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The Evolution of Corporations in America · Essay 2 of 25

· Brian Woods

Beware the East India Company: Big Business and the Road to Revolution

This is the second essay in a series about the rise of the big corporation in America — from the colonial era all the way to 1933, when Justice Louis Brandeis warned in his Liggett v. Lee dissent about the "curse of bigness."

Last time, we looked at the Bubble Act of 1720 — England's way of slamming the door on corporate swindles after the South Sea Bubble nearly wrecked the country's finances. One thing it left behind: for a hundred years, if you wanted to form a corporation in the British world, you had to get permission from the Crown or Parliament, and they weren't giving it out.

This essay is about the flip side of that story. Because there was one corporation that already had all the permission it needed — and it was the biggest, strangest, most powerful corporation the world had ever seen. When it tried to sell tea in Boston in 1773, Americans responded by dressing up as Mohawks and throwing its product into the harbor. The Boston Tea Party was one of the most famous episodes in American history, and it is worth remembering that the "tea" in the Tea Party belonged to a giant corporation.

The Tea Party didn't just give us a catchy phrase. It seared itself into the minds of the colonists — and later, into the minds of the state legislatures. And it left a lasting piece of folk wisdom that the new American republic took to heart: be very, very careful about letting large corporations form.

Here's the story.

"Past twelve o'clock, beware of the East-India Company"

Late in 1773, John Dickinson — the cautious, respected Pennsylvania lawyer who wrote Letters from a Farmer in Pennsylvania — suggested something almost comical under the pen name "Rusticus." Night watchmen in the colonies, he said, ought to change their cry. Instead of shouting "beware of fire" or "beware of thieves," they should call out:

"Past Twelve o'Clock, beware of the East-India Company."

Think about that. Watchmen warned people about things that could burn your house down or steal your silver. Dickinson wanted a corporation added to the list.

Was that overwrought? Not if you'd been paying attention to the East India Company. The Revolution was not a war against corporations — the colonists weren't fighting to abolish the corporate form, and they happily chartered plenty of corporations themselves once they had a country. But the East India Company sat at the dead center of the episode that turned a long-running tax dispute into a full-blown revolution. And colonists feared it for a very specific reason: to them, the Company wasn't really a private business at all. It was the government wearing a business suit.

A Company That Was Also a Government

The East India Company is hard to wrap your head around, because nothing like it exists today. Queen Elizabeth I chartered it in 1600, giving it a lock on English trade with the East. Over the next 170 years it accumulated powers no modern corporation has: it made treaties, kept forts, raised armies, fought wars, toppled rulers, ran territory, and collected taxes. After its victory at Plassey in 1757, it effectively became the government of Bengal. Its own motto told you what it was: Auspicio Regis et Senatus Angliae — "By command of the King and Parliament of England."

Historians call it a "company-state." That's exactly right. It wasn't a business influencing the government from outside — it was stitched into the fabric of the empire, part business, part ministry, part sovereign. Its stockholders included half the political class in London, and its luck was tied up with Britain's finances.

Which meant that when the Company got in trouble, the government noticed.

A Bailout With Strings Attached

And by the early 1770s, the Company was in deep trouble. Wars in India, corruption, speculation, a famine in Bengal, and the credit crunch of 1772 had brought the biggest corporation on Earth to the edge of collapse — with a mountain of unsold tea sitting in its London warehouses.

Parliament's answer in 1773 looks remarkably familiar to modern eyes: a rescue of a corporation too big to fail. The Tea Act let the Company ship that tea straight to America, skipping the middlemen and picking its own hand-picked agents — the "consignees" — in each port. That would let the Company undercut every legitimate importer and even the smugglers who'd been dodging the duty on Dutch tea for years.

Now here's the part that lit the fuse. There was still a three-pence-per-pound parliamentary tax on that tea — leftover from the Townshend duties that Americans had been howling about since 1767. The Company's tea was priced so cheap that even with the tax, it cost less than anything else on the market.

So the deal being offered to the average colonist was: buy this lovely cheap tea, and you'll quietly pay Parliament's tax as part of the price — which means you've admitted Parliament has the right to tax you. Cheap tea in exchange for a constitutional principle. Buy the tea, lose the argument.

In London, this all looked like clever administration: rescue an important company, crack down on smuggling, and quietly win the ten-year-old argument over parliamentary taxation. In Boston, it looked like a trap. Same facts, very different eyes.

What the Colonists Actually Said

You don't have to take my word for what Americans thought. They were loud about it.

Philadelphia kicked things off in October 1773 with public resolutions calling the Company's tea shipments "an open Attempt to enforce this Ministerial Plan" — note that: the Company executing a government plan — and "a violent Attack upon the Liberties of America."

New York pamphleteers, writing as "Hampden" in a series called The Alarm, attacked the Company's whole history. The Company had gotten its monopoly through "Bribery and Corruption," Hampden wrote, and warned readers not to be fooled by cheap prices: drive out the competition now, and later the Company would charge you "as high as they please." Sound familiar? It should. People were making the predatory-pricing argument about Standard Oil and Amazon before either existed.

