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In those heady days, a great deal was written about this marvelous advance in modern corporate practice. Actually, however, there are records of LBOs as far back as the thirteenth century when the Dominican bishop Thomas of Cantimpre complained of the ill effects of borrowing against the assets of a corporation to acquire control of it. "I am ashamed to record what I have seen," he wrote. "The abbot of this house [Anchin], who scarce knew the first elements of spiritual rule, attained to the elevation ... at so great an expense of money that he left his abbey in debt to the extent of more than 10,000 lire."
In addition to LBOs, the merchant guildsmen of Renaissance Italy employed compound interest, double entry bookkeeping, sinking funds, and expense accounts. Even the word company reflects actuarial refinement. It is derived from the French, com panis, meaning "with bread." This referred to a common device employed to dodge medieval usury laws; namely that a passive investor shared the risk of the venture as if he was a member of the family -- i.e., "shared the bread" -- of the people actively involved in the business, and therefore had "earned" his usurious interest or dividend.
While the etymology of company stresses the illicit aspects of the corporation, the word corporation itself stresses the higher aspirations of the entity. Derived from the Latin corparæ, it means to make corporal, or physically embody. For the first half millennia after the fall of Rome, the world's most powerful corporations were all trying to embody the Christian God. The idea took hold so strongly that by 1534 St. Thomas More could speak of Jesus Christ as the ultimate corporation: "He [Jesus] doth...incorporate all christen folke and hys owne bodye together in one corporacyon mistical."
A century later, Roger Williams, Freethinker and founder of Rhode Island, likened the church to a "company of East India or Turkey merchants," while English philosopher Thomas Hobbes saw those same joint stock companies as lesser -- possibly parasitic -- creatures within the larger creature of the state. In Leviathan he wrote, "Corporations... are many lesser commonwealths in the bowels of a greater, like worms in the entrails of a natural man."
God, demon, servant, master, parasite or provider -- what exactly is the corporation? A good starting point is probably Chief Justice John Marshall's definition in the 1819 Dartmouth College case: "A corporation is an artificial being, invisible, intangible, and existing only in the contemplation of the law," Marshall wrote. "Among the most important [of its qualities] are immortality, and if the expression be allowed, individuality; properties by which a perpetual succession of many persons may be considered the same, and may act as a single individual..."
In a general sense, this definition fits every corporation from St. Benedict's to Michael Milken's. All are invisible, for although they may be mighty, they have no form unto themselves; all are individual, with identities and personalities distinct from their numberless human workers; and all can outlive and replace those same workers, just as the higher animals replace their individual constituent cells as they die or lose their effectiveness. Although corporations are themselves not made of flesh and blood, they display qualities of biological life so strongly that both Hobbes and Marshall remarked upon it.
Some modern writers, like W. David Kubiak, have argued that corporations actually constitute an entirely new class of being. Kubiak notes that corporations "appear to fulfill all the definitional requirements of a complex 'organism.' All of them, for example, share basic organizational processes, structures and energy needs: generate psychic membranes that divide their membership from outsiders; take in and process information and nourishment from the environment; specialize, control and outlive their human/cellular constituents: can reproduce, spawning subsidiary bodies..."
The main human attribute that corporations lack is a soul, as Roger Manwood, chief baron of the Exchequer, noted as early as 1592. Since the corporations themselves, and not their souls, were immortal, they were not held accountable to the moral standards that applied to individual people. "Corporations cannot commit treason, nor be outlawed," wrote the great English legalist Edward Coke, "for they have no soul." Or as English lawyer Howel Walsh put it, "a corporation cannot blush." Thus the corporations' moral inadequacy amounted to a significant legal advantage, one of many they have accrued.
In fact, special dispensations, exemptions, and privileges of every kind imaginable are the life's blood of the corporation. Corporate members enjoyed various privileges during Roman times, such as curial immunity, and organizational privileges are evident as early as 628 A.D. in the ecclesiastic orders of the Catholic Church, the first great corporations of the post-Roman era. Modern English and French law traces the secular corporation to the concept of "franchise," which is the French Norman word for privilege.
Over the centuries, these privileges have been nurtured, entrenched, and expanded. You can get some idea of this corporate favoritism when you realize that no American corporation was indicted -- let alone convicted -- for murder until 1978. Criminal law is really a sidelight, though. The place where corporations enjoy their biggest advantage is tax law. During the height of the Reagan era, 50 of the largest business corporations in America avoided paying any federal income tax. In many ways, modern corporations are analogous to the aristocracy of the ancien regime.
The power of the modern corporation is awesome, but so too was the power of many corporations that have vanished into history, leaving behind only museums full of broken ornaments. In fact, the great medieval corporations dominated society and its physical wealth much the way the modern corporations dominate our own. This was the First Dominion of the Corporation, when powerful religious orders, secular guilds and merchant societas became the dominant social force in Europe. In the false dawn before the Black Death, corporations like the Knights of the Hospital of St. John even began to take the form of nations and claim territory.
The First Dominion of the Corporation lasted more than half a millennium, propelling Europe to ascendancy over the Moslem East, proselytizing the globe and producing the Renaissance before meeting a savage end during the French Revolution. By then, popular sentiment identified the great ossified religious corporations with many of the more prominent ills of society. The fury the people felt against these corporations -- especially the religious orders of the Catholic Church -- was so extreme that France's greatest monastery, the abbey of Cluny, was torn apart stone by stone, until nothing was left standing.
Viewing the bits of Cluny that remain today in the Hotel de Cluny in Paris, one can not help wondering if our own corporate colossi are headed for a similar end. Or has the modern corporation evolved sufficiently to avoid the pitfalls of the past? Certainly the similarities between old and new are striking in many respects, from surface cultural characteristics such as the rise of a human managerial elite to deeper structural qualities such as corporate control of almost all physical human wealth.
Walter Rathenau, a powerful industrialist and head of Germany's Allgemeine Elektrizitatsgesellschaft, wrote in 1916, "the enterprise [joint stock company] takes on an objective existence, such as in earlier days was embodied only in state and church, in a municipal corporation, in the life of a guild or religious order... as if it belonged to no one."
Yet corporations cannot exist without the human beings who made them. Mankind and the corporation are wed like Pygmalion and Galatea. The corporation gives mankind the most powerful form of social organization ever known, claiming in return the capacity to act in the physical world.
But even as they act on the corporation's behalf, people reveal the invisible presence which directs them. Human beings serve as the screen upon which the corporation's essential form is projected, like some sort of distorted silhouette glimpsed amid the flames of shifting human passions.
The lives of Totila, St. Francis, Marco Polo, Savonarola, Lorenzo de' Medici, Mynheer Dirckszoon, John Law, Jay Cook, T. Boone Pickens, Mother Teresa -- and billions of others -- are united in this larger corporate life, be it "mistical" or otherwise.
The aim of this book is to portray the fundamental form of the corporation, revealing something which can't be seen with the naked eye, yet rules most people's lives.
"The History of the Corporation, Volume One" © Copyright 2003 Bruce Brown
Jacket illustration and design by Running Dog.
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The History of the Corporation
by Bruce Brown
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