In the beginning was the corporation. “Bodies corporate” chartered by the British Crown, first settled America, hoping to make the New World pay in a plenitude of goods conjured from rumor improved by imagination. For the 700-odd Elizabethan “adventurers,” including Sir Francis Bacon, who bought stock in the Virginia Company of London, with the capital to cover the transportation and other costs of colonization, America was a bad investment. Over the dozen years of its existence, the Company expended over £100,000 not only without profit but with no return of the principal. Some of the earliest colonists were “venturers,” investors who followed their money to America, but most were servants and employees indentured (for an average of fifty-six months) either to individual settlers or to the company; and all were taking more than business risks. On May 31, 1607, a journal of the first summer in the first American settlement, at Jamestown, records, one Eustace Clovell had barely cleared the log walls of the Jamestown fort when Indians “lurking in the long grasse” outside quilled him with six arrows. In the Great Massacre of 1622, Warrascoyack Indians slaughtered 347 men, women, and children “most by their owne weapons,” according to a Virginia Company correspondent. “[A]nd not being content with taking away life alone,” he continues,
they fell againe vpon the dead, making as well they could, a fresh murder, defacing, dragging, and mangling the dead carkasses into many pieces, and carrying some parts away in derision, with base and brutish triumph.
The Company advised its colonists not to dwell on such matters in their letters home, lest would-be settlers take fright.
Having settled Colonial America, both in Virginia and, through the Massachusetts Bay Company (chartered in 1629), in New England, the corporation became the chosen vehicle for local and state governments of the new American republic to achieve public ends–like the building of roads, bridges, and canals–through private investment. The strictly private business corporation appeared only in the early nineteenth century, first in textile manufacturing and then in railroads. By 1900, its inherent advantages over the sole proprietorship and the partnership, the competing organizational models, as the business form best-suited to exploit the large-scale technologies of the industrial revolution had long since made the corporation king of the American economy.
Which it remains: “In 1990, the latest year for which statistics are available,” Carl Kaysen notes, “a total of 20.0 million nonfarm businesses reported to the tax authorities: 16.3 million proprietorships and partnerships, 3.7 million corporations. The corporations accounted for 90 percent of the sales and receipts reported by all business firms. There were some seven thousand corporations with assets of $250 million or more, the largest class demarcated. They accounted for more than half (51 percent) of the total sales and receipts of all businesses. Large corporations were most dominant in manufacturing (2,602 with 74 percent of sales), utilities and transportation (716 with 76 percent of sales), and finance and real estate (1,503 with 71 percent of sales).”
To judge the productivity of this industrial and mostly private economy, compare Mexico, an agrarian and, until recently, highly nationalized economy. In 1700 product per capita in Mexico was worth about $450 in today’s dollars; in Colonial America it was roughly only $40 more. In 1800, it was still $450 in Mexico but $807 in the United States. By 1989, it was $3,500 in Mexico and $18,000 in the United States. This economic growth was not just a result of the far greater scale and intensity of industrialism in the United States than in Mexico. It owed everything to the corporation. The major impetus of American economic growth came from industries led by a handful of large companies.
The United States of 1800, before the advent of the business corporation, was not a good candidate for industrialization. As Ronald E. Seavoy writes in The Origins of the American Business Corporation, 1784—1855, next to Britain the United States was technologically backward. It was an agrarian/commercial economy and if you had asked an American of 1800 where he thought the economic future of his country lay, he would have said in feeding the world. The American population was widely dispersed compared to the snugly bordered industrializing countries of Europe. Transportation was by river and coast; by land, it was primitive at best. It took seventy-five days, for example, for a freight wagon to travel between Worcester, Massachusetts, and Charleston, South Carolina. Indeed, it cost more to carry freight thirty miles inland from the coast than to ship it to London. The United States had no landed magnates to supply the capital for industrialization, no strong central government capable of raising the taxes needed to subsidize and otherwise promote industry. “In spite of these deficiencies,” Seavoy writes, “the United States did industrialize. The seed capital had to be contributed voluntarily from numerous small savers, and a means had to be found to mobilize and magnify it. The means of voluntary mobilization was the business corporation and the means of magnification was banks.”
Industrialism, a material process, takes on the character of an abstract dynamism in textbooks, a techno-economic Zeitgeist. But American industrialism happened through the business corporation. Grasping the right relation between industrialism and the corporation, Nicholas Murray Butler, the longtime president of Columbia University, called the corporation “the greatest single discovery of modern times,” next to which “even steam and electricity would be reduced to comparative impotence.”
The nonbusiness corporation is an ancient form, used for towns, guilds, and colonies in Rome and from the early Middle Ages also for universities, religious orders, and other so-called benevolent organizations performing civic services and thus subject to government license and oversight. What made these bodies corporate was their relative immortality; unlike partnerships, their public charters lent them life beyond the death of their founders. As early as the 1400s, some English courts had established a second defining feature of the corporation, the doctrine of “limited liability”–“If something is owed to the group, it is not owed to the individuals nor do the individuals owe what the group owe.” Limited liability proved to be a spur of economic growth. Without it, in entering collective business ventures investors put all they owned at risk–they were liable for the debts of the business should it go bankrupt. With limited liability, they risked only the amount of their investment. During the reign of Queen Elizabeth, the Moscovy Company in 1555, the Spanish Company in 1577, and the East India Company in 1601 received history’s first recorded business charters of incorporation. The London Company, soon to be called the Virginia Company of London, followed in 1606.
