As Thomas Jefferson wrote in 1816… “I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country.”
208 years later, in August 2024, 81% percent of all voters, including a majority of Republicans, agreed with the statement “I am concerned that big corporations and businesses are becoming too powerful” (only 18% of voters outright disagreed). Regionally, that argument was strongest with voters in the Rust Belt region.
From the 1787 Constitutional Convention all the way through the Civil War, Americans held firm – and refused to grant corporations any power.
The Civil War left the American people drained, exhausted and weak, and corporations seized that moment to rebel. By the 1880s, the old corporate system was near collapse.
By 1900 the corporate revolution had succeeded in dismantling the old charter system and replacing it with a new, revolutionary form of the corporation. For the first time in history, corporations respected no flag, pledged no allegiance, and acted without fear of consequences.
Today, I think it pays to remember the founders’ original corporate system – (the system corporations rebelled against).
Here is a brief overview of that old corporate charter system.
After the Constitutional Convention, the system that emerged for chartering corporations flipped the English system upside down. Instead of the king using corporate charters to grant special monopoly privileges to men of wealth, the American system placed the corporate chartering function in the hands of the various state legislatures (NOT the federal government). Without exception, states focused on strong restrictions and accountability measures, rather than on privileges.
State’s granted corporate charters very sparingly, in keeping with the widespread belief that the potential for corporations to accumulate power rendered them inherently dangerous to democracy. Most corporate charters were granted for quasi-public projects like toll roads, bridges, canals, banks, and other sorts of infrastructure. Charters were not issued in situations where non-chartered businesses already operated.
The charter system took direct aim at the tendency of the corporation to accumulate wealth and power over time by placing restrictions on the term of each charter. Terms of twenty to thirty years were typical for most corporations, after which time the directors would have to seek a new charter.
State legislatures outright rejected limited liability. For example, in 1822, Massachusetts passed a law that read, “Every person who shall become a member of any manufacturing company … shall be liable, in his individual capacity, for all debts contracted during the time of his continuing a member of such corporation.” In fact, most states used a “double liability” formula, which made shareholders liable for twice the value of their investment in the company. Some states required that shareholders in manufacturing and utilities companies be specifically liable for employee wages.
Corporations were prohibited from engaging in any activities not specified in its charter.
Under the legal principle (ultra vires) any contract that dealt with activities beyond a corporation’s charter would not be enforced by the courts.
Corporations could not own stock in other corporations.
Most states placed limitations on the amount of capital a corporation could raise.
Most corporations were not allowed to operate outside their home state, and in some cases outside of their home county.
Corporations were typically forbidden to own property not directly needed for their authorized activities.
Anti-corporate sentiment enabled state attorneys general to wield the stick of charter revocation, the equivalent of a death penalty for scofflaw corporations or for corporations that did not live up to the performance requirements in their charters.
My point in offering this review is kind of simple. I think it’s time to send corporations back where they belong – then keep them there. If it were up to me, corporations would be constitutionally forbidden, even illegal.
