Jim Moss

The Founding Fathers Did Not Want Large Corporations

by Jim Moss  ::  Filed Under The Economy, U.S. Domestic Issues  ::  March 3rd, 2009 @ 1:00 am EST

Many proponents of the free market defend our current system of corporate-based capitalism as if it descended directly from heaven into the pen of Adam Smith and then onto the hearts of our all-knowing Founding Fathers.  An investigation of the history of the corporation, however, reveals a much different story.

The first corporations appeared in Europe in the 16th and 17th centuries and were chartered by governments for specific public missions.  The largest and most powerful of these early corporations was The East India Company, founded by Queen Elizabeth in 1600 to facilitate trade between England and her colonies. At the height of its power, The East India Compnay held economic control over 1/5 of world’s population and maintained a private army of over 250,000 soldiers.  Unjust taxation policies favoring this company insured that the crown, and not the colonists themselves, reaped the benefits from the colonies’ natural wealth and industry.

During the 18th century, Enlightenment ideals began to challenge the power of monarchies and corporations, and the power of the queen’s corporation began to fade.  The Boston Tea Party of 1773 signaled not only a victory over the economic tyranny of the East India Company, it also helped pave the way for the political uprising known as the American Revolution.  Also around this time, Adam Smith published the Wealth of Nations, arguing for free market economics, but against the concept of large corporations, claiming that they limit fair competition among smaller-sized merchants and artisans. 

When the United States gained its independence in 1776, there were 336 corporations in the United States, but most had been chartered by state governments for specific public works projects. The Founding Fathers, still mindful of the crushing power once wielded by the East India Company, severly limited the power of corporations and never would have dreamed of nor allowed the trans-national behemoths we see today.  In fact, the original limitations seem laughable when we consider our modern corporations:

1) Corporate charters were granted for fixed periods of time, usually between 10 and 40 years.

Today, corporations are assumed to be open-ended in their duration, only ceasing to exist if they can no longer afford to stay in business.  (And sometimes being allowed to continue with government funds even when they can’t sustain themselves!)

2) Corporate charters could be promptly revoked for violations of law or for causing public harm.

Back then, there was corporate accountability.  Break the law, and you’re out of business.  Today, an offending individual or two might (and I say might) see jail time, but the corporate machine just keeps rolling along.  And as for causing public harm…

3) Corporations could engage only in activities necessary to fulfill their chartered purpose.  Could you imagine a government official walking into a board meeting at Disney and telling them that they the only business they can be conducting in the whole company is producing cartoons? 

4) Corporations could not own property that was not essential to the fulfilling of their chartered purpose.  Does that include luxury jets?  How about condos in the Caribbean?

5) Corporations could not own stock in other corporations.  I’m beginning to see a trend here.  Corporations were not allowed to do anything or own any assets that were not specifically related to the purpose for which they were founded.  Period.

6) The personal assets of corporate shareholders were not protected from the consequences of corpoate behavior.  Oh snap!  If still upheld today, this rule would have meant that anyone who owned stock in any of the companies that needed a bailout would have had to have paid for those bailouts out of their own pockets.  Owning part of a corporation meant truly being responsible for that corporation.

Were they around today, the Founding Fathers would look at our corporate climate and our economic situation, and they would say, “We tried to warn you!”  But Amercia has not heeded their wisdom.  Almost as soon as the country was born, big business interests began to chip away at these constraints on corporate power.  Stay tuned for Part 2 of “The History of Corporate Power:  The Rise of the Robber Barons”.

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6 RESPONSES to “The Founding Fathers Did Not Want Large Corporations”

Gareth says  ::  March 3rd, 2009 @ 9:36 am EST

Corporations also did not enjoy the same rights as an individual, aka corporate person hood as they do now.

Alexander Hamilton says  ::  March 3rd, 2009 @ 9:58 pm EST

In entering upon the argument, it ought to be premised that the objections of the Secretary of State and the Attorney-General are founded on a general denial of the authority of the United States to erect corporations. The latter, indeed, expressly admits, that if there be anything in the bill which is not warranted by the Constitution, it is the clause of incorporation.

Now it appears to the Secretary of the Treasury that this general principle is inherent in the very definition of government, and essential to every step of the progress to be made by that of the United States, namely: That every power vested in a government is in its nature sovereign, and includes, by force of the term, a right to employ all the means requisite and fairly applicable to the attainment of the ends of such power, and which are not precluded by restrictions and exceptions specified in the Constitution, or not immoral, or not contrary to the essential ends of political society.

This principle, in its application to government in general, would be admitted as an axiom; and it will be incumbent upon those who may incline to deny it, to prove a distinction, and to show that a rule which, in the general system of things, is essential to the preservation of the social order, is inapplicable to the United States.

–Alexander Hamilton

Joe blow says  ::  March 3rd, 2009 @ 11:13 pm EST

So by these guidelines, The Founding Fathers supported government issued monopolies? The Founding Fathers were against capitalism?

How about instead of pretending this is true, we reflect on what is likely true. The “Founding Fathers” were a group of men who varied in opinion as much as we do today. The legal standing of corporations at the time had more to do with British common law than the opinions of the “Founding Fathers”. Last, and perhaps least, the “Founding Fathers” spent a lot of time thinking about a constitution and bill of rights and proceeding generations spent their time creating the current legal framework for corporations.

    Jim Moss says  ::  March 4th, 2009 @ 10:13 am EST

    To be completely accurate, these limitations on corporations came from state governments and were not uniformly applied across the new nation - but it could be said that they represented the general attitude of the Founding Fathers at the time of the Revolution. After all, much of what they were rebelling against was the tyranny of the ultimate mega-corpation - The East India Company.

    British common law may have been an influence, but they were reacting to the economic plight that the colonies were facing, and their desire for a new nation not to be dominated by corporate hands.

Godwhacer says  ::  March 4th, 2009 @ 8:32 am EST

I agree with a lot of what you’re saying. I’m a believer in the free market, but I must point out that we don’t have a free market in America, we have a mixed economy; a mixture of freedoms and controls. So to blame the current mess on ‘the free market’ is either disingenuous or uninformed.

We both agree that corporations are way way too powerful. But I think what makes them so powerful is the special status granted by government. We’re hearing the phrase ‘too big to fail’ a lot lately, and it drives me crazy. It is precisely when corporations become so big and unprofitable that they must be allowed to fail. When they aren’t allowed to fail, please don’t call it a ‘free market’. That’s just inaccurate.

    Jim Moss says  ::  March 4th, 2009 @ 10:20 am EST

    Exactly. Corporate capitalism is a distortion of free market capitalism (not that I think free market capitalism is the best system, either - but that’s a different article). I’m just tired of people justifying the current reality of the government-corporate complex by somehow saying it is what our country was founded to be. Actually - and this is coming up a few articles down in the series - the earliest American colonies featured a much more locally based, more much community-oriented, and much more egalitarian economy that we might look back to and learn some things from.


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