Corporations = individuals? Confusions in economic theory and First Amendment jurisprudence

Metaphors are tricky things. Corporations are “persons” under the law in many respects, just as you and I are. And we treat corporations as rational individuals in the market. These figurative equations of legal fictions with human beings certainly have their utility, but they easily can be pushed too far. Individuals at AIG were making individual fortunes based on the income they were bringing into AIG for selling credit default swaps. Those individuals were making and would retain those fortunes even if, as turned out to be the case, AIG might not have sufficient funds to pay off the obligations those credit default swaps imposed on AIG. In other words, if one treated AIG as a rational person, one would suppose AIG would never expose itself to a real risk of obligating itself to pay more than it had in reserve. But AIG is merely a corporation, and the individuals actually making the decisions on behalf of AIG had every incentive to get what they could, subject AIG to irrational risk, and be able to walk away with their tens of millions of dollars.

And now the Supreme Court has overturned over 100 years of precedent permitting limits on corporate contributions to political campaigns because such limits constrained free speech and, according to the truism announced by Justice Kennedy’s majority opinion, ”Speech is an essential mechanism of democracy, for it is the means to hold officials accountable to the people.” But corporations don’t make decisions about how to spend money on campaign contributions — the individuals who control the corporations do. So what the Supreme Court has done is to remove any limits we might put on corporate CEOs to spend corporate money to advance the interests that indubitably are intended to redound to the benefit of those individual CEOs. I wouldn’t limit the ability of CEOs and shareholders to make individual contributions to political campaigns, but why are we treating purely legal entities like they are made of flesh and blood?

As Buzzflash pointed out recently, Thom Hartmann in his book Unequal Protection explains:

Prior to 1886, corporations were referred to in U.S. law as “artificial persons.” but in 1886, after a series of cases brought by lawyers representing the expanding railroad interests, the Supreme Court ruled that corporations were “persons” and entitled to the same rights granted to people under the Bill of Rights. Since this ruling, America has lost the legal structures that allowed for people to control corporate behavior.

Do we need to protect Exxon’s right to free speech?

There’s an interesting and largely ignored set of precedents at play in the campaign finance case the Supreme Court heard arguments in yesterday. The focus is on whether Chief Justice Roberts — after having emphasized during his confirmation hearings the importance of precedent and the extraordinary circumstances that would require it to be overturned — will vote to overturn over 100 years of limits on corporate donations to political campaigns on the grounds that limiting corporate contributions to political campaigns is an unconsitutional limitation on free speech. Here’s my bet (which I strongly recommend you don’t take): Roberts will overturn the precedent and vote to overturn the campaign finance restrictions.

But there’s an even older set of precedents that ought to be subject to review: the precedents that conclude that corporations are “persons” just like you and me; accordingly, corporations are entitled to free speech rights, protection against unreasonable searches and seizures, and all the other rights guaranteeed to individuals under the Constitution.

There’s nothing self-evident about concluding that a corporation is entitled to these protections. One reason is what the right wing of the Court identified years ago in concluding that limitations could be made on a union’s power to contribute money to political causes: an individual union member’s views might difffer from the union’s. Just so, an individual stockholder or director’s views might differ from that of the corporation’s.

More importantly, though, the idea of a corporation is a convenient legal “fiction” — really a metaphor — that courts employ because it is, well convenient for purposes of certain legal analysis. But when we confuse the metaphor for the reality we can get into trouble. As Buzzflash pointed out recently, Thom Hartmann in his book Unequal Protection explains:

Prior to 1886, corporations were referred to in U.S. law as “artificial persons.” but in 1886, after a series of cases brought by lawyers representing the expanding railroad interests, the Supreme Court ruled that corporations were “persons” and entitled to the same rights granted to people under the Bill of Rights. Since this ruling, America has lost the legal structures that allowed for people to control corporate behavior.

So think twice before you conclude that the campaign finance case is all about overcoming restrictions on free speech, which is the position argued on the left by the ACLU and on the right by the Wall Street Journal:

Hillary Clinton may end up the accidental heroine in the battle to reassert First Amendment rights over restrictions on political speech. Yesterday, the Supreme Court heard a historic reargument in the case of Citizens United v. Federal Election Commission, and the Justices have a chance to revisit