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Looking back from the twenty-first century, eighteenth-century beliefs about the danger of parties and corporations appear to be misplaced. Despite what intellectuals wrote, we can only be sure that elites held those beliefs if we have evidence that they acted on them. Were factions, parties, and economic organizations suppressed, restricted, or discouraged? And if so, how and when?

Rival factions always contend for control in natural states, as they do in open access orders. Natural state and open access orders differ, however, in the cost of losing. When violence breaks out in natural states, losing factions are often killed, exiled, or otherwise eliminated. Bolingbroke provides an example. As secretary of state under Queen Anne (1702–14), Bolingbroke had sought to eliminate the Whig faction: “The view, therefore, of those among us who thought in this manner, was to improve the queen’s favor, to break the body of the Whigs, to render their support useless to them, and to fill the employments of the kingdom down to the meanest with Tories.”15 Under Anne, several Whigs were imprisoned, including Walpole. When Anne died and George I turned to the Whigs to form his government, Bolingbroke fled to France in 1715, and Walpole turned the tables on him. Walpole “immediately moved [Bolingbroke’s] impeachment, a motion that was carried without a single dissenting vote. Bolingbroke was declared a permanent exile and stripped of his title and estate” (Kramnick, 1968, p. 13). Bolingbroke complicated his position in Britain by associating with James II, deposed in the Glorious Revolution of 1688–9, then in exile in France. Bolingbroke soon repented of his association with James. He ultimately obtained the favor of King George, and returned to Britain in 1725. As late as the 1720s then, indeed perhaps as late as the final Jacobite rising in 1745, losing British factions faced the threat of imprisonment, loss of land and titles, and perhaps death if they were defeated. The British actively restricted factions by the threat of death or exile, until the mid-eighteenth century.16

The 1720s produced a crisis – the South Sea Bubble – brought on by the behavior of a corporation. Chartered in 1711, the South Sea Company possessed the asiento, the right to carry slaves to Spanish colonies. However,

15Bolingbroke in a Letter to Sir William Windham, quoted in Kramnick (1968, p. 9).

16Bailyn’s essay on the “Sources of Political Culture” (1968, pp. 3–58) gives a clear explanation of and justification for the active fear of faction in British politics. The last British peer to be attainted was Lord Edward Fitzgerald for leading the Irish Rebellion of 1798. Fitzgerald died in prison of wounds inflicted during his arrest. The bill of attainder confiscating his property was repealed in 1819.

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the major purpose of the company was to refinance the large government debts incurred during the War of the Spanish Succession (1701–14). In 1719 and 1720, the company was authorized to increase its capital. Stockholders could purchase new shares of company stock with government bonds. Because South Sea shares were more liquid than government bonds it was possible for investors, the company, and the treasury all to benefit from the conversion of bonds into company shares.17 The price of South Sea shares rose dramatically early in 1720 as the bond conversion commenced. Later in the year, the bubble burst, and South Sea shares and the entire stock market collapsed.

As negotiations with the government and the company for the bond conversion operation were taking place, parliament also considered what would later come to be known as the Bubble Act. Passed in June of 1720, before the bubble burst, the act created two new insurance companies with a monopoly on marine insurance in London, solidified the position of the monied companies, and provided for penalties against any company that presumed to act as a corporate body without the permission of parliament or the crown.18 Patterson and Reiffen (1990) argue that the act was intended to protect the fiscal and political interests of the crown and parliament “by restricting corporate status to relatively few firms and preventing competition” (p. 165). Harris (1994) also suggests that, to a large extent, the act was special-interest legislation for the South Sea Company.

Scott’s conclusions, reached in 1912, sum up the effects of the act in the circumstances of the eighteenth century:

The true significance of the panic [of 1720], however, is not so much in terminating one epoch, but in beginning and dominating another. To the statesmen of the first quarter of the eighteenth century, it seemed demonstrable that the jointstock system – “the pernicious art of stock jobbing” – was the sole and sufficient explanation of the miseries of the country. No words were too strong to condemn what was then considered to be a malign perversion of industry, destructive of commercial probity, of a well-ordered social life, even of religion and virtue. In fact the joint-stock type of organization received only a little less abuse than the directors of the South Sea company . . . In short the result of opinion in 1720 and 1721 was

17Neal (1990, pp. 62–117) describes the bubble, the operations of the South Sea Company, and the Bank of England. Many bonds were annuities issued for the lifetime of a specific person. These bonds were difficult to transfer, because evidence that the original person was still alive had to be produced every year. Consolidating the debt in the South Sea Company simplified the task of administering the debt, lowering the interest on the debt paid by the government, and increased the liquidity of the bond holders.

18See Harris (1994, 1997, 2000) and Patterson and Reiffen (1990). Because the act passed before the bubble burst, the act was not a reaction to the stock market crash.

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that the rise of the joint-stock system had been the cause of the panic, and therefore it was decided that the Bubble Act should be strictly enforced. As a consequence, no company was safe in beginning business without first obtaining a charter, and such instruments were now only granted after a more searching enquiry than had been usual in the past. Under the existing circumstances, it was fortunate that no more restrictive measures were passed (Scott, 1951[1912], Vol.1, pp. 436–7).

