What is the best explanation for the widespread adoption of laws of general incorporation in the 1800s?

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The widespread adoption of laws of general incorporations in the 1800s saw a dramatic shift in the number and monopolized power of legally privileged private corporations in the Western Hemisphere. Prior to the US Act of General Incorporation, corporations relied on federal and legislative charters in order to establish their organization as a legally empowered entity. Despite tremendous constitutional hurdles, this act was passed, giving way to mysteries surrounding a theory with sufficient explanatory power to bridge what seems like a contentious political matter surveying the friction of corporations’ special legal privilege and the democratic tenets of equal opportunity, as well as a shift that seems to be guarded by gatekeeping elites whose interests lie in the protection of this privileged access to markets and the capacity to restrict competition. Was this widespread adoption an implication of the rising tide of democracy, or would a results-based explanation underscored by shifts in economic ideologies moved by Adam Smith’s Wealth of Nations complement the phenomenon better? I argue that both these explanations provide a convincing model for the adoption of open access incorporations. 

 

Prior to the 1800s, corporations benefited from state restricted access to these limited charters, as well as monopolies over their economic sectors. Despite guilds and syndicates like the Playing Cards Guild in Britain acting under the same charter of the corporation, they remained in economic competition with each other. Nevertheless, they benefited from the capacity to restrict supply in order to inflate the price they can sell to consumers, as well as drive competition out of the market through the unilateral, or sometimes bilateral with the cooperation of the state, imposition of tariffs and restrictions on competing imports. These corporations tended to be larger and benefited from idiosyncratic privileges afforded to them by their unique chartered rights, and saw to the rise of privately owned global monopolies and economic superpowers such as the British East India company who would act in favor of their state. An important note is that the interest of the state in the success of these types of corporations was overt and often reflected a powerful driving force for legislation that tended to favor these elites. Now while the widespread adoption laws also impacted corporations that lied outside the scope of economic influence, such as universities and monastic orders who now found more ease in establishing their corporations as legal persons, the most dramatic implication of these laws were felt in the economic sectors of society, and thus my analysis will aim to appease this driving force of this boom primarily. 

 

After these laws were passed, instead of quasi-public organizations granted privileged legal status for a specific purpose, incorporation becomes a simple process of registration rather than petition. This opened room for the proliferation of economic corporations which flooded the market, effectively dwindling the market share of traditional economic superpowers who previously benefited from the privilege of monopoly. At first glance, this seems to be a natural implication of the United state’s rising tide of democratic ideologies given that it uproots the special privilege of economic elites and grants it to the masses, effectively rendering the process of establishing a legal person an equally accessible mechanism of the law. On the other hand, James Maddison as Thomas Jefferson held that a general suspicion towards corporations and their intrinsic privilege, corruption, and a seed of undemocratic principles which they saw proliferating with the rise of corporate powers with such a general act. James Maddison draws on the British experiences with such corporations when he opposes the establishment of a federal charter for a central bank of the United States. His argument was that the state’s power to grant corporations legal personhood was a volatile and dangerous power that creates a special mutually beneficial relationship between the state and a corporation they seek to afford legal and economic privileges in exchange for some state interest. With the United Kingdom, this saw to corporations such as the British East India Company to hold considerable sway over political affairs, so much so that the general belief was the economic decisions should primarily aim to aid in the success of these superpowers which were seemingly driving the economic welfare of Britain, even if this meant putting aside the economic interests of the general population which were being driven nowhere near welfare. In fact, the Jeffersonian attitude seems to echo this apprehension towards the threat that these widespread corporations would have on the democratic principles of a company given that the inherent corruption and privilege of these institutions will see to the favoring of unvirtuous sectors such as manufacturing or financial speculation, a threat to this attitude underbellied interests in an agrarian economy.  

