Private: Prescience of Brandeis

This weekend I was talking with Emma about Noam Chomsky’s argument that the U.S. government is “primarily responsive to huge corporate interests, which are internally tyrannical and secretive, and which are granted enormous power, far greater than that accorded to individuals.”

In law school I was impressed by the prescient dissent of former U.S. Supreme Court Justice Brandeis in the 1933 case of Louis K. Liggett Co. v. Lee. In Liggett, the Supreme Court overturned a fee imposed by the State of Florida on business interests. The Court held that the fee was directed at, and thus discriminated against, large corporate chains.

In his Depression-Era dissent, Brandeis urged his fellow Justices to recall the original constraints placed on corporations and the reasons for those constraints. He said:

The prevalence of the corporation in America has led men of this generation to act, at times, as if the privilege of doing business in corporate form were inherent in the citizen; and has led them to accept the evils attendant upon the free and unrestricted use of the corporate mechanism as if these evils were the inescapable price of civilized life, and, hence, to be borne with resignation. Throughout the greater part of our history a different view prevailed. Although the value of this instrumentality in commerce and industry was fully recognized, incorporation for business was commonly denied long after it had been freely granted for religious, educational, and charitable purposes. There was a sense of some insidious menace inherent in large aggregations of capital, particularly when held by corporations. So at first the corporate privilege was granted sparingly; and only when the grant seemed necessary in order to procure for the community some specific benefit otherwise unattainable. The later enactment of general incorporation laws does not signify that the apprehension of corporate domination had been overcome. The desire for business expansion created an irresistible demand for more charters; and it was believed that under general laws embodying safeguards of universal application the scandals and favoritism incident to special incorporation could be avoided. The general laws, which long embodied severe restrictions upon size and upon the scope of corporate activity, were, in part, an _expression of the desire for equality of opportunity. Limitation upon the amount of the authorized capital of business corporations was long universal. The maximum limit frequently varied with the kinds of business to be carried on, being dependent apparently upon the supposed requirements of the efficient unit. Although the statutory limits were changed from time to time this principle of limitation was long retained. Thus in New York the limit was at first $100,000 for some businesses and as little as $50,000 for others….

Limitations upon the scope of a business corporation’s powers and activity were also long universal. At first, corporations could be formed under the general laws only for a limited number of purposes-usually those which required a relatively large fixed capital, like transportation, banking, and insurance, and mechanical, mining, and manufacturing enterprises…. Permission to incorporate for ‘any lawful purpose’ was not common until 1875; and until that time the duration of corporate franchises was generally limited to a period of 20, 30, or 50 years….

Able, discerning scholars have pictured for us the economic and social results of thus removing all limitations upon the size and activities of business corporations and of vesting in their managers vast powers once exercised by stockholders-results not designed by the states and long unsuspected. They show that size alone gives to giant corporations a social significance not attached ordinarily to smaller units of private enterprise. Through size, corporations, once merely an efficient tool employed by individuals in the conduct of private business have become an institution-an institution which has brought such concentration of economic power that so-called private corporations are sometimes able to dominate the state. The typical business corporation of the last century, owned by a small group of individuals, managed by their owners, and limited in size by their personal wealth, is being supplanted by huge concerns in which the lives of tens or hundreds of thousands of employees and the property of tens or hundreds of thousands of investors are subjected, through the corporate mechanism, to the control of a few men. Ownership has been separated from control; and this separation has removed many of the checks which formerly operated to curb the misuse of wealth and power. And, as ownership of the shares is becoming continually more dispersed, the power which formerly accompanied ownership is becoming increasingly concentrated in the hands of a few. The changes thereby wrought in the lives of the workers, of the owners and of the general public, are so fundamental and far-reaching as to lead these scholars to compare the evolving ‘corporate system’ with the feudal system; and to lead other men of insight and experience to assert that this ‘master institution of civilised life’ is committing it to the rule of a plutocracy…. writers have shown that, coincident with the growth of these giant corporations, there has occurred a marked concentration of individual wealth; and that the resulting disparity in incomes is a major cause of the existing depression. Such is the Frankenstein monster which states have created by their corporation laws.

(Emphasis added; footnote references omitted.)