Cyclopædia of Political Science, Political Economy, and the Political History of the United States
CORPORATIONS, Economic and Social Relations of. Incorporation is the creation by law of an artificial person out of one or more natural persons. The artificial person thus created is a corporation. Its personality is an abstract conception of the intellect, unassociated with that of the persons from whom it is created, and its existence is ideal only. One may be curious to know historically the first appearance of this conception which has been such a powerful agent in the development of society, but it is lost in the obscurity of that marvelous youth of the world in which so many great things had their beginning. Numa and Solon are said to have established corporate bodies politic, though of their real constitution little is known, but the conception is sufficiently abstruse to vindicate for it a Greek, or even, as has been suggested, a more oriental origin. Its practical application for municipal. ecclesiastical and business uses has had its fullest development under English and American law, but the conception came undoubtedly into that law fully formed from the Roman civil law. In some particulars, as in the case of corporations sole, the idea of a juridical personality has been carried beyond the limits of the civil law. But in the organization of cities, in the colleges of priests and of the vestal virgins, and in the trading societies of the Roman state, will be found the anticipation of our municipal, ecclesiastical and business corporations such as now exist for almost every purpose in which the public activities of natural persons are engaged. We are not likely to exaggerate in our conception of the distinctive personality of these mythical beings, who are nevertheless actual members of the community. They may perform nearly all the acts that natural persons may, but these are in no sense the acts of their various members. They act by their respective names and corporate seals, not by the persons who compose them. In the language of lord Coke a corporation "is invisible, immortal, has no soul, neither is it subject to the imbecilities or death of the natural body." These words have attracted animadversion, but they are substantially accurate. If all the members be collected, one does not see the corporation. It may be sued, but if every member appear, the corporation has not answered the writ. It may own property, real and personal, but the members will have no property or any right in any part of it. It may owe debts of which the members owe nothing. It may convey, but the deed of all the corporators will convey nothing from it. It may contract, but the bond of all of them will create upon it no obligation. It is a citizen of the state by whose sovereignty it is created, and its action is determined by the mere majority of its members. All the members, however, may change, but it remains unchanged. They may succeed each other indefinitely, so that they may die, but the corporation remains immortal.
—This immortality of corporations asserted in the quaint language of Coke above quoted, has engaged some dispute, but it is made none the less true by the fact that modern statutes do in particular instances limit their duration. Affirmative limitations may be imposed upon them by the state in respect of their perpetuity, of their power to hold or convey property in its various forms, of their modes of action or otherwise. But in their original conception and institution, as they exist under the civil or common law, in the absence of affirmative limitations, corporations have nearly all the powers and more than all the immunities of natural persons. They may hold and convey all forms of property, and by succession of their members have the capacity of unending duration, with the boon forgotten by Tithonus, youth and vigor unaffected by the lapse of time.
—In the earlier times private companies seem to have been allowed to incorporate themselves at pleasure. But such liberty was early restrained, and incorporation could be gained only by the decree of the senate or of the emperor. There is such substantial reality in the personality of these mythical creations, that they are practically so many more persons added to the active and industrial population of the state; and it is obvious that the range of action of such a person is in distance and time far beyond that of natural persons. It is this independent personality of a metaphysical person, combined with this potential immortality enabling a continued effort and a concentration of means to an end to be accomplished, beyond the limits of natural life or the means of natural persons, that gives to these invisible and intangible persons their power and utility, and their intimate relation to the entire historical development of society. The idea of incorporation, in some of the forms in which it has been applied, has been the most effective and beneficent agent of civilization, and it is capable of being so in all. It is precisely this fact which underlies the uneasiness of the public in its relation to these bodies, for were it otherwise, society would immediately relieve itself by their extinction.