 

While these contentions arise in the epochal debate, the democratic benefits of general incorporation, as well as the upside of economic liberalization, seem to be a far more adequate account of the appeal of general incorporation. The subject of these critiques were empowered organizations such as the Dutch East India Company which held significant political influence as to constitute a dramatic shift in the financial instruments and structure of the Netherland’s social order with the Amsterdam stock exchange, but also that was large enough as to represent an impending and legitimate threat on the economic health of the region such as the British south sea company when it’s speculation on the bond market caused a financial bubble that would cause decades-long damage in England in the 1720s. The notion of privately owned, and yet publicly entangled corporations holding this much say over the social and economic order was one that is vehemently anti-democratic. Contrasting the oppositions of Maddison and Jefferson, the general incorporation act would serve to rob such institutions of their influence rather than cater to the spread of a disease that is far more systematically situated, rather than individually situated in the makeup of such legal status. With more corporations flooding the market and occupying portions of market share these monopolies no longer held the same vigor and sway over the economic wellbeing of the region, the access to investment capital and revenue was spread out. Moreover, given that these charters of legal personhood were no longer based on a special relationship between the corporation and the state’s interests, but rather an openly accessible process of registration, the distortion of political processes to reflect these special interests was no longer as prominent. With the dissolution of hierarchical structures of disseminating authority from the state to corporations, the process of incorporation became closer to a process of citizens empowering themselves through the power of the collectively accessible law to start a corporation. Interestingly, this increasingly democratic process of equal attainment of legal right, becomes almost reminiscent of the germanic principles of guild formation as being instantaneous and right afforded to citizens by the rule of natural law rather than a right afforded to them by the rule of an authoritative and up-bottom law.

 

Moreover, the liberalizing effects on the economy which general incorporation affords, not only propound Adam’s Smith economic paradigm which emerges around this era, as Gordon wood would suggest being a considerable driving force, it also seems to make the economy more observably flexible and lucrative to those who don’t belong to the intellectual class which might be more aware of Smith’s arguments. Labor mobility across sectors becomes a functional reality as a consequence of general incorporation charters acting as open-ended approval to pursue lawful activities. This means that individuals can change the object of their operations to a more productive sector with more access to investment capital, without having to appeal for a different charter with a varying state interest every time they seek to abandon an unproductive business venture. As a consequence, not only do consumers gain more economic liberties and flexibility, but this also makes the economy more capable of absorbing shocks given that if a certain sector takes a fall, such as a restaurant industry or the production of wheat due to drought or foreign competition, it will be easier for the labor market to shift to a more productive sector, thus promoting continuous employment and a more productive and efficient economy. Now while that may be, the deceivingly mysterious question remains, why would the political elite benefitting from bribes and favors, as well as the economic elite benefitting from a bottleneck market, give way to such a wave of democratic interests. Could they resist such a tide? Would political elites find more promise in re-election by a populous which favors the shift? Have the economic elites in the US found more lucrative business on the financial trading markets and in the returns on investments from the boom in corporations and investment opportunities? While these questions remain, what is evident, however, is that democratization and the appeals of economic liberalization were a significant driving force of general incorporation. 

 

Do Adam Smith's criticisms of the joint-stock companies of his day apply to the large for-profit corporations of the late 19th and early 20th centuries? Which ones, and why or why not?

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Adam smiths critique of joint-stock companies in his wealth of nations is a product of the dramatic and volatile influence these companies have on the economic well-being of their respective nations afforded to them by the privilege of monopolization, as well as their distortion of the political process which ought to aim towards the general economic well being of the population rather than the special colonial interests held with the wellbeing of these organizations. This contention loses momentum with large for-profit corporations of the late 19th and early 20th century as a consequence of the shift in the economic stage set out by the general incorporation acts in the US and the open-access laws in the United Kingdom. These acts defended against the constitutional distortions of legally privileged joint-stock companies and the specific state interests which lead to their unbalanced defense, as well as protected economies from the economic detriment of these giant monopolies as quasi-public forces of dominant economic sway. 

