The Laws of Capitalism Episode 3: Lawyers and Firms and Corporate Entities – Oh My!

Corporations—a superior innovation for organization, or simply another way to create wealth?

Katharina Pistor examines how the law has accompanied the evolution of private business enterprises, from their early roots as simple partnership agreements of temporary duration, to colonial joint-stock companies in the 1600’s with state charters granting them the legal status of corporations (or legal persons), and the eventual introduction of general incorporation statutes in the 1800’s simplifying the creation of corporations. By the 1900’s the law enabled the corporation to become the dominant form of business organization under capitalism.

Prof. Pistor takes up the case study of Lehman Brothers, and explains how its organization as a holding company allowed shareholders to profit, while leaving debt-strapped subsidiaries to flounder. Lehman harnessed the corporate structure created by law to build a house of cards.

First Aired on The Institute For New Economic Thinking.

Shared via Creative Commons.