In Defense of the Corporation
by Robert Hessen
reviewed by Marco den Ouden
Originally published at the West Coast Libertarian Foundation - June 9, 2015
There has been a lot of antagonism towards corporations. Surprisingly, not all
of it from the left. I've come across a fair number of Facebook posts and
articles from purported libertarians condemning the corporation as a creation of
the state, and arguing that corporations wouldn't exist in a true free market
The primary arguments that the corporation is a creature of the state are
threefold - that the corporation has entity status ( it can sue and be sued in
its own name, own property, and do all the things a legal person can), that it
has perpetual life (that it exists beyond the lifespan of any individual share
owner, effectively in perpetuity if it doesn't fold or go bankrupt) and that its
share holders have limited liability.
These arguments are not new. Robert Hessen, in this excellent short book (115
pages), sets out to demolish these arguments and he does so with logic and
rigor. The book came out in 1979 and was a response to the call for federal
chartering and rigid control over corporations in 1973 and 1976 books from Ralph
The argument that corporations are a creature of the state is called the
concession theory of corporations. They exist as a concession of government.
Hessen argues that this was once true. It is a relic of the days of absolute
monarchy when businesses could not operate unless they sought permission from
And early America followed a similar route. In 1832, the authors of the first
treatise on corporations in America wrote that "The state, or commonwealth,
stands in the place of the King." This view persisted, even though the nature of
corporations changed significantly. Frederick Maitland, in 1900, wrote "The
corporation is, and must be, the creature of the State. Into its nostrils the
State must breathe the breath of a fictitious life."
Hessen expertly traces the history of corporations and argues that the nature of
corporations changed from a privilege granted by the state (which had to be
petitioned for) to a pro forma contract which the government was obliged to
provide to any and all comers who satisfied the minimum requirements for
incorporation. This revolution in thinking began in 1837 when Connecticut
passed the first such statute.
As Hessen puts it, "instead of obtaining a special charter from the state
legislature, the promoters of a corporation merely had to file certain
information with an official of the state government." The reason for this
change was, in fact, a public backlash against special privileges and monopolies
being granted to some favoured friends with political connections. In other
words, a backlash against crony capitalism. Now anyone that wanted to create a
corporation could do so by filing an application and they could not be refused.
Hessen compares it to marriage. A marriage is a contract. When formalizing the
marriage in a registry after the wedding, the state is not creating the marriage
partnership. The marriage partnership is not in any way a "creature of the
state". And so it is with corporations. Modern incorporation laws are merely
formalizing and registering a contract between people wanting to carry on
Hessen goes into the issues of entity, perpetuity and limited liability in some
detail, arguing that none of these features require state sanction or
permission. They are a form of contract and laws of incorporation are the
registering of contracts.
The issue of corporate size is discussed in some detail as is the issue of
corporate democracy and shareholder rights.
Hessen does acknowledge that some businesses do seek special favours from
government. What today we call crony capitalism. But he argues that this is not
a problem inherent in corporations qua corporations. "There is no justification
for allowing any private individual or business organization, including
corporations of any size, to achieve its goals by means of political power," he
He cites E.L. Godkin, a critic of the American scene from the 19th century who
"warned that chicanery and corruption are inevitable and cannot be eradicated as
long as government has favors to bestow. Godkin offered a solution: stripping
Congress of the power to confer valuable privileges upon anyone, including
In a final section on Nader's vision of Utopia, he argues that Nader is an
adherent of Rousseau's idea of <em>The Social Contract. </em>Rousseau argued for
simple small communities. Why? Because, argues Hessen, "the appeal of the small
community is that it will be easier to enforce self-renunciation and conformity.
Proximity and visibility mean that everyone can monitor everyone else's
attitudes and actions; there is no chance for escape from constant surveillance.
It is a paradise for inquisitors and informers, but a living hell for those who
value privacy, independence, and personal freedom." The picture he paints is of
grim egalitarian communities with no luxuries and no differentiation between
That is, perhaps, going a bit off tangent to the central thesis of the book. So
let me just quote his conclusion, which says it all. "A proper defense of
corporations must stress that they are created and sustained by freedom of
association and contract, that the source of freedom is not governmental
permission but individual rights, and that these rights are not suddenly
forfeited when a business grows beyond some arbitrarily defined size."
This is a concise and vigorously argued book, well worth the read, especially
now when the very concept of the corporation is under steady attack.