Incorporated

I want to make it clear that I am not in favor of capitalism or so-called free enterprise. I am for economic anarchy. To the extent that capitalism is economic anarchy, I agree with it. American capitalism, however, is very close to Mussolini’s idea of economic fascism: Labor, government, and industry should work together for the good of the people. The state should control or own industries that are “important” to the people. This idea is visually represented by the fasces, or bundle of sticks. This notion derives from a classical story or myth about a father instructing his sons. He showed them a pile of sticks and told them to break them. They did so easily. Then he bundled the sticks up and told them to try again. None of his sons could break the bundle. If you want to see a fasces, look at the back of old Mercury dime.

One of the features of 19th and 20th century capitalism is the idea of the corporation. To be incorporated means to be made a body, or legal person. The corporation is legally resposible for its crimes and torts but the individual stockholders’ liabilities are limited to their investment in the company. The English word limited as in “Goats, Ltd.” reflects the concept.

I have a couple of questions about incorporation. How much does capitalism depend on the idea of incorporation? Would this limitation of liability arise without state sanction? Now that we have corporations, I don’t think we could put the genie back in the bottle. It wouldn’t be hard to imagine a “loan” in which the lender shared in the growth of the lendee’s worth. I’m sure that people could invent other financial instruments to escape liability.

I don’t know much about corporations. I’m not sure whether companies have incurred so much debt that their assets couldn’t cover them. I know there are special instances where a corporation’s debts exceed its worth. Dishonest people can incorporate with the intention of fleecing their stockholders. By renting an office and a few other things, a person can create the impression of running a legitimate company. (I have always been a bit wary of certain Internet companies whose assets amount to $100,000 or so in computers but whose stock is valued in the millions.) If the stockholders have been defrauded, it doesn’t seem fair to go after them for additional money. In another exception, gigantic awards have been granted to people suing corporations. If the legal system operated reasonably, stockholders might not mind the added liability. Subjecting stockholders to criminal prosecution seems unreasonable to me, but then I’m not in the utopia business.

I believe that the first American law in regard to incorporation was passed in the 1820s to the 1840s but I can’t find it anywhere. I don’t believe it was regarded as an important milestone. I have no idea when the English created corporations. The English aristocracy viewed large business enterprises with alarm and yet they managed to grow and increase. The owners of these businesses and lesser enterprises challenged the aristocracy for political power. Laws of incorporation probably reflected the triumph of certain economic classes more than they caused any fundamental change.

Those who have read Marx know that much of his work is a testament to the power of capitalism in destroying monarchy and feudalism. He was so enamored with the idea of capital accumulation that he went a step further and proposed that the state should accumulate capital and run enterprises itself. Here’s the logic: If the power of capitalism is in its encouragement of capital accumulation, then the state should be able to outperform individuals because it has a greater power to accumulate capital and use it for economic ends. Most people agree that Marx’s ideas haven’t worked out. That leads us to ask whether the accumulation of capital is the cause of the West’s economic success. I would answer that a certain amount of capital accumulation is the result of economic anarchy. I would also argue that the (relatively) large amount of economic anarchy is the actual cause of the West’s material success.

If the state cannot outperform a corporation, why do we think that a bigger company can outperform a smaller one? Larger enterprises have several advantages over smaller ones, but smaller ones have advantages too. The bigger company can afford to employ people solely for dealing with the government; they can also afford to influence legislators and legislation. The idea that corporations don’t like regulation is simply not true. Companies don’t like competition. Most big companies are very comfortable with “reasonable” regulation, i.e., environmental, consumer, or labor laws that put their smaller competitors at a disadvantage. The idea that industry competes against labor is true only to the extent that they compete to control the state. In economic anarchy industry competes against industry and labor competes against labor.

Today, incorporation serves state ends. It encourages the government to enmesh itself in the economy. Furthermore, it creates a legal “body,” one that can be taxed. Of course, legal fictions cannot pay taxes, and so the corporation tax creates a system of unpaid tax collectors. The unfortunate result is that corporations can prosper from intelligent accounting practices rather than from satisfaction of consumer demands. Another problem with corporate taxes is that they put the taxed company at a disadvantage in world markets. These facts have not yet penetrated the consciousness of the average American, and calls for corporations to pay “their fair share” are met with general approval.

Some form of incorporation is probably inevitable. It may exert only a limited influence over the shape of the economy. However, incorporation does seem to encourage democratic ownership of large industries. Stock ownership, which is becoming increasingly popular, gives the general population power over the shape of American industry unknown before. I used to hear all sorts of conspiracy theories about how one company or another was engaging in some nefarious practice to the detriment of the general society. The answer is simple: Buy the company and become an exploiter yourself. Or, if you happen to be a socially responsible person, you have to power join with like-minded people, buy a company, and reform it. A $100 from 100,000,000 people is $10,000,000,000. Add that to stock already owned by socially responsible people and you can control practically any company in America.

But why would you look for market solutions when you have the tool of governmental violence so close at hand? Write a book. Decry. Deplore. If you succeed, federal agents will threaten people with jail and the problem will be solved. You may get rich like Ralph Nader and you will be hailed as a civic minded hero.

That’s our system. When it’s all so easy, you have to wonder why we have any problems left to solve.