their actions.

The Philosophy Of Liberty -
http://www.thephilosophyofliberty.com/

All people

If we eliminated the corporation status, all people would benefit, although most would argue against it for a while. Follow this line...

Right now, nearly all investment money comes through the channels of the stock market, private equity, angels or bank loans. I don't consider junior partnerships or mergers, etc. as "investment" because they are directly giving up control.

So, in today's market, you can't get your neighbor to invest because he's convinced it's not as safe as via the market, etc. His rationale for this is the tired mantra that local investment carries too much risk.

Well, sorry. If you lend me a lawn mower and it explodes because you rigged the fuel line wrong, should I not be allowed to sue you? The same goes for businesses. They should not get state passes to shield their assets (company or private) from negligence. (The obvious caveat is that liability cases would also need some sanity returned as well)

So, with this change in place, you say that businesses would flock to other countries. Ok, fine. Let's investigate that. Say they start leaving. That leaves holes in our needs so private individuals consider starting up their own business. Since our stock market would basically only be for bonds at this point, they have a much easier time courting local investment which now comes with far fewer strings. End result is they thrive because of the lowered overhead and deep pocket competition.

Their new enemy is the existing regulator structure. However, since the owner and all the investors are local, they are a more cohesive group to lobby back any truly oppressive rules (can you say OSHA?). As such, the legal environment is slowly migrated to what truly makes sense when free markets run both the economy and the rules.

Due to the higher profit margins and the local-ness, the investor now makes more money. This 'feature' will eventually become a burden that the owner wishes to end. He saves his pennies, buys them out and owns his business outright. Meanwhile, the investor has his money and profit to take to another local investment.

The only losers in this game are the big banks.

Your suggested scenario would

Your suggested scenario would limit all "businesses" to hobby status and no one would ever want to be involved in any business that involves risk greater than their net worth. There would be no large scale investing or manufacturing period. And companies outside the US wouldn't want to import their products because of unlimited potential for damages. Absurd. Completely irrational.

Not hardly

If your beliefs are how you run your (implied) business, then it really should go away. I want no part of a society where people run from competition just because they're liable for their errors.

I'm not only promoting this but I'm putting it into practice in my newest startup. I wasn't aware enough of the whole situation when I had my last business but I can assure you that when I finally stood up to the control the banks held over us, that was lesson one for me.

You make all these claims that no one but you has ran a business or managed people or fought the investment system. Sorry to burst your bubble but I've done all those plus more: patented things, designed brand new devices, changed the way power plants operate, reorganized departments and many more things. Wanna compare investment caps? ...cuz my daddy's bigger than yours! Fortunately for you, none of that has any bearing on this discussion. This is about finding what it morally right in business and then finding a way to implement the result.

Please give me one scenario where a business should be allowed to justify a government granted limit or cap on it's liability or risk. For every one I can think you may suggest, I can give you a free market solution that offers increased profit to all involved (including customers and workers - remember them?) with fair risk applied. That or I'll show why that business is most likely a parasite on society. Your choice.

You keep referring to

You keep referring to "corporations" as if there was only one kind and as if they were all in bed with lawmakers, banks and mysterious corrupt financiers. That is beyond naive. There are various forms of corporations and there are many reasons for forming such incorporated businesses. Most business in the US is carried out by small businesses. If your beef is specifically with those businesses that are politically connected enough to have laws rewritten to benefit them at the expense of the public, I guarantee those specific "corporations" (many of which we could probably name because there are so few of them) are not ALL corporations. Because they represent a special interest minority that is well connected, THEY should be the object of ire as they contribute to the corporatist mess our system has become. The connections form alliances, which enshrine conflict of interest and corruption, which feeds a system that creates laws to benefit the connected.

Don't paint all companies and corporations with the same broad brush. It's juvenile and ignorant.

I was keeping it in the context of this discussion

That's why I didn't elaborate on the multiple types of corporations. Two of the three types of corporation (the S and C) are profit driven only. They have tax advantages and clout in legal dealings that the other types of businesses don't have built in. The third type of corporation (the B type - or Benefit Corp) is triple bottom line, meaning they cannot be sued for placing environmental or people concern above profit. I stated this earlier in one of my comments you must not have read.

Sole Proprietorships, LLC, LLP and LLLP types are all not a corporation. They are better fit into the 'company' label (as in Limited Liability COMPANY). They do not consider the business as a wholely separate entity from the people behind it. They each have their share of tax differences (which has it's own set of issues) but they treat the owner(s) as the accountable entity for the business. And even some of them limit that person(s)' liability in certain cases.

For me, the single biggest factor in which are good for society and which are bad is the unintended resulting structure for how they are funded. My reasoning is that when the state-mandated company organization requirements get so heavy that they cause the general overhead of a new startup to soar, that effectively and indirectly mandates that institutional investment is required. It's this institutional investment that I'm against. That is where the control comes in. (The B-Corp is an attempt to fight this. That jury is still out.)

To be clear, I'm not saying it's overt. I'm not even saying that many corporations even realize it's going on. They may be influenced without even knowing it and they may even be benefiting from de-facto oligopolies without even knowing it.

Take the solar industry. In order to get the good projects, one must be certified. When incorporating, one is summarily forced to certify as well. But in certifying, one compromises on the possibilities of doing something groundbreaking and new. They also compromise on union work restrictions. Thus, a perfectly good new idea, sold for a less costly price is summarily killed off. Welcome to my world. (And don't give me that whole 'gotta certify and use unions to help Amurika' BS. This isn't about wages or safety.)

The same thing goes on in every other industry that I've studied. Oil drillers have exemptions and tax breaks once they buy into the system. The cosmetic industry has their share of blessed actions that should not be legal but are because they're government certified. Even hair-dressers live in the give and take world.

THIS is the real world. It's the one where a large outside influence can run entire industries with a few government sanctioned get out of jail free cards by the passing out of certifications and corporate status.

Did you know that the restaurant industry itself lobbied and got passed a law stipulating that every food industry entity must have a 3 bay stainless steel sink for washing dishes, regardless of whether they need it or not, no exceptions. In other words, absolutely no home cook anywhere in the country can legally sell a few loafs of bread or some breakfast burritos to their friends without the fear of being turned in. Did the mom&pop businesses or even the mom&pop corporations push for this? No, but they live under those rules. Millions of other examples abound. Welcome to Amurika.