Corporations Have Been Treated as Legal Fictions From Our Nation’s Founding. Here’s the Real History.

The law, lawyers, and the court.
March 24 2014 4:48 PM

Getting the History Right

Tracking the real history of corporate rights in American constitutional thought.

The U.S. Supreme Court
Through most of our history, when the Supreme Court did discuss the constitutional rights of corporations, it only reinforced these principles of artificial status and public obligation.

Photo by Saul Loeb/AFP/Getty Images

Dissenting in the case Liggett v. Lee in 1933, Justice Louis Brandeis famously expressed frustration with some popular constitutional misconceptions surrounding the nature of corporations and their historic rights. In a well-documented and characteristically fact-laden opinion, Brandeis chastised his contemporaries for acting “as if the privilege of doing business in corporate form were inherent in the citizen.” Such a deferential view, he argued, understated the power of a democracy to hold corporations accountable and encouraged public apathy toward corporate abuses as an “inescapable price of civilized life ... to be borne with resignation.” 

Brandeis protested otherwise: “Throughout the greater part of our history a different view prevailed.” And indeed it did. But you’d be hard-pressed to know that, given the summary renderings of the corporate past on display in the Supreme Court’s famous 2010 decision Citizens United v. FEC, in which both the dissent and a concurrence relied on a limited set of historical sources to support opposing visions of the history of corporations. This week, the court will revisit and perhaps remake the history of corporate rights in America when it hears arguments in the widely watched case Sebelius v. Hobby Lobby Stores Inc.  Hobby Lobby, a for-profit business corporation, has argued for a further break with the constitutional past in order to escape its current legal obligations under the Affordable Care Act. The chain of craft stores argues that corporations are entitled to the same religious freedom protections as people.

With so much at stake in the current debate over corporate rights, we should not be surprised to find enterprising advocates rewriting history to create a useable past. But we should demand more rigorous thinking from the court. The court itself, and especially Justices Antonin Scalia and Clarence Thomas, have been telling us for decades that American history deserves significant deference. So it seems reasonable that before altering the balance of power between corporations and the American people, the court should carefully consider recent scholarship in history.

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Contrary to present efforts to depict corporations as simple and natural entities—like persons—entitled to constitutional rights, a different view prevailed for most of American history. Until the mid-20th century, the corporation was seen as a special and artificial creature of the government. It has never been seen as entitled to the same array of rights guaranteed to citizens.

This view was held not only by lay people and legislators but by the justices of the court itself. Chief Justice John Marshall did not equivocate in Dartmouth College v. Woodward in 1819:  “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it.” In 1839, Chief Justice Roger Taney agreed wholeheartedly in Bank of Augusta v. Earle:  “A corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. It exists only in contemplation of law and by force of the law. ... It is indeed a mere artificial being.”

These two powerful architects of original Supreme Court authority insisted upon this artificial status in order to hold early American corporations particularly accountable to the state and to the public at large. Most of America’s first corporations—bridge companies, water companies, transportation companies, banks, and insurance companies—were viewed as essentially public service corporations or public franchises. In addition to grants of property and public financing, the state usually accorded such entities special privileges like monopoly power, the power of eminent domain, or toll-taking authority. In return for those benefits, the government insisted on the special public obligations of corporations. Not only were corporations not exempted in any way from generally applicable regulatory laws, but they were routinely held to higher standards of public service, public accountability, social responsibility, and public trust.

Even after the proliferation of general incorporation laws, and even after most state constitutions prohibited legislatures from granting privileges to particular corporations, states continued to treat corporations as artificial entities with special obligations to the states that created them. As late as 1911, just before the ratification of the 16th Amendment legitimated the personal income tax, the court in Flint v. Stone Tracy Co. upheld the corporate income tax on the grounds that it was properly an excise tax on the privilege of doing business as a corporation. From internal governance to broader disclosure rules, corporations are subject to more oversight than are individual citizens. And for most of American history, nothing in a corporation’s legal status was construed to protect it from generally operable police power statutes passed by the legislature in the interest of the public’s health, safety, comfort, and welfare.

Through most of our history, when the Supreme Court did discuss the constitutional rights of corporations, it only reinforced these principles of artificial status and public obligation. Despite a certain gauzy mythology of corporate rights that has grown up around the 1886 case Santa Clara v. Southern Pacific Railroad, the court carefully parsed the different clauses of the 14th Amendment, granting corporations equal-protection and due-process rights when necessary to protect the property interests of the human persons who constituted their shareholders but denying corporations the privileges and immunities of citizens or due-process protections for life and liberty. In 1906 in Hale v. Henkel, for example, it denied a corporation Fifth Amendment protections against self-incrimination on the grounds that governments had to be able to monitor the artificial entities they created. Until the last quarter of the 20th century the few exceptions involved media companies defining the freedom of the press (Grosjean v. American Press Co., 1936) and nonprofit voluntary associations defending the civil rights of African-Americans (NAACP v. Button, 1963). 

The court’s move toward extending liberty rights to corporations is even more recent. In 1978, the court held in First National Bank of Boston v. Bellotti that citizens had the right to hear corporate political speech, effectively granting corporations First Amendment speech rights to spend money to influence the political process. But even then, the decision was contentious. Chief Justice William H. Rehnquist, in dissent, reminded the court of its own history: Though it had determined in Santa Clara that corporations had 14th Amendment property protections, it soon after ruled that the liberty of the due-process clause was “the liberty of natural, not artificial persons.”

And just as Rehnquist pointed to the lack of historical basis for according liberty rights to corporations in 1978, Scalia also conceded the “recency” of First Amendment jurisprudence generally in his concurring opinion in Citizens United, noting that “we did not invalidate a state law on First Amendment grounds until 1931 ... and a federal law until 1965.” Corporate First Amendment rights would not come until even later. Justices from both ends of the political spectrum, from Brandeis to Rehnquist, were clear on the historic limitations on corporate rights and equally clear on the reasons those rights needed to be limited. Before further experimenting with the radical expansion of corporate constitutional rights as contemplated in Hobby Lobby, we urge the court to reconsider the well-established American tradition of controlling corporations and extending rights only sparingly. There is a reason America and our Supreme Court jurists have long struggled to hold corporations especially accountable to our democracy. Those reasons are as compelling today as ever.

Naomi Lamoreaux is Stanley B. Resor Professor of Economics and History and chairwoman of the history department at Yale University, and recently co-wrote an amicus brief to the Supreme Court in Sebelius v. Hobby Lobby Stores Inc.

William Novak is the Charles F. and Edith J. Clyne Professor of Law at the University of Michigan Law School and recently co-wrote an amicus brief to the Supreme Court in Sebelius v. Hobby Lobby Stores Inc.

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