—Until a very recent time the most important use of corporate organization has been in its application to municipal government, and to ecclesiastical and eleemosynary institutions. The corporate character of the various municipal governments of the cities in the ancient states gave them an individuality admirably adapted to the development of political order in combination with civil liberty. It enabled the community to press for and hold civil rights and privileges which enured to the benefit and liberty of the individual citizen. And when the central dominion of the imperial city and its citizenship was destroyed, it left these separate municipalities with their corporate forms and local citizenship. Some of these, as Florence, successfully resisted subjection to the governo di un solo, to the domination of the feudal chiefs, mostly German, who came from north of the Alps; and they furnished types for the free municipalities of northern Europe, which, during many centuries of social misery and oppression, gradually secured and held important civic privileges, and developed the civil liberties of our times. When the English law came to deal with the principle of incorporation, it was found of easy and convenient application to a vast variety of political and social purposes. Municipal organizations, with rights of election of representatives, came rapidly into existence. Even the unbroken succession of the powers of sovereignty came to rest upon the establishment of the theory that the king is a corporation sole; and similar results were obtained upon the same theory in the case of other public officers, as in the case of the parson of a parish. The principle was applied to the upholding and perpetuity of ecclesiastical institutions, as well as of educational and charitable ones, and in later times its application to trade and various forms of commercial use has attained an extent, very difficult to realize, in enterprises of proportions sufficiently large to make it important that their administration should be freed from the limitations incident to the short life of natural persons, and should extend over wider range than can be usually attained by their resources. It is readily seen, therefore, that this principle is intricately and extensively inwrought into the constitution and working of modern society, and it is not too much to say that without this the present high development of society could not be maintained at all. The invention of rapid and powerful means of locomotion has, in very modern times, even within the memory of men still living, brought about stupendous changes in the conditions under which men live in society. The immeasurable and economical power of steam, applied to land and ocean carriage, has brought into the closest relations all the peoples and all the productive forces of the more civilized parts of the earth. In place of the violent migrations of whole peoples in vast and aggressive masses, such as have characterized some historical epochs, the voluntary movement of individuals and of families has made the most surprising changes in populations. Perhaps more of the inhabitants of northern Europe have during the present century come into the territory of the United States than in the centuries from Theodosius to Charlemagne passed into the southern Roman provinces and effected their complete transformation in population, manners and law. The same facility of intercommunication has widened the market for every production, whether of land or labor, of every country, so that in every part of at least the civilized world the populations have come to derive from remote regions a large part of the essential elements in the support of human life in clothing and subsistence. The products of the Mediterranean coasts, of Sabacan Yemen and Celebes, are found in every part of the world. The manufactures of Europe and of America are everywhere consumed in clothing and habitations; and the provisions and agricultural products of the United States have become essential elements in the subsistence of all civilized peoples. All these things are transported throughout the world with such facility, and in such quantities, that in every locality the principal part of the population has come to depend, and to be dependent, in a greater or less degree, for clothing and subsistence upon the products of remote places or countries. These quantities can not be represented by figures that convey any idea to the mind. No community now lives altogether within itself, and every one year by year does so less and less; but it produces what it finds profitable and depends upon a system of exchanges for whatever else it needs. And this inter-relation has become so close that any material change in the amount or cost of production or in the cost of transportation of the more important articles used in communities—for example, breadstuffs and provisions, manufactured cotton or woolen goods, the machinery and tools of the mechanical arts—must draw after it a corresponding change throughout the framework of society. An arrest of the manufactures of England would be felt with distress throughout the world. A cessation of the supply of grain, cattle and provisions from the western states would bring New England and the Atlantic states to the border of famine, and would be not unlikely to reinstate the disturbed conditions of the English land tenure. In the present condition of society any change in the cost of transportation brings a corresponding change in the ratio of every man's resources to the cost of subsistence of himself and his family. Whatever affects one affects the other, and the poorer the individual the more serious is the relative interference. When the invention of modern powers and methods of locomotion made communication between widely separated localities so feasible, it presented enterprises of a magnitude and range before unknown. In the presence of such as were involved in the transportation of the products of the western states to the eastern, and to the seaboard for the supply of foreign markets, the capabilities of ordinary persons were conspicuously inadequate. But the changed condition of society found these mythical beings ready to spring into existence, with powers and endurance adequate to any requirement. They have enormously multiplied in the last few years. Unincumbered by the infirmities of natural persons, for them no aggregation of capital or of physical forces is too great, nor any enterprise too vast or long enduring. Their administrative powers may expand from such as conduct the smallest enterprises to such as equal or surpass those of political governments; so that it has come about that this whole matter of transportation has passed into the hands of corporations. The business of transportation properly includes all corporations engaged in the storage and transfer of freight, the carriage of persons, of parcels, of messages, and everything which relates to the intercommunication which is promotive of commerce, and it is easy to see that their relations to society are of the most intimate and involved character, and that their stupendous powers are exercised directly upon the ratio of the resources to the subsistence, not of individuals here and there, but of every person in every community. These are new conditions in human life. No such gigantic social power has ever existed in the world before. The conditions are not temporary. They are permanent and in process of development, and society must permauently adjust itself to them. What is true of one class of these bodies in these respects is, in varying degrees, true of all others. At one time they came into particular antagonism with society when they had withdrawn about one-fifth, and appeared to be withdrawing into perpetual tenure nearly all of the landed property of England. The burden of that mischief, however, bore altogether upon the privileged and landholding class and not upon the people at large, who merely labored on but did not own the land. Nearly if not quite all the modern states guard themselves against the recurrence of this mischief by statutes that limit the holding of realty in corporate tenure; and at the present time the corporations that are concerned with transportation illustrate, more vividly than others, the vital relations for good and evil that these extraordinary creatures of the imagination practically sustain to the commonwealth.