Boston had its own aggravation. The local consignees — the Company's chosen distributors — included sons of Governor Thomas Hutchinson. To Patriots, that meant the governor's own family was lined up to profit from the scheme. Corruption went from being an abstract accusation to having a street address.

And John Dickinson, as usual, saw furthest. His "Rusticus" letter described the incoming tea as a joint project of "the Ministry, and the India Company, to enslave America" — ministry and company, working as one. The Company's record in Asia, Dickinson warned, showed what it thought of "the Rights, Liberties, or Lives of Men": wars stirred up, princes dethroned, provinces plundered. "The Monopoly of Tea," he wrote, was probably "but a small part of the Plan." America was just the next theater. The question wasn't three pence a pound. It was whether Americans would own anything they could truly call their own.

The Night of December 16, 1773

The tea ships arrived. Philadelphia and New York turned them away. Charleston stored the cargo under guard without selling it. Boston got stuck: the governor wouldn't let the Dartmouth leave without paying the duty, the customs men wouldn't clear her, and 20 days after arrival the cargo would be legally seized anyway.

So on the night of December 16, 1773, a crowd of Bostonians — some in rough disguises as Mohawk warriors — boarded three ships and hacked open 342 chests of Company tea and dumped it into the harbor. The value destroyed was enormous for the day -- and all of it was the property of the East India Company.

Here's where the story turns, and where the Company's fingerprints get all over the road to revolution.

The Company demanded compensation. And Parliament answered with the Boston Port Act of March 1774, which closed the port of Boston to trade — and here's the remarkable part — until "full satisfaction" had been made to the East India Company for the destroyed tea. Read that statute again: an entire town's livelihood was held hostage until a corporation was paid for its loss.

Then came the rest of the Coercive Acts — stripping Massachusetts of self-government, closing town meetings, quartering troops. Far from cowing the colonies, the punishment united them. The First Continental Congress met in September 1774. Lexington and Concord followed the next spring.

So no, the East India Company didn't cause the American Revolution, and nobody in London planned independence. But follow the dominoes: no Company crisis, no Tea Act in that form; no Company tea, no Tea Party; no destroyed Company property, no Port Act holding Boston hostage; no Port Act and Coercive Acts, no continental union — at least not then, not that way. The Company wasn't the foundation of the Revolution. It was the match on the dry kindling.

The Scar Tissue

Now to the part that matters for this series.

Americans walked away from the imperial crisis with a very specific lesson burned in: when the government creates a corporation, loads it with privileges, ties it to officials' fortunes, and points it at you, you get something you can't vote out, can't sue into submission, and can't stop. The Company had shown what a chartered corporation could become: not an instrument of the state, but a power rivaling it.

After independence, the power to charter corporations passed from Crown and Parliament to the state legislatures. And the states used that power the way you handle something you remember burning you: carefully. Incorporation was a privilege, granted one company at a time by special legislative act, never assumed as a right. Each charter specified the company's purpose — one purpose. Legislatures capped the capital. They limited how much land a company could hold and how much debt it could carry. Many charters came with expiration dates — twenty, thirty, fifty years — after which the corporation would simply cease to exist unless renewed. Some states imposed voting rules designed to keep one rich investor from dominating an election of directors.

And this wasn't just practice; it got written into the constitutional plumbing. Maryland's 1776 Declaration of Rights declared that "monopolies are odious, contrary to the spirit of a free government, and the principles of commerce; and ought not to be suffered." North Carolina's constitution said "perpetuities and monopolies are contrary to the genius of a free State."

Now let's be transparent about corporations' post-revolution. Early Americans did not hate ALL corporations. They chartered plenty of public or quasi-public ones in the twenty years after the revolution: municipalities, colleges, churches, libraries, banks, toll bridges, canals, insurers — Pauline Maier's wonderful history of the period shows incorporation of a certain kind flourishing after the Revolution. The bottom line is that a local toll-bridge company wasn't the East India Company, and everyone knew it. The attitude wasn't "no corporations." It was closer to what you'd say about a guard dog: useful animal, keep it on a short leash. What mattered to eighteenth-century legislators was who chartered a corporation, for what purpose, with what powers, for how long, and under whose control. Size, purpose, duration, and accountability were all on the table.

But those details -- and the legal cases and statutes that went along with them -- are ones we will explore in later essays, ending with the "race of laxity" among the states that Brandeis complained about in 1933.

But first: where did the English-speaking world's suspicion of corporations come from in the first place? Why did Britons and colonials already believe, decades before the Tea Party, that the corporate form was a public privilege to be rationed out carefully rather than a right anyone could pick up?

Part of that answer — the biggest single scare — is the subject of the first essay in this series, the South Sea Bubble and the Bubble Act of 1720. If you haven't read it, go back and start there.

As for the Company: it staggered on. The East India Company of Bengal fame would finally be dissolved in 1874, its territories long since taken over by the British government it had outgrown — the instrument absorbing its maker. But we're getting ahead of ourselves.

A few sources worth a look