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But Freund acknowledged the radical break with individualism he was proposing for corporate theory. He was, after all, attempting to justify the power of the corporate majority to bind the minority:
That each person should fully answer for all his acts, and should not answer for the acts of others, is indeed a maxim of extraordinary importance, and it seems to be violated in the admission of representative action not resting upon express delegation. Against this it can only be urged that the maxim without modification is unjustifiable, because it antagonizes or prevents the full protection of joint interests, which, as we have seen, demand representation. The foundation of all liability upon principles of moral responsibility is a legal conception which may be carried to excessive lengths; even if fully justified where liability is penal and the moral quality of the act is of the essence of its legal aspect, it may be inadequate where it is simply a question of adjusting conflicting interests in accordance with prevailing ideas of justice and equity.23'
Yet, as with the earlier contractual theorists, Freund had his greatest difficulty in accounting for the oligarchic tendencies that were already becoming dominant within the large corporation. Many statutes vested corporate powers directly in the board of directors, he noted. At that point, he acknowledged, "corporate capacity would thereby be shifted from the members at large to the governing body. . . . Such an organization reduces the personal cohesion between the [shareholders] to a minimum, and allows us to see in a large railroad, banking or insurance corporation rather an aggregation of capital than an association of persons."231
At the very moment, then, at which Freund sought to derive the corporate personality from majority rule of the shareholders, the corporate entity itself was becoming virtually independent of the shareholders. It required a still more abstract justification of corporate personality, divorced entirely from any pretense that, ultimately, the shareholders ruled.
Two years after Freund wrote, Henry Williams attempted that justification. In an article in the American Law Register he asserted that shareholders "possess no actual existing legal interest . . . whatever" in a corporation. Even in the case of dissolution, "when their actual legal rights first accrue," shareholders' rights were "entirely subsidiary" to those of creditors. "The stockholders," he concluded, "are in the position of the heirs, or next of kin or residuary legatees of a living per- son."232
In the flood of articles on corporate personality after the turn of the century, legal writers continued to reinforce the notion that a group must be treated as "an organic whole . . . which cannot be analyzed into the mere sum of its parts."233 The corporation, these writers insisted, was a real entity, a fact, not a fiction. 234 University of Chicago Law Professor Arthur W. Machen summed up these views in an influential 1911 article, emphasizing "the naturalness and indeed inevitableness of the conception of a corporation as an entity":
In these days it has become fashionable to inveigh against the doctrine that a corporation is an entity, as a mere technicality and a relic of the Middle Ages; but nothing could be further from the truth. A corporation is an entity-not imaginary or fictitious, but real, not artificial but natural.235
Following the inevitability theorists, Machen underlined the new view that the corporation existed prior to law. "All that the law can do is to recognize, or refuse to recognize, the existence of this entity. The law can no more create such an entity than it can create a house out of a collection of loose bricks."236
What was the political significance of the thousands of pages devoted to the question of corporate personality? The argument between entity and contractual theorists during the i 88os and r 8gos was, at bottom, a conflict over whether the individual or the group was the appropriate unit of economic, political, and legal analysis. Some contractualists were openly hostile to big business and offered the partnership model as an alternative to the corporate form, to which they ascribed most of the evils of consolidation and monopoly. But other contractualists were not so much opposed to the corporation as they were to its oligarchic tendencies. Contractualism was, for them, a way of reasserting the primacy of shareholder control.
In one important respect, contractualism prepared the way for the triumph of the natural entity theory. Reasoning from individualist premises so prominent in the decades immediately after the Civil War, the contractualists were the first to see the anomalous character of the artificial entity theory of the corporation, not only because it clashed with the underlying spirit of general incorporation laws but also because of its hostility to any theory of natural rights. Every bit as much as the natural entity theorists, the contractualists worked from a conception of property as existing prior to the state. By contrast, the artificial entity theory represented a standing reminder of the social creation of property rights.
The main effect of the natural entity theory of the business corporation was to legitimate large-scale enterprise and to destroy any special basis for state regulation of the corporation that derived from its creation by the state. Indeed, the demise of the ultra vires doctrine, as well as of constitutional restrictions on foreign corporations, was an expression of the triumph of the natural entity theory. An entity theory was also helpful for advocating even more limited shareholder liability while justifying the growing irrelevance of the shareholders in the modem business corporation. Finally, it obliterated the claim that corporate mergers were different from individual acquisitions of property.
In their emphasis on corporate personality, early natural entity adherents attempted simply to capitalize on the language of natural rights individualism by portraying the corporation as just another right-bearing person. Most later Progressive legal thinkers, however, followed Ernst Freund's more realistic effort, dismissing the idea of corporate personality as merely a metaphor. But the Progressives were at one in seeking to demonstrate the real and natural character of corporations.