The Bubble Act significantly restricted the number of corporate charters issued over the next hundred years.

Adam Smith’s Wealth of Nations provides the final piece of evidence about attitudes toward corporations in eighteenth-century Britain. Smith presented the economic case for free and open competition; he charged the government and corporations with the desire to limit entry and create rents. Smith did not absolutely oppose incorporation. He saw some jointstock companies as legitimate business enterprises.19 His low opinion of corporations in general reflected less on the economic and organizational aspects of joint-stock businesses than on the natural state’s political effects of chartering – the corrosive effects of corporate privileges given to towns, guilds, and monopolies.20 Although much of the debate about Smith’s view of corporations has focused on his view about their efficiency, Smith saw corporations in a traditional Whig manner: grants of economic privilege used to secure political advantage. As late as 1776, the founder of modern economics viewed corporations largely in natural-state terms – as tools for the political manipulation of the economy.

The situation in France in the eighteenth century differed considerably. Political organizations came under even more suspicion than in Britain. The absolute monarchy brooked no serious competitors, and leaders of factions were eradicated or exiled. Administration of the French state involved a well-articulated set of corporations and corporate privileges that were used to govern and administer municipalities, courts, and other aspects of French life. The network of corporations was connected to the system of venal office holding in which offices within the corporation were periodically available for purchase from the king; most offices could be resold in an organized market; and the king and officeholders made a series of regular payments to each other (Doyle, 1996).

19In particular see Smith (1981[1776], Vol. 2, pp. 731–58), “Of the Publick Works and Institutions which are necessary for facilitating particular Branches of Commerce.”

20For towns see Smith (1981[1776] , Vol. 1, pp. 397–410), “Of the Rise and Progress of Cities and Towns, after the Fall of the Roman Empire” and for apprenticeships and guilds see Vol. 1, pp. 135–59, “Inequalities occasioned by the Policy of Europe.”

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In France, as in Britain, the term corporation included a much wider array of organizations than joint-stock business companies and municipalities. The sale of privilege for cash, the center of the venal office-holding system, led to the development of much more durable and sophisticated forms of organization in France. The value of a specific office was directly related to the privileges it carried, the security of the officeholder, and the conditions under which the office could be transferred to a third party or passed on to an heir. Although perpetually lived in theory, the ability of the king to credibly honor his promises to officeholders often meant that these organizations were not fully perpetually lived in practice. The financial difficulties facing the French crown in the 1770s and 1780s were in part a reflection of the commitments made to officeholders that made negotiating solutions to the state’s financial problems difficult. In consequence of the king’s strong fiscal incentives to provide institutional support for corporate organizations of many types, including the central organizations of courts, municipalities, and businesses, the French polity and economy had a richer variety of complex organizational structures than the British did circa 1750.

The question of corporate organization and privilege came to a head during the revolution. On the night of August 4, 1789, the National Assembly – in what “is justly remembered as the most radical legislative session of the entire French Revolution” – abolished or condemned many of the central institutions of French society (Doyle, 1996, p. 1). It declared the end of venal offices. Municipalities and their officials were to be retained; offices would no longer be titular, but elected; assemblies no longer by right, but by representation. The old organizational forms ultimately had to go as well. The Chapelier law was passed by the Assembly in June of 1791, which banned many types of economic and social organizations and applied to organizations of workers, professionals, and entrepreneurs (Stewart, 1951,

p.165–6).

The sentiments against organizations were prominently placed in the

Constitution of 1791. The Preamble reads:

The National Assembly, wishing to establish the French Constitution upon the principles it has just recognized and declared, abolishes irrevocably the institutions which were injurious to liberty and equality of rights.

Neither nobility, nor peerage, nor hereditary distinctions, nor distinctions of orders, nor feudal regime, nor patrimonial courts, nor any titles, denominations, or prerogatives derived therefrom, nor any order of knighthood, nor any corporations or decorations requiring proofs of nobility or implying distinctions of birth, nor any superiority other than that of public functionaries in the performance of their duties any longer exists.

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Neither venality nor inheritance of any public office any longer exists.

Neither privilege nor exception to the law common to all Frenchmen any longer exists for any part of the nation or for any individual.

Neither jurandes nor corporations of professions, arts, and crafts any longer exist.

The law no longer recognizes religious vows or any other obligation contrary to natural rights or the Constitution (Stewart, 1951, p. 231).

The French Revolution has always been seen as a revolution against privilege. Missing is the understanding that it was also a revolution against corporations, against the forms of organized privilege that were used to structure the French natural state and the larger French society. This reaction was not part of the revulsion against the aristocracy: most corporate privileges had no connection to the nobility or to ennoblement.

The American case presents a third variation on these themes. Americans shared a long history with the British and had developed during the colonial period a style of politics in their colonial legislatures that stressed united policies and opposition to colonial governors (Hofstadter, 1969, p. 45). We have already drawn on Bailyn’s history of Whig ideology in America to illustrate how fear of factions and corporations played a key role in the coming of the American Revolution. Two instances in the 1790s illuminate how these fears arose during the early years of the republic.

