Customer Reviews

In Defense of the Corporation (Hoover Institution Publication 207)

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"The essence of capitalism is the inviolability of individual rights, including one's right to use or invest one's wealth as one chooses, and one's right to associate with others for any peaceful purpose and under any terms of association that are acceptable to all parties concerned." - Robert Hessen

I first came into contact with Robert Hessen's writings in the pages of *The Objectivist Newsletter*, to which he contributed two articles on the Industrial Revolution in 1962. I also knew that his book *Steel Titan* (1975), was the major source Burton Folsom used for his chapter on Charles Schwab in *The Myth of the Robber Barons*. So when I opened my copy of his *In Defense of the Corporation*, I knew I would be in good company.

The book can be roughly subdivided into two halves. The first half is mostly an historical argument against the "concession theory" of the corporation, showing that the conception of the corporation as a "creature of the state" operating by privilege is an anachronism inherited by mistake from the feudal era. On the contrary, Hessen defends what he calls the "inherence theory", which shows the corporation to be reducible to the individual rights of its owners.

I was particularly interested in the refutation of the attacks on the so-called "privilege" of limited liability, which can even be found in the writings of such a conservative historian as Clarence B. Carson. Hessen shows that there are two kinds of limited liability. The first one, limited financial liability, can be explained quite simply as an implied contract between the corporation and its creditors. And the second one, limited liability for torts, is shown to be perfectly reasonable as far as shareholders are concerned.

The second part of the book is a defense of the freedom of incorporation against attacks made by Ralph Nader in two books he published in the 1970s. Nader advocated the federal incorporation of "large" corporations and the turning of their right to engage in interstate commerce into a privilege which the federal government could then use as a stick to make them comply with socialist legislation.

Hessen brilliantly exposes the illogic and arbitrariness of these recommendations, and casts doubt on the value of Nader's scholarship by demonstrating how he resorted to "phantom footnotes" ("that is, citations which prove to be unverifiable and either bogus or deceptive") and used unreliable sources to support his claims.

Against Nader, whom he shows to be another modern disciple of Rousseau, Hessen concludes that corporations "are created and sustained by freedom of association and contract, that the source of freedom is not governmental permission but individual rights, and that these rights are not suddenly forfeited when a business grows beyond some arbitrarily defined size."

Robert Hessen, who recognizes his "intellectual indebtedness to Ayn Rand", refers to her *Virtue of Selfishness* and quotes from her *Capitalism: The Unknown Ideal*, has written here an essentialized and conceptually clear defense of the corporation from the perspective of individual rights.