Saturday, August 06, 2005

Scam Part 3 - The Corporate Law Fraud

The business corporation is actually a holdover from the 17th Century period of political absolutism and mercantilist economics. Corporations were set up by the state to give monopoly privileges to certain favored individuals - surprise, surprise, connected with the government and members of the so-called nobility. Genuine liberals such as Thomas Jefferson and Adam Smith disliked corporations, fearing their ability to distort free exchange. However, other than banking and trading, few corporations existed in the early 19th Century. Most businesses were owned by individuals or partners and thus, were by todays standards very small. The Era of the Corporation really begins after the American Civil War.

A legal "innovation" was created which allowed for the rapid development of corporate business. This innovation, actually a form of legal fraud, was "limited liability". Up till then, and today as well if you are an ordinary person, each person is responsible for his or her debts. If you default on a loan the financial institution will come and take your house, your car and your furniture, leaving you in the street. What limited liability does is shift the burden of debt away from the officers of a corporation to the corporation itself. If a corporation with limited liability goes belly-up, legally, you can't grab the CEO's personal bank account, mansion and Rolls Royce. Thousands of small shareholders might lose everything, and the workers their jobs and pension funds, but not the bosses.

Having limited liability is like a gambling addict with a rich parent who funds the addiction. When the gambler loses, the parent pays, when the gambler wins, he keeps his winnings. Corporate officers have a free hand to speculate with other people's money. Such speculation can lose, but it can also win big. Such "big wins" inflate the market share and size of a corporation, furthering the process of concentration and centralization. Put another way, without limited liability, corporate officers would be very conservative with other people's money and high-risk speculation would not exist. Corporations would tend to be a lot smaller and many would not exist at all.

It is obvious that limited liability allows many opportunities for corruption, many more than would exist without this evil law.

In the 1880’s came the notion of the "corporation as fictitious individual", in fact limited liability implies this. Business corporations are a form of collective capitalism, they may have thousands of shareholders. The problem for the corporation bosses is that the Bill of Rights and the Rights of Man (sic) did not recognize the notion of collective right, only individual rights. The liberal revolutionaries of the 18th and early 19th Centuries saw collective right as a hang-over from feudalism. Such basic rights as freedom of speech and of the press, were freedoms of the individual, and of course, at that time presses and bookshops were owned by individuals and not corporations. (1)

Through the legal fraud which converted a collective structure into a fictitious individual, the corporation acquired the rights of a human individual. That a collective, often comprising thousands of individuals, is not an individual is obvious to anyone with any degree of sanity. But this only goes to show what a blatant and vicious fraud this law is. Thanks to the "fictitious individual" genuine, living, breathing individuals have great difficulty combating corporations, and especially corporate media or advertising, since such actions would be deemed an attack upon “individual rights." This has had very negative effects upon the media and has deeply undermined democracy. When newspapers were taken over by giant corporations, freedom of the press now applied to those corporations. Hundreds of newspapers which once spoke with hundreds of different voices, now spoke with two or three voices, those of their corporate masters. (For further reading on the history of the corporation as fictitious individual here is a good article by Thom Hartman)


(1) The technology was so simple that literally any printer could cast his own type, build his own press and start publishing a newspaper, the largest of which sold 10,000 copies.

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