If the natural entity theory arose to legitimate emerging large-scale enterprise, it became in the hands of Progressive thinkers a way of being realistic about social and economic trends. Large corporations were here to stay, and, as one of the ablest Progressive legal writers, Gerard Henderson, put it in 1918, the natural entity theory "looks upon a corporation . . . as a normal business unit, and its legal personality as no more than a convenient mechanism of commerce and industry. . . . [T]he material basis is the growing internationalism of business, of trade, of investment. ,237
By the time Henderson wrote, Progressives were struggling to emancipate themselves from legal conceptions rooted in natural rights individualism. If the central goal of earlier natural entity theorists had been to extend the natural rights of individuals to the corporate personality, the Progressives instead sought to show that all rights, both corporate and personal, were entirely the creatures of the state. Henderson wrote:
When we speak of a corporation being the subject of rights, we mean that it has the capacity to enter into legal relations--to make contracts, own property, bring suits. Rights, in this sense, are pure creatures of the law. . . . There is no reason, except the practical one, why, as some one has suggested, the law should not accord to the last rose of summer a legal right not to be plucked."'
Thus, the "corporate device" was "not an expression of any inherent philosophic quality in the group-of any group will, or group organism. It is no more than a convenient technical device . . . to achieve the practical results desired, of unity of action, continuity of policy, [and] limited liability. . . .239
Both the fictional and the realist schools had unnecessarily assumed that only persons could be the bearers of legal rights, Henderson argued. "The assumption that a person alone can be the subject of rights is based on the conception of a right as a philosophic entity, springing out of the nature of man, independent of the law and anterior to it."240 This view "modern jurisprudence has very generally rejected. ,241
Henderson echoed Pound in arguing that there were, in fact, not "rights" but "interests.""'
Thus, the "Practical" recognition of the corporate entity in no way implied special privileges or protections for corporations. "The social purposes for which legislation may override private interests are of the broadest sort, and fortunately their scope is constantly growing. . . . All legislation must be tested . . . by the fundamental criterion [of] whether it is reasonably adapted to securing these interests. . . ."243
However often the Progressives ridiculed discussions of corporate will and personality as metaphysical inquiries derived from outmoded natural rights conceptions, they were not indifferent to whether the corporation should be treated as a real entity. Here they stood together with earlier entity thinkers in insisting that the recognition and protection of group interests was a practical necessity of modern life. "The commercial world," wrote Henderson, "whose habits of thought so largely influence the development of law, has come to regard the business unit as the typical juristic entity, rather than the human being. . . . New economic phenomena, railroads, industrial combinations, the emergence of hitherto disregarded social classes, determine its growth. -244
It was the task of Legal Realist thinkers to adjust legal conceptions to these changes. For example, the earlier conception that the stockholders constitute the corporation, Henderson wrote, "is of no value under modern conditions. The modern stockholder is a negligible factor in the management of a corporation."245 Standing behind the pragmatism of the Progressive view of corporations, then, was an acceptance of the recent triumph of the corporate form as "a normal business unit."246 No longer was it necessary to resort to metaphysics to establish the legitimacy of the business corporation. It had become a fait accompli.
Conclusion
The Santa Clara case did not represent the triumph of a natural entity theory of the corporation. In 1886, when old conservatism still dominated the world view of Supreme Court justices, any such conception of, corporate personality would have been received with hostility by an old conservative court still actively suspicious of corporate power and the emergence of concentrated enterprise. The 1905 case of Hale v. Henkel247 underlines how late it was before the Supreme Court ambivalently began the move towards a natural entity theory in corporate constitutional jurisprudence. Its opinion that the search and seizure provisions of the Fourth Amendment apply to the corporation, while the Fifth Amendment's selfincrimination clause does not, still wavers between the past and the future.
In Santa Clara a natural entity theory was unnecessary for the immediate task of constitutionalizing corporate property rights. An aggregate or partnership or contractual vision of the corporation-with well-established roots in the Dartmouth College Case248-was sufficient to focus the conceptual emphasis on the property rights of shareholders. Either a partnership or a natural entity view could equally successfully have subverted the dominant artificial entity view of the corporation as a creature of the state.
If the choice between a natural entity and a partnership theory was a toss-up when Santa Clara was decided, other nonconstitutional considerations soon pushed American legal theory toward the entity conception.
First, by igoo it was no longer easy to conceive of shareholders as constituting the corporation. Changes in the conception of the shareholder from active owner to passive investor weakened the evocative power of partnership theory. Moreover, the entity theory was better able to justify the weakened position of the shareholders in internal corporate governance. Second, the partnership theory represented a threat to the legitimacy of limited liability of shareholders. The entity theory, by contrast, emphasized the distinction between corporations and partnerships. Third, while the partnership theory pushed in the direction of requiring shareholder unanimity for corporate mergers, the entity theory made the justification of majority rule possible. Fourth, the entity theory was superior to the partnership theory in undermining Chief Justice Taney's foreign corporation doctrine, which represented a substantial legal threat to the emergence of national corporations doing business in each of the states. The foreign corporation doctrine's reversal, shortly before World War I, can be associated with the triumph of the entity theory.