England came late to colonial expansion. Richard Hakluyt, an eminent Elizabethan geographer and an investor in the Virginia Company, was the inspiriting figure; his medium, stripped of its florid touches and whimsical spelling, was the corporate prospectus. In his Divers Voyages Touching the Discovery of America, published in 1582, he lamented “that since the first discoverie of America . . . after so great conquests and plantings of the Spaniardes and Portingales there, that wee of Englande could never have the grace to set fast footing on such fertill and temperate places as are left as yet unpossessed.” The explorer John Cabot had made England’s initial claim to territory in the Western Hemisphere in 1497, but it was not until political and business motives enhanced the lure of exploration a century later that colonization began on what Hakluyt considered “the continent of Virginia.” Depicted on his map as stretching from Atlantic to Pacific, Virginia, according to the legend printed across the map, was “Of a Huge and Unknown Greatness.”
In his Discourse on Western Planting
, which he presented to Queen Elizabeth in 1589 to massage the royal consent, Hakluyt made political and religious as well as economic arguments for American colonization. Settlement in the New World would be “a great bridle to the Indies of the King of Spain,” whose fishing fleets “we may arrest at our pleasure,” balancing in some degree the “mischief” of the treasure taken by the Spaniards from Mexico and South America. Colonization would also advance “the enlargement of the gospel of Christ” by converting the native inhabitants of North America to Christianity. (Ministers, Hakluyt slyly noted, would be too occupied in proselytizing for “the coyning of newe opynions.”) Economically, America would not only “yield unto us all the commodities of Europe, Africa, and Asia; the colonists would buy all their manufactured goods from England”–here Hakluyt outlined the mercantilist system that would vex relations between the colonies and the mother country. A western planting, finally, would provide for “the manifold employment of numbers of idle men,” England “swarminge at this day with valiant youths rusting.”
Conceived in corporation, the colonies made only little and late use of it. The New London Society for Trade and Commerce (1732—1733), a Connecticut trading company, has perhaps the strongest claim to being America’s first business corporation. But the Connecticut Assembly soon revoked its corporate charter, fickle government putting America’s first business corporation out of business. America’s second corporation, eventually known as The Union Wharf Company of New Haven (1760), was created to extend and maintain today’s Long Wharf, a piece of infrastructure essential to a seaport. As a business, it too was a failure; by 1799 no dividends had been paid to its owners, the construction and repair of the dock having absorbed its earnings. A scattering of similar local institutions round out the picture of the business corporation before the Revolution.
To be sure, associations and partnerships operating without corporate charters were common, especially to develop land. The young George Washington, for example, was an investor in the Mississippi Company, and there was a commercial discouragement in Virginia known as the Great Dismal Swamp Company. These unincorporated private business associations, not the mixed privately financed, publicly purposed—seventeenth-century trading corporations, are the direct ancestors of the modern corporation; for like it, they operated with only perfunctory approval from government as against the special legislative or royal charter required for the early corporation.
The true business corporation had to await the American Revolution and the peopling of the interior. The Revolution freed the economy from mercantilist encumbrances, but with offsetting effects. It both accelerated American economic development, a historian of the period observes, and delayed “the emergence of a more capitalistic society”–one built around industry, wage labor, and the corporation. The Revolution did the former by creating vibrant local markets to replace the British imperial market lost in seven years of war. It did the latter by stimulating American commerce at the expense of American industry. With independence, American ships became neutral carriers; and during the wars of the French Revolution in the 1790s, their neutrality was so commercially advantageous that it “diverted capital into maritime investments”–capital that could have gone into manufacturing. Moreover, “commercial capitalism inhibited the growth of domestic manufacturing capacity because its greatest profits came from trade in imported goods.” It took a flattening out of the profits derived from commerce, in the period 1808—1812, to give merchants the incentive to become manufacturers.
With an estimated 250,000 pioneers pressing beyond the Appalachians in the twenty-five years between independence and 1800, the settlement of the American interior gave impetus to the transportation revolution of the early nineteenth century, a precondition of the modern corporation. A child of nation-building, the professionally managed corporation began in the effort to reach the ever-receding line of settlement by the railroad, America’s first big business.
The first section of this book takes us to 1815, when the energies of industrialism become ripe for economic exploitation. The readings sketch in the corporate frame of America and the American frame of the corporation. They discuss the economic culture of Puritan New England so propitious to the growth of American business. They document the role played in commerce by slavery, and the path leading from merchant to manufacturer. They help us understand why some early businessmen decided to form corporations and why others chose not to. Finally, the readings present brief portraits of emblematic people in the story of American business from 1600 to 1800.
The corporation is a human enterprise. Entrepreneurs, managers, workers, and stockholders act in a social as well as an economic dimension. How American corporations have balanced their responsibility to society with their responsibility toward investors will be a recurrent focus of these readings.From the Hardcover edition.
Excerpted from Colossus by Edited by Jack Beatty. Copyright © 2001 by Edited by Jack Beatty. Excerpted by permission of Crown Business, a division of Random House LLC. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.