Magnuson, a professor of corporate law, has compiled a detailed and entertaining narrative of the key episodes in corporate history that documents how the corporation has been deployed by society’s problem-solvers. The corporation is a distinct form of human organisation that pre-dates many of those we take most for granted, such as the democratic nation state and even the Church. In Magnuson’s prosaic account, rich in surprising details, corporations are not seen as individual agents that pursue goals we can easily evaluate as simply good or evil. Rather, they are an organisational tool that enable human beings to cooperate at scale to do things that human beings might want to do, for better or worse. In their success, they transform the world around them, and often create new problems to solve. They are always impressive, but never morally pure.
The legal privilege that constitutes the corporation is what makes them useful both to society in general and to particular people’s purposes. Corporations survive the death of their members, and therefore, so do their fiduciary obligations. When undertaking large-scale and long-term projects, it makes one more attractive to creditors if the project is known to continue even if its individual members might come and go, have a career change, go bankrupt, or even die. With the reach of human agency transcending the life time and changeable circumstances of any individual, corporations can achieve what would otherwise be impossible.
For most of recorded human history, the main source of organisational capacity in society has been the state. It is the state, therefore that originally created the corporation through granting, at its discretion, this peculiar form of legal privilege. From the first corporations of Rome to the early 19th century in England, those who wanted to avail themselves of incorporation would need to be granted such a privilege by the state. For the state to agree to creating this impersonal legal agent for your purposes, it generally needed to be shown that it was also in the state’s interests to do so, and not just the entrepreneur’s. At its very conception, then, there was the possibility of divergent or even conflicting interests between the agent who controls the corporation and the agent that grants it its status.
A fascinating aspect of this history of the corporation is that they are shown to be in one sense distinctively ‘private’ entities in that they are definitionally not states. But on the other hand, they are explicitly creatures of the state. In earlier epochs the way in which corporations served state interests was much clearer – they collected taxes, lent capital, subdued foreign lands to the glory of their sovereign, etc. A corporation could only be created if it did in fact serve the interests of its state (for better or for worse – the interests of the state have not very neatly converged with the interests of the general public for much of human history). Magnuson makes this tension vivid. However, it does leave us confused as to why he sometimes refers to the corporations of the ancient and pre-modern world as ‘capitalists.’
Over the course of the 18th to early 19th centuries (in Western Europe) incorporation went from being a discretionary legal privilege to being an impersonal, general right. One now has to fill out the forms and pay the taxes, but one does not need to persuade the sovereign of the virtues of one’s intentions. The discipline of the market is what now regulates which corporations get to exist or not, rather than the discretion of the sovereign. What this means, which is well shown in the second half of the book, is that profitability takes the place of perceived service to the realm. Magnuson impresses upon the reader that profitability is a good, but imperfect, measure of a corporations’ contribution to society. What he somewhat elides, however, is that its imperfections are so much less serious than those of premodern corporations. Serving Rome meant imposing arbitrary taxes that often left people literally starving; bringing glory to England often meant war and slaughter. Whilst the difference in the way corporations functioned before and after this revolution in corporate law took place is made vividly clear in the book, Magnuson does not explicitly mention the legal changes themselves. Analysis of this change would, I think, help him to ground the normative conclusions he lays out at the end.
The book is divided into seven periods of corporate history, told through the story of a particular corporation or industry that defined its era. In the beginning was the corpus economicus of the Roman Republic, first created to raise private funds for the overstretched military ambitions of Rome, and then to collect taxes on behalf of the later territorially stretched Republic. Such ‘tax-farming’ was the standard way states raised revenue. It was not until the dawn of early modernity that states had the bureaucratic capacity to do it themselves and thereby cut out the middle man. Such middle men were essentially local gangsters who extorted as much as they could from the population because a fixed sum was owed to Rome, and they got to keep any surplus they could squeeze out (hence the New Testament’s constant equation of tax-collectors and sinners). Rome could never have ascended to the power it did without them. But, inevitably, they became a source of political and economic interests unto themselves, separate from the Republic. Next comes the first bank, started by the Medicis, which made available huge amounts of wealth for European princes and merchants, as well as the Church, and were able to manipulate their debtors in the interests of their own long-term profits. Then we come to the joint-stock companies of England, created for seafaring trade to generate revenue for the Crown and bring glory to the realm. The most famous among them, the East India Company, would become so rich and powerful, with its own armies, currency, and slaves, that it was a de facto state in India. Eventually it became such a rival to England herself that the Crown would, bit-by-bit, take it over. Next, we turn to the American railroad companies that were granted monopolies for the purposes of connecting and thereby modernising a vast and internally conflicted country. The particular way in which they were granted privileges over land and the trade that would take place on their rails presented various opportunities for them to exploit, which would inform a whole era of American anti-trust legislation. The next episode occurs firmly within a legal and economic context in which corporations no longer had any special privileges but rather had to compete with one another on legal terms that tended to favour value-creation and efficiency over government favour. Henry Ford’s ambitious and successful plan to make a high-quality vehicle every working American family could afford required no special monopoly privileges but rather an innovative technology (the petrol-powered engine) and production method (the assembly line). Then the narrative moves onto multinational oil companies, which, on the one hand were able to coordinate oil supply far better than separate nations were, and on the other used their wealth and influence to suppress climate change science. The final two chapters are on private equity, and then Facebook as the archetypal tech start-up. In both cases, head-spinning profitability was reached at lightning speed. While there is no doubt they provide value to society, it is also clear they found ways to make profits without creating value, in the former case through arbitrage of the tax code, and in the latter case by purposefully drawing on compulsive human behaviour.
Magnuson says from time to time that profit-maximisation is what often leads to corporate abuse. However, by his own account Ford was driven by keeping his profits low so as to keep quality and volume as high as possible, and prices as low as possible so that all Americans could afford one of his cars. From time-to-time Magnuson invokes various cliches about corporations being short-termist. But this is in tension with the general idea that what corporations do is enable longer-term planning and risk-bearing investment than individuals are otherwise capable of. Nonetheless, the driving normative lesson from this fantastic account Magnuson has compiled is that corporations are a tool of human ingenuity, and human ingenuity is not always benign. He gives many examples of how well societies tend to respond to the new problems introduced by corporations – typically in the form of adaptive regulation – but this should in no way give corporations or the entrepreneurs that wield them moral permission to disregard their consciences, and tell themselves that whatever is good for them must be good for the public. This is a fascinating book and one of which there is very much more to speak about!
‘For Profit: A History of Corporations’ by William Magnuson was published in 2023 by Basic Books (ISBN: 978-1-541-60157-4). 368pp.
Billy Christmas is Associate Professor at West Virginia University, in the John Chambers College of Business and Economics, affiliated with the Kendrick Center for an Ethical Economy.
Prior to joining WVU he was Senior Lecturer in Political Philosophy at King’s College London, in the Department of Political Economy.