Modern Corporations are Not as "Free Market" as We've Been Led to Believe

When you think of "free markets", you think of the corporation, right? Of course, the corporation is the quintessential attribute of the free market, isn't it? I've become surprised to find out that corporations in the modern United States are nothing like they used to be--back when they really did contribute to a free market.

In the fourth chapter of his very enlightening book, When Corporations Rule the World, David C. Korten describes what the ultimate free marketeer, Adam Smith, thought of what corporations had become in the Europe of the 1770's:

Adam Smith saw corporations, much as he saw governments, as instruments for suppressing the beneficial competitive forces of the market. His condemnation of corporations was uncompromising.

...The Wealth of Nations and the signing of the U.S. Declaration of Independence both occurred in 1776. Smith and the American colonists both shared a deep suspicion of both state and corporate power.

In the young American republic, there was little sense that corporations were either inevitable or necessary. Family farms and businesses were the mainstay of the economy, much in the spirit of Adam Smith's ideal...

It was corporate monopolies issued by the British government that so riled the American colonists that they ultimately secured their independence from "The Crown."

As a natural result, the fledgling United States

The limitations placed on the early American corporation were a blueprint of the hatred the new Americans had for English corporate empire. Now, jaded as we have become, we have adopted exactly their sinister anti-free-market practices and allowed them to be practiced by our most elite, who use their advantage as a bludgeon to further separate themselves in wealth from the rest of us.

abhorred corporations as now constituted in...the United States.

Early U.S. Corporate charters limited the ability to amass personal power. Members of the corporation were liable for all debts incurred by the corporation. Corporations were chartered for very prescribed purposes and for a limited number of years, and they could be revoked by the state courts and/or legislatures. States were able to limit corporate rates of return. Juries were allowed to assess damages for corporate-caused harm.

The Federal Government could not and did not issue corporate charters. Chartering of corporations is not listed in the Constitution as an authorized function of the federal government. This was affirmed by the 1855 Supreme Court case, Dodge v. Woolsey, which stated that

...combinations of classes...united by the bond of a corporate spirit...desire limitations on the sovereignty of the people [through corporations]. But the framers of the Constitution were imbued with no desire to call into existence such combinations.

This bedrock principle began to crack

Early U.S. Corporate charters limited the ability to amass personal power. Members of the corporation were liable for all debts incurred by the corporation. Corporations were chartered for very prescribed purposes and for a limited number of years, and they could be revoked by the state courts and/or legislatures.

during the disorder caused by the Civil War. Large companies that had been made rich through the supply of armaments to both sides of the great conflict were able to buy off a plethora of legislators in the Charge of the Corporate Light Brigade. Initial corporate inequities arose when conflicted legislators granted the war tycoons massive moneys and lands to expand the Western railroads (the railroad was not in and itself a bad thing, but it was bad in the way that its construction ultimately occurred).

This transformation had begun just prior to Abraham Lincoln's death. He observed the phenomenon enough to note that

Corporations have been enthroned...An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people...until wealth is aggregated in a few hands...and the Republic is destroyed.

Rutherford B Hayes who came to the presidency by secret negotiations in 1876, ultimately saw the problems of corporations. He said:

This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations.

For a while, citizen groups were able

Corporations have been enthroned...An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people...until wealth is aggregated in a few hands...and the Republic is destroyed.


--Abraham Lincoln

to persuade state courts and legislatures to revoke charters of overweening corporations. Gradually, however, the monopolists were able to buy off state legislatures and change the laws governing corporations. From this time, laws began to grant limited liability and perpetual corporate charters. As Korten states:

Corporations soon had the right to operate in any fashion not explicity prohibited by law.

And that, in a nutshell, is how previously limited operations became corporations that now have taken on the personalities, but not the risks, of people. That, also, is how we have gradually become used to the unwholesome concept known as "too big to fail".

And that, in a nutshell, is how previously limited operations became corporations that now have taken on the personalities, but not the risks, of people. That, also, is how we have gradually become used to the unwholesome concept known as "too big to fail".

The modern corporation--how else could we have come to a near consensus that government handouts are legal to give to gigantic automobile manufacturers? How otherwise would bankers be able to garner boatloads of fiat money without losing their corporate charters from a federal government that has no Constitutional authority to grant their charters in the first place, let alone give them any "free" money?

The limitations placed on the early American corporation were a blueprint of the hatred the new Americans had for English corporate empire. Now, jaded as we have become, we have adopted exactly their sinister anti-free-market practices and allowed them to be practiced by our most elite, who use their advantage as a bludgeon to further separate themselves in wealth from the rest of us. As a natural result, we have become the equivalent of the English monster we sought to destroy.

Should we really be surprised now that our modern-day pied pipers are leading the world into economic ignominy?