Economic and business historian Robert Hessen died on Monday April 15 at the age of 87.
I wrote some memories of him on my Substack site, “I blog to differ.”
Here I want to link to his 2 contributions to my Concise Encyclopedia of Economics.
One is his article “Companies.” Here are two key paragraphs.
Here is a key paragraph:
To differentiate it from a partnership, a corporation must be defined as a legal and contractual mechanism for creating and operating a for-profit business, using investors’ capital to be managed on their behalf by directors and officers . For lawyers, however, the classic definition is Chief Justice John Marshall’s 1819 remark that “a corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law.” But Marshall’s definition is useless because it is a metaphor; it makes a business a legal hallucination.
I hear so often that companies are created by the state. This especially happens when I’m on talk shows dealing with callers. It’s wrong. I always think of how Bob Hessen addressed the problem in his article:
Economists’ attempts to define societies have also proven unsatisfactory. In 1917, Joseph S. Davis wrote: “A corporation (is) a group of individuals authorized by law to act as a unit. » This definition is flawed because it also fits partnerships and unions, which are not companies. The economist Jonathan Hughes wrote that a corporation is a “multiple partnership” and that “the privilege of incorporation is the state’s gift to collective enterprise.” Economist Robert Heilbroner wrote that a corporation is “a state-created entity”, given that it has a charter that allows it to exist “in its own right as a legally created ‘person'”.
But charters enacted by state legislatures literally ceased to exist by the mid-19th century. The actual procedure for forming a company involves filing a registration document with a state official (such as registering the use of a fictitious business name), and the role of the state is purely formal and automatic. Calling incorporation a “privilege” implies that individuals do not have the right to form a corporation. But why is government permission necessary? Who would be harmed if businesses adopted the characteristics of business by contract? Whose rights would be violated if a company declared itself to be a unit for the purposes of suing and being sued or to hold and transfer title to the property, or that it would continue to exist despite the death or retirement of its directors or investors, or that its shares are freely tradable, or if it has exercised limited rights responsibility for his debts? (Tort liability is a separate issue; see Hessen 1979, pp. 18-21.) If potential creditors find any of these features objectionable, they can negotiate to exclude or modify it.
His other entry in the Encyclopedia is “Capitalism.” It’s full of gems. Here is the opening paragraph:
VSApitalism”, a denigrating term coined by socialists in the mid-19th century, is a misnomer for “economic individualism”, which Adam Smith previously called “the obvious and simple system of natural freedom” (The wealth of nations). The basic principle of economic individualism is that the pursuit of self-interest and the right to private property are morally defensible and legally legitimate. Its main corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals (alone or with others) are free to decide where to invest, what to produce or sell, and what prices to charge. There is no natural limit to the range of their efforts in terms of assets, sales and profits; or the number of customers, employees and investors; or whether they operate in local, regional, national or international markets.
Here is another excellent paragraph:
In early 19th-century England, the most visible face of capitalism was the textile factories that hired women and children. Critics (Richard Oastler and Robert Southey, among others) denounced the factory owners as heartless exploiters and described the working conditions – long hours, low wages, monotonous routine – as if they were unprecedented. Believing that poverty was new and not just more visible in crowded towns and villages, critics compared contemporary times unfavorably with previous centuries. Their claims of increasing misery, however, were based on ignorance of how squalid life had been before. Before children began earning money working in factories, they were sent to live in parish workhouses; apprentices as unpaid servants; hired out for back-breaking agricultural work; or became beggars, vagabonds, thieves and prostitutes. The pre-capitalist “good old days” simply never existed (see industrial revolution and standard of living).
And:
Despite these constraints, which operated sporadically and unpredictably, the benefits of capitalism were widely distributed. Luxury quickly turned into necessity. At first, luxury consisted of cheap cotton clothes, fresh meat and white bread; then sewing machines, bicycles, sporting goods and musical instruments; then automobiles, washing machines, dryers and refrigerators; then telephones, radios, televisions, air conditioners and freezers; and more recently, TiVos, digital cameras, DVD players and cell phones.
The fact that these conveniences have become accessible to most people has not caused critics of capitalism to recant, or even give in. Instead, they ingeniously reversed themselves. The Marxist philosopher Herbert Marcuse proclaimed that the true evil of capitalism is prosperity, because it distracts workers from their historic mission – the revolutionary overthrow of capitalism – by providing them with cars and household appliances, which he calls “tools of ‘slavery’. Some critics dismiss capitalism by extolling “the simple life” and calling prosperity mindless materialism. In the 1950s, critics like John Kenneth Galbraith and Vance Packard attacked the legitimacy of consumer demand, arguing that if products had to be advertised to be sold, they could not meet any genuine human need. They accused consumers of being brainwashed by Madison Avenue into craving whatever giant corporations choose to produce and promote, and complained that the “public sector” is starving while frivolous private desires are satisfied. And after finding that capitalism reduced poverty rather than intensifying it, critics such as Gar Alperovitz and Michael Harrington proclaimed equality as the highest moral value, calling for higher taxes on income and wealth. inheritances to massively redistribute wealth, not only nationally but also internationally.
