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What we think we know is shaped by statements that we hear over and over until we become convinced that they must be true. Of the American business corporation, we often hear the following statements. The corporation is a legal person, with rights and obligations like those possessed by other persons such as us. Unlike us, the corporation has perpetual life. Its owner-shareholders have limited liability. Each share is entitled to one vote in the governance process that elects directors and makes other shareholder decisions. The purpose of the corporation is to produce and market goods and services in such a way as to maximize profits and share price, or what is often termed shareholder value or shareholder wealth.
These truisms embody purposes that are thought to benefit us as individuals, as well as our economy, polity, and society. Legal personhood and perpetual life allow the corporation to make contracts and avoid having to reorganize whenever an owner dies. Limited liability encourages us to pool our capital in corporations that can achieve economies of large-scale production and distribution in ways impossible for sole proprietorships and partnerships; the corporate shareholder knows that he or she cannot lose more than the amount invested even if the corporation fails with debts greater than its assets. One share, one vote strikes us as just a fair and equitable way to govern corporations. Maximizing profits and shareholder value is good for shareholders but also strikes many people as good for society because it indicates that the corporation has deployed its assets to create the most value and thereby contribute to economic growth and rising living standards over time.
One of the uses of history in general, and of economic history in particular, is to remind us that what we believe-what we take for granted today-was not always the case. The institutions and organizations of our modern economy were not given to us by stone tablets delivered from on high, or even delivered to posterity in the form of declarations and constitutions written by great statesman long ago. Rather, they are the result of an evolving historical process. Here, I briefly survey that process over more than two centuries of U.S. history to show how we arrived at our current...