—Potent and beneficent as these institutions have been, and essential as they are to uphold the high and complex organization of modern society, a feeling of extreme uneasiness pervades the community concerning their action. The sources of this uneasiness are many. It is believed that the element of incorporation, which is a grant of sovereign prerogative, is not used fairly in the relation which the power it confers sustains to the public interest which is affected by its exercise. While the most important of the social, not political, machinery of the country is passed into the hands of corporations, because the work is too great for individuals and requires the combined capital and efforts of thousands, it finds, in connection with public advantage on a wide range and to a high degree, a development, nevertheless, of social mischiefs of menacing magnitude. Apprehension is founded, not in the idea that corporations acting in the legitimate exercise of their powers, vast as they are, menace in any way the commonwealth, so much as in a conviction that the control of these powers is inadequately guarded, and that they may be and are seized upon by irresponsible persons who abuse them in their personal interest. By some means the courses of trade seem to be disordered. The enterprises are so great that they exclude competition, except between corporations, and, even among them, except between the largest. The competition that remains between these bodies concentrates business at a few points and in the hands of a few men. The most extraordinary differences in the cost of equal service, involving destructive discriminations against extensive regions, are established, and are explained and defended as being made compulsory by competition. The various arrangements by which earnings are pooled must be classed as efforts to evade the effect of competition, and to coerce the payment of prescribed rates by the destruction of every alternative. Whether these results of a carrying system, based on the natural principle of competition, show this to be a mistaken policy, and that in an artificial society, some special artificial system for this must be devised, time will show. By their instrumentality very great fortunes have suddenly accumulated in the hands of individuals, and not only this, but by this means, and by the operation of the principle that a mere majority determines corporate action, an almost irresponsible control is obtained over enormous amounts of the money of other people. This facilitates in practical affairs the concentration of the absolute control of a number of related corporations, all acting directly upon the most vital relations of society, in the hands of a few persons actually owning but a small proportion relatively of their stock. This involves the development of a social power in the hands of mere citizens, unprecedented in society and overshadowing mere political powers, for it acts directly, as has been said, on the relation between the resources of every man, even the poorest, and the cost of subsistence of himself and his family. It may be borne in mind that the powers whose burdens in every time past have produced popular discontent and led on to revolution, have been social and not political ones. That it is possible for any individual to start with nothing and in a few years come to the irresponsible administration of such a force, for private uses, is evidence that at least the sources of so great a social power are at present very insecurely guarded. This is not the place for a discussion of the debated and debatable questions of the time. We are seeking merely to indicate the social relation of these corporate persons, and the tendency of the proper use and of the abuse of their peculiar constitution. Society will be sure to establish for itself such safeguards as justice and sound economy may dictate. The courts have held that corporations are amenable to the control of the state in their business and property and rates of charge, to at least the same extent as natural persons are, unless they are freed from such control by elements of contract in their charters; and there are those who insist that the state can not in any way disengage itself from its elements of sovereignty nor part with its legislative or judicial powers. It is impossible that any principle of law can exist, under whatever formula it may be said to lurk, which requires society to be still while it is financially despoiled or is otherwise menaced in the beneficent working of its organization. It is possible that the necessary subordination of any prerogative or power to the general advantage of society may no longer require violence more or less revolutionary, and that the confirmed progress of public thought may safely rely for effect upon the prudent action of the courts and the various legislative bodies. It will be a noble illustration of advance in civilization and in social order if, by these peaceful and intellectual methods, the structure of society shall gradually and prudently be made to undergo the modifications which the better thought and maturer wisdom that come with time and experience will make as inevitable in the future as they have made corresponding changes inevitable in the past.
EDWARD S. ISHAM.
Return to top