While it might be possible, at some high level of abstraction divorced from concrete social understandings, to demonstrate that the partnership theory could have been manipulated to accomplish any of the legitimating tasks for which I have claimed the natural entity theory was superior, in many of the specific historical contexts I have identified, the two conceptions of corporate personality did not have equal evocative or persuasive power. Indeed, they carried with them considerable legal and intellectual baggage that did not permit random deployment or infinite manipulability.
While John Dewey may have been correct in identifying the contradictory or random deployment of these conceptions as applied to labor unions and business corporations, he could not, I believe, have demonstrated successfully that each theory of corporate personality could have equally legitimated the practices of emergent large-scale business enterprise.
An important task of legal theory, then, is to uncover the specific historical possibilities of legal conceptions-to "decode" their true concrete meanings in real historical situations. We have spent far too much intellectual energy in the increasingly sterile task of discussing legal theory in a historical vacuum. That is one of the reasons why Anglo-American jurisprudence constantly seems to get no further than repeated rediscoveries of the wheel. By contrast, in more specific settings, one finds that legal theory does powerfully influence the direction of legal understanding.
This chapter was originally presented as the Julius Rosenthal Lectures at Northwestern University Law School on March 16, 17, and 18, 1981.
In the first two chapters I sought to capture the basic structure of Classical Legal Thought and to set the stage for the Progressive assault on its premises. In chapter 3, 1 began to focus on the vast institutional and ideological changes in American society that triggered the crisis of legitimacy at the turn of the century. In this chapter 1 demonstrate how these changes affected the legal thought of Oliver Wendell Holmes, Jr., the most important and influential legal thinker America has had. Holmes published his first article on legal theory in 1870 when he was twentynine.' His masterpiece, The Common Law,' was rushed to publication in 1881, Holmes noted, so that it could appear in advance of his fortieth birthday.3 Later in the same year, he was appointed to the Supreme Judicial Court of Massachusetts, where he served for twenty years. His last important work in legal theory is his famous Boston University Law School address, "The Path of the Law," published in 1897. Five years later, past his sixtieth birthday, he was appointed to the U. S. Supreme Court, where he served for the next thirty years.
This chapter focuses on Holmes's theoretical writings through "The Path of the Law," which represents his last effort at self-conscious, abstract discussion of legal theory. Though the influence of Holmes's judicial career-especially his years on the U. S. Supreme Court-is undoubtedly of major significance for the history of legal thought, these were not years of jurisprudential innovation. In fact, Holmes seems to have abandoned his efforts at systematic legal thought after "The Path of the Law." He never again tried to do what in his youth he most aspired to do--"to twist the tail of the cosmos."5
Almost everything that has been written about Holmes's legal theory has been written from the perspective of "winner's history." Thus, much has been written about Holmes as the father of the later Legal Realist movement, and his writings are studied for anticipations of pragmatism, anti-formalism, realism, functionalism, instrumentalism, and modernism in law.6 Because he was noted for his brilliant, often revolutionary, but easily misunderstood aphorisms-"The life of the law has not been logic: it has been experience;"' "general propositions do not decide concrete cases"8-and because he was something of a cult figure for two generations of liberal thinkers,' there has been a strong tendency to stereotype his contributions to American legal thought. And because his great work, The Common Law, meets several of the tests for
a classic-it is obscure and inaccessible, in addition to being rarely read-Holmes has not often been studied in his own terms. Above all, I believe it has never been argued that in reality there is an early and a late Holmes, and that his own intellectual journey from The Common Law in 1881 to "The Path of the Law" in 1897 parallels a major change in American social, economic, and legal thought and in the structures of legitimacy in the two periods.
Subjective versus Objective Standards
If there is a single, overriding, and repetitive theme running through Holmes's writing, it is the necessity and desirability of establishing objective rules of law, that is, general rules that do not take the peculiar mental or moral state of individuals into account. We saw in chapter 2 how the subjective-objective debate dominated the discourse over the nature of contracts. Holmes believed that only through objective legal rules could the law provide the certainty and predictability necessary to regulate an increasingly complex and interdependent society. In articulating this vision, Holmes confronted and dismissed legal arguments deriving from natural right theories, which emphasized that laws based on objective standards were immoral because they failed to take into account the state of mind of individuals when assigning liability.
Societies, he argued, had "frequently punish[ed] those who have been guilty of no moral wrong, and who could not be condemned by any standard that did not avowedly disregard the personal peculiarities of the individuals concerned."10 Indeed, "[n]o society has ever admitted that it could not sacrifice individual welfare to its own existence."" Therefore, "the law does undoubtedly treat the individual as a means to an end, and uses him as a tool to increase the general welfare at his own expense." 12
Holmes used the example of the doctrine that ignorance of the law is no excuse. "The true explanation of the rule is the same as that which accounts for the law's indifference to a man's particular temperament, faculties and so forth. Public policy sacrifices the individual to the general good." 13