A history of corporations by William Magnuson

Corporations were invented in Roman times to extend the effectiveness of the government. Cicero called them “sinews of the state”

Over the next two thousand years, their form was refined but always followed the logic that they were meant to extend the common good of the nation. Queen Elizabeth didn’t charter the East India Company to make London merchants rich but to organize capital to help extend English rule; Abraham Lincoln chartered the Union Pacific railroad not for Boston capitalists but to bring a unified infrastructure. Profit wasn’t the state’s main interest but a deal was struck to allow for profit if value was created.

The Cold War turned corporations from tools to heroes, “a defining feature of western life,” to contrast with the Soviet Bloc — and that’s when we lost control of them. That’s a major theme from academic William Magnuson’s 2022 book For Profit: History of Corporations.

It’s dense but effective for anyone like myself with an interest in the foundation he provides on business, capitalism and economics. Below I’ve compiled my notes from the book for future research.

https://www.youtube.com/watch?v=NM5OjP3S_Sc

My notes:

• Of capitalism being the story of corporations: “Sometimes corporations are the heroes. Sometimes they are the villain. But they are always on the stage.”
• Corporations are a type of business that emerged in the Roman Republic (509 B.C.E. to 27 B.C.E.): a collection of individuals, with shares to be sold and limited liability
• English lawyer Sir Edward Coke (1552-1634): corporations are: “invisible, immortal”

Three famous eras of corporate reform that shape corporations today (We take these for granted but real changes):

• As part of other reforms, Emperor Augustus returned tax collecting to his state imperial agents after it was found that the corporations to which he outsourced the job were overcharging Roman provinces
• The East India company created permanent stock incentives after in-fighting among employees for project-based profit agreements (which were reestablished for each trip, etc.)
• After 1929 stock market crash, widespread fraud on behalf of companies brought about the Securities Exchange Act to bring in standards

Notes continue:

• “At the core of this book is a simple argument. Many believe that corporations are soulless entities devoted single mindedly to the pursuit of profit above all else. Some go, even further, arguing, not only that corporations elevate profits above all other considerations, but that it is their duty to do so. Both of these groups are wrong. From the very beginning’s, corporations have been institutions designed to promote the common good.”
• Corporations are granted special privileges by the government because they think they do good
• Adam Smith’s legendary “invisible hand” passage only says that corporations frequently follow the common good, but not always
• The Cold War turned corporations from tools to heroes, “a defining feature of western life,” to contrast with the Soviet Bloc — and we lost control of them
• Queen Elizabeth didn’t charter the East India Company to make London merchants rich but to organize capital to help extend English rule; Abraham Lincoln chartered the Union Pacific railroad not for Boston capitalists but to bring a unified infrastructure: profit wasn’t the state’s main interest but a deal was struck
• In 215 BC, confronting Hannibal and short on cash to fund the army (Publius Cornelius Scipio in Spain) the Roman Senate asked for help. Three companies (societales in latin) of 19 men in total offered to fund the necessary provisions if they were kept out of military service and would be reimbursed if their stuff was lost. It was the beginning of the powerful corporation as these three must have been funded and well established. As Livy wrote in his history of Rome, at war and under siege “the republic was carried along by private money”
• Roman corporations were run by knights and entirely government contracts like building roads
• Societas publicanorum were key government contractors
• First known written form of corporations: In 493 BCE, the Roman government entered into contracts to build temples
• Tax farming: to simplify the complex empire, the Roman forum would auction off rights to collect taxes and then those private enterprises would extract as much as they could get from provinces
• Outlasting individuals, shareholders and separate managers all developed in Roman time
• In 129 BC, the Roman Senate reserved box seats for 14 rows at the coliseum for Roman Equites (who ran societas)
• Max Weber (Agrarian Society of Ancient Civilizations in 1887) and others have argued corporations wanted war and expansion — they encouraged Caesar (Rome became a battle between the aristocracy of the senate and the bourgeoisie Roman knights)
• During the Triumervate (60 BC) and civil war, corporations were split; Caesar introduced some reforms but after he was assassinated they declined. Augustus removed tax farming
• Why corporations exist from the Roman example? Organizing people help: immortal, limited liability, tradable shares and treated as a single entity — let them manage Roman affairs
• 14th century Florence was governed by lottery: two month appointments from a lottery gave guilds great powers (reminds me of the limitations of term limits, in which lobbyists gain power by being steady hand)
• In 1417, one employee of the increasingly powerful Medici Bank ended the lengthy manual detailing of how to structure their cross-border payments to secure profit (while evading usury laws with complex currency exchanges), shared how complex it was with a final piece of advice: “He who deals in exchanges, and he who deals in merchandise is always anxious and percent by worries. I will instead give you a recipe for lasagna and macaroni.”
• (Dry exchange another example of way around usury laws)
• Medici Bank didn’t invent double entry bookkeeping (in Genoa as early as 1340) but helped spread it; established early international finance and trade over agriculture; had multiple bank branches and complex corporate structure to manage risk
• In 1469, the Medici family was estimated to be worth 228,000 Florin. A cost-of-living estimate from 1480 found that a worker could support a wife and four children with an annual income of just 70 florin
• The Italian poet Poliziano wrote: “ Athens has not been destroyed by the barbarians, but has migrated to Florence”
• “It is always safer to be a kingmaker than a king.” Author
• Giovanni Medici (founder of the bank who avoided politics and just worked on business fundamentals) on his deathbed: “Do nothing against the wish of the people, and if they wish what they are not, endeavor to turn them from it by friendly remonstrance rather than by arrogant dictation.”
• East India Company: initially a “separate voyages” version of the new joint-stockholder company model. Investors owned rights for a group of ships in a voyage to distribute risk, but the sailors became competing with each other. That led to make fixed shares for the whole company
• Efficient markets theory (all information is already priced into a stock)
• In 1587, Drake’s capture of Sao Filipe was worth 108,049 pounds ($25m today) in spices and goods and jewels; introduced England to how rich the East Indies were
• In 1600 Queen Elizabeth 1 gave 218 merchants sole rights to the East Indies and beyond, or essentially most of the world
• First East India Company left London on Feb 13, 1601 for Indonesia. Likely met the pastoralists Khoekhoen near bay of Saldanha, and one sailor wrote: “The people of this place are all of tawnie color, of a reasonable stature, swift foot, and much given to pick and Steal.… Their speech is holy other to the throat, and they click with their tongues in such a short, that in the seven weeks in which we remain here in this place, the sharpest with among us could not learn one word of their language.” They instead made animal noises: “month” for oxen and “Baa” for sheep to trade