First, consider George Washington’s farewell address in 1796. After his plea to appreciate the value of the Union and his prediction that geographic divisions could imperil it, he raised the danger of faction:

All obstructions to the execution of the laws, all combinations and associations, under whatever plausible character, with the real design to direct, control, counteract, or awe the regular deliberation and action of the constituted authorities, are destructive of this fundamental principle and of fatal tendency. They serve to organize faction; to give artificial and extraordinary force; to put in the place of the delegated will of the nation the will of a party, often a small but artful and enterprising minority of the community, and, according to the alternate triumphs of different parties, to make the public administration the mirror of the ill-concerted and incongruous projects of faction rather than the organ of consistent and wholesome plans, digested by common counsels and modified by mutual interests.

However combinations or associations of the above description may now and then answer popular ends, they are likely in the course of time and things to become potent engines by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people, and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion (Richardson, 1897, Vol. 1, pp. 209–10).

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Washington then moved to the dangers of party:

Let me now take a more comprehensive view, and warn you in the most solemn manner against the baneful effects of the spirit of party generally . . .

The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism . . .

Without looking forward to an extremity of this kind (which nevertheless ought not to be entirely out of sight), the common and continual mischiefs of the spirit of party are sufficient to make it the interest and duty of a wise people to discourage and restrain it (Richardson, 1897, Vol. 1, pp. 210–11).

Washington’s warning against the dangers of faction and party was based on his own experience as president with the first economic corporation chartered by the national government. The first challenge facing the new government was financial. The Constitution of 1787 was motivated, in part, by the need to give the national government the power to tax so it could raise revenue to repay debts from the Revolutionary War. When the first Congress met, Treasury Secretary Alexander Hamilton proposed a three-part scheme. All of the existing national and state debts would be consolidated in a new set of bond issues; a national bank would be chartered by the national government and act as the government’s financial agent in servicing the new bonds; and a moderate revenue tariff would be established on imports and excise taxes would be levied to supply the national government with revenue. All three elements of Hamilton’s plans passed Congress in March of 1791.

Hamilton’s arguments for America’s new financial system, however, had ominous overtones. In his January 1790 Report on the Public Credit, Hamilton proposed, “If all the public creditors receive their dues from one source . . . their interests will be the same. And having the same interests, they will unite in support of the fiscal arrangements of the government.”21 Hamilton proposed to create precisely the type of factional interest in support of the government – an alliance with the monied interest – that Whigs feared in Britain.

21“Report on the Public Credit,” American State Papers, Finance, Vol. I, p. 15. Ferguson (1961) analyzes how constitutional issues and the public debt interacted in Hamilton’s thinking.

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Opposition to Hamilton’s plan arose quickly and focused on the power of the national government to create corporations. While considering whether to sign or veto the bank bill, Washington asked Hamilton, Jefferson (his secretary of state), and Randolph (his attorney general) for their opinions. Hamilton vigorously encouraged Washington to sign the bill. Jefferson and Randolph opposed it. They couched their arguments in constitutional terms: the U.S. Constitution did not explicitly give the national government the power to create corporations; therefore, the national government did not possess the power. Hamilton argued that the powers were implied in the Constitution.22 This confrontation launched one of the most enduring political debates in American history over the national powers implied by the Constitution.

The debates also discussed the larger issues about the dangers of corporations. James Madison, then a congressional representative from Virginia, feared that chartering corporations would destroy the delicate constitutional balance, risking constitutional failure:

Mr. M. then enlarged on the exact balance or equipoise contemplated by the Constitution, to be observed and maintained between the several branches of Government; and showed, that except this idea was preserved, the advantages of different independent branches would be lost, and their separate deliberations and determinations be entirely useless . . .

The power of granting charters, he observed, is a great and important power, and ought not to be exercised unless we find ourselves expressly authorized to grant them. Here he dilated on the great and extensive influence that incorporated societies had on public affairs in Europe. They are powerful machines which have always been found competent to effect objects on principles in a great measure independent of the people (Annals of Congress, 1st Congress, 3rd Session, pp. 2008–9).

The financial program provoked Whig fears of executive influence distorting the constitutional balance rather than concerns over the economic implications of Hamilton’s plan.23 The debate about the implications of

22“That every power vested in a government is in its nature sovereign, and includes by force of the term, a right to employ all the means requisite and fairly applicable to the attainment of the ends of such power, and which are not precluded by restrictions and exceptions specified in the Constitution, or not immoral, or not contrary to the essential ends of political society” McKee (1957[1934], 101, emphasis in the original).

23“It is hard to imagine how by deliberate intent, Alexander Hamilton’s economic program for the new republic could have been better calculated to exacerbate these [commonwealth] fears . . . they inevitably brought to mind the entire system of eighteenth-century English governmental finance, with all the consequences that entailed for minds shaped by British opposition thought” Banning (1978, p. 128).