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Firstly, Smith posits that these joint-stock companies have the potential to be threats to the financial sanctity of a nation simply by virtue of the tremendous amount of capital they have access to, and the sometimes misguided confidence that consumers have in their success. In the late 1600s, the Darien company of Scotland pooled together a gargantuan amount of the nations’ investment capital in an effort to compete with England and the Netherlands as an imperial and economic trading force. With the support of the middle class and the nobility’s investments, Scotland launched an attempt at colonizing Panama using the Darien company. Their fleets were wiped out by famine, disease, and Spanish forces, and Scotland’s investment capital dwindled into crippling debt that they wouldn’t see themselves out of until Scotland joins England as the united kingdom. In an attempt to secure economic wellbeing, Scotland placed its collective resources into a single monopoly and in turn lost its independence as a nation. For Smith, The impact on the social order of states is far too reckless. These corporations are such significant gravitational wells of capital, that they possess the capacity to siphon a nation’s economic independence. Other than the significant influence on the political motivations of the state which begin favoring the corporation over the general wellbeing of the economy, which in itself represents a considerable point of contention for smith, this power to cripple economies is a danger in itself. When Englands’ south sea company pooled its capital and invested it in the bonds market it created a bubble that would go on to cripple the British economy for years to come. While this isn’t a feature unique to these types of companies, it is one that is characteristic of their scope of influence. Smith moves to contend with the contribution of these companies to the destructive protectionist trading habits of European nations competing and rivaling at the expense of their neighboring countries. This feature of early mercantilist ideologies of outweighing one’s exports relative to their imports remains a misguidingly intuitive approach of 19th century and even modern-day trading affairs. On the other hand, 19th and 20th-century large for-profit organizations accede to Smith’s contentions given the environment that general incorporation acts afford them. 

 

For Smith, the welfare of an economy is measured by the overall level of economic activity promoted by small producers, laborers, and large corporations. Prior to open access laws for corporations, monopolies and poli-militant interests influenced policies that distorted the national interests of the economy in favor of those of the monopoly. While large for-profit organizations still dominated markets, they remained in competition with a significantly larger number of companies occupying market share relative to the 18th century. This meant that the economic activity of the nation pulsated on a much wider ranger of economic sectors, and social classes, such that laborers, the middle class, and these large corporations now forced to compete, were more economically active and mobile. While some may argue that the circumstances which promoted the distortion of political motion by state actors to favor that of the economic elite still represents a natural implication of elite interest in hierarchical societies such as the US and the UK, both their constitutions aim to disperse legal rights uniformly, and promote equality of opportunity, at least to do so an increasing rate that fills gaps in the systems propensity for justice and egalitarian principles. Even though open-access laws no longer employ specific state interests as they afford the right to registering corporations as legal persons openly and widely, this doesn’t mean that the political elite won’t act in favor of the economic elite. To this day we have claims that legislating in favor of the economic elite will cause wealth will trickle down, and even that large corporations whose meer size and number of citizens it employs can be used as a tool for holding states hostage for preferential treatment.

 

For example SNC Lavalin’s attempts at avoiding prosecution for bribery and corruption by leveraging the weight they can throw around by virtue of their employment numbers and entanglement with the economic health of Canada. On the other hand, general incorporations give way for the dispersion of justice and the motion of political self-correction of core democratic ideologies like egalitarianism and meritocracy, which is characteristic of democracies, when they’re left untouched by the morphing interests of the types of corporations which existed in the 18th century. For example, in Britain in the 1600s, Dr. Bottom’s case saw a challenge to the constitutionality of corporations such as the charter of the college of physicians’ ability to fine and imprison their competitors, a right otherwise afforded to them by the special privileges of the charter. Judge Edward Cook ruled that allowing the college of physicians to sit as judges in a case where they themselves are the respondents would violate the principle of justice that no one can be a judge in their own case, and consequently ruled it illegal under common law and the British constitution. These special rights afforded by bespoke charters granted to petitioning organizations took the form of extra-legal rights, and similarly in the US were afforded through new legislation. Their constitutionality, however, was a question left to an untouched legal impartiality. Thus even though judge Cook passes his judgment, some guilds are continued to be afforded the right to give out fines to competitors to the guild. While general incorporated companies levels out the playing field on which large for-profit organizations function on, thus appeasing smith’s contentions, the ideologies and the systems of self-interest which propounded elitist favoritism are still functional, it is simply harder for them to take off the ground.