• Arrived back Sept 11. 1603, 182 of 480 men died but the investors got a 300% return on their investments
• This extraction worked for years but by 1623 after the Amboyna massacre was last straw, The East India company decided they couldn’t compete with the Dutch East India in the spice trade so it pivoted to India
• Sir Josiah Child: stock manipulation through rumor marks the transition of East India Company and the joint stock company as profiteering over the good of people
• English historian Horace Walpole (1717-1797): “From the alley to the house is like a path of ants” to describe companies like East India with bribe relationships with parliament
• British political theorist Edmund Burke (1729-1797): “The East India Company in Asia is a state in the disguise of a merchant.” They caused famines and trafficked and extracted excessive taxes on a poor populace but gave its leader a cut; they lobbied English government to let them ship thier excessive to the colonies without export — leading to Boston tea party
• Adam Smith (1723-1790) and Karl Marx (1818-1883) both criticized the East India Company as not creating value but purely extracting monopoly rents. Marx said “Who is the master of Leadenhall St,” referring to their East India house. “Two thousand persons, elderly ladies and valetudinarian gentlemen, possessing Indian stock, having no other interest in India except to be paid their dividends out of Indian revenue.” The whole distance of stock owners from management was the problem Marx wrote
• The stock lets companies raise capital from public and the exchange lets the public profit from the company
• The US Transcontinental railroad was a monopoly, one of the worst ills of capitalism
• For the transcontinental railroad, Jefferson Davis was tapped to lead a commission to decide southern (New Orleans), northern (Chicago) or middle rail path. He argued the southern path avoided snow and mountains but northern interests wouldn’t allow it; by June 1862 after the south seceded, northern interests in congress pushed through their railroad bill
• Why did government cede railroad to corporations (Union Pacific and the existing Central Pacific):  They thought it more efficient and would limit expansion of federal government
• Railroad builder Doc Durant (1820-1885) has a reputation for backroom dealing but lobbied and fundraised and got it done; pushed Lincoln to choose Council Bluffs as terminus (where Durant had another railroad interest)
• The much-celebrated Grenville Dodge (highly respected engineer who did agree Council Bluffs out Platte valley was ideal location) after he helps win the civil war with his rail engineer expertise he turns around the fledgling Union Pacific
• Newspaper publisher Horace Greeley (1811-1872) wrote “go west young man” to help promote Union Pacific’s efforts to sell its land grants from federal government to recoup its investments
• Credit Mobilier scandal: to finance railroad construction, Union Pacific executives learned from the French model of establishing a parallel construction company to do the work of constructing the railroad and it would get bank loans with its contract to build the rails road
• On January 5, 1914 Henry Ford invited three Detroit journalists (Free Press, Journal and News) to a surprise announcement (in 10 years he had made his Ford company one of the countries leading corporations): doubling pay to $5 a day and dropping hours to 8 and they were hiring thousands — but there were strings attached — like standards on morality and a sociological department and high expectations of output. Workers only got $5 a day after six months if he proved he could meet quotas (which often didn’t allow bathroom or lunch breaks); but also women could rat on abusive or absent husbands and fathers where Ford would dock pay; Ford also had an employee savings and loan and on site hospital and English school for migrants. (Reminds me a lot of Amazon; it demands and does a lot and reflects a society
• ((My note: This press conference reminded me of how the ENIAC was announced to select journalists; do those joint press conferences still happen or do people release on social media? )))
• Historian James Truslow Adams (1879-1949) coined “the American dream” in his 1931 book The Epic of America, and described the uniquely American ideal in this way: “It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”
• “Efficiency is inseparable from morality, and, in some cases, may even conflict with it.”
• Thomas Edison himself encouraged young Henry Ford on his model quadricyle motor, which he had made in his off hours while working for Edison’s company in Detroit. Ford bet early on gas powered unlike steam powered which led early but were slow to start (and electric which had limited range)
• Ford had two companies and several models before he broke something big: another example like Shakespeare about how many tries necessary
• The Model T was the first car to put steering wheel on the left, the better to see oncoming traffic, rather than the right, which was better to see rural ditches
• Frederick Winslow Taylor and his “time studies” led to asssembly line and scientific corporate efficiency improvements
• Aldous Huxley’s Brave New World (1932) was inspired by reading Ford’s autobiography; Steinbeck’s Grapes of Wrath (1939) inspired by stories of the ford assembly line too
• A massive study found absenteeism and high turnover limited the added efficiency of improved assembly lines; hence the doubled pay, reduced hours and maniacal interest in how workers lived
• In a famous court case originating in 1916, Dodge brothers (long owned 10% stake in Ford), pressed for larger dividend. Ford in court said he ran his company “to do as much good as we can, everywhere, for everybody concerned,” and that proved devastating. The final court decision set largely where American capitalism went: “the business corporation is organized and carried on primarily for the profit of the stockholders.”
• The Dearborn Massacre and Battle of the Overpass part of a series of Ford resisting unionization especially during Great Depression
• Exon was credited for leading a consortium of western oil majors that lessened impact of the 1973 oil embargo by distributing its various international subsidiaries differently (distribution of oil to U.S. dropped 17% but according to a federal energy administration report without their shuffling the supply would have dropped 29%)
• Corporations were created by nation states but the multinationals outgrew those boundaries
• Ida Tarbell (raised in Titusville) accepted Ford but not Standard Oil (which later became Exxon after the breakup)
• WWI saw oil scarcities that Exon helped lessen but fueled interest in international oil discovery and government supported (Minerals Leasing Act of 1920 made governments let US oil majors exploit oil or those governments couldn’t access US markets)
• At a WW2 wartime banquet for Winston Churchill, Joseph Stalin said “this is a war of engines and octanes. I drink to the American auto industry and the American oil industry.”
• Taylor Energy oil spill is ongoing
• Whom do multinationals really answer to?
• The 1976 Theory of the Firm article by Jensen and Meckling: Agency costs are too high in large corporations; why not more attempts to be owner operator?
• KKR began a private equity trend of that sorta thing via private equity (but my thought: isn’t the thing that lots of owner/operator companies are maximizing at least short term priorities of owner already but profit might not be that top priority?)
• Jerome Kohlberg of KKR was a Swarthmore grad who so appreciated the Quaker ethos that he called himself a “Jewish Quaker”
• Houdaille LBO was breakout of the form: a small three person outfit bought a public company, inspired Steven Schwartzman and a generation of others
• Milken and Drexel
• Safeway, Duracell, Motel 6, Safeway, Avis and Tropicana were all successful LBOs that made more efficient and survived
• Wall Street Journal’s Pulitzer-winning Susan Faludi investigation of Safeway: more efficient but soul crushing
• ((My note: Is private equity’s genuine belief in the perfect harmony of their spreadsheets more like the progressive who believes in the perfect harmony of their politics? Both chafe against the reality of the real world
• Big LBO strategy: debt interest payments are tax deductible but dividends were not; a long criticism as it motivated more debt over new shares
• In 1989, the fees paid to the bankers and lawyers alone working on the KKR hostile takeover of RJR Nabisco exceeded the total spent researching a cure for AIDS, then at the peak of its devastation, according to research by Robert Reich.
• By 2010, when KKR went public, $22m was paid to Kravis and Roberts but only $500k was from the carried interest (that is, from actual profit performance rather than management)
• Zuckerberg ‘s move fast and break things
• Monthly active user became Faceboook’s primary metric that all teams knew: what’s ours?
• Early Facebook moderation: the thong rule (too risqué) and three strikes
• In 2012 Facebook researchers published “experimental evidence of massive scale (N=689,003), emotional contagion through social networks,“ With the opening sentence “we show via a massive experiment on Facebook that emotional states can be transferred to others via emotional contagion, leading people to experience the same emotions without their awareness.”
• A 2010 study on midterm elections confirmed “social message” (showing friends who voted) had a 0.4% likelier to vote than those who got a pure informational message (which was basically the same as no message at all); A study of 61m Americans led to 340k new voters
• False news tweets 70% more likely to be retweeted; majority of Facebook extremism group members can from their recommendations
• Cicero called corporations “sinews of the state”
• Argues against corporations being political; let the individual do that. When corporations get involved “turning it from an instrument to promote the common good in the one that defines the common good in the first place”
• “Their true founding purpose,” the author writes is “to promote the common good of the nation.” Corporations were created to pursue national goals, not just commerce but exploration and security and colonization and religious
• Milton Friedman’s shareholder doctrine would have surprised corporations of past
• “This dynamic — innovation, exploitation, reformation — has played out over and over again, in the history of corporations.”
• Cool Hand Luke (1967, Paul Newman): “Calling it your job don’t make it right”
• “The history of the corporation reminds us of a simple truth: Humanity works best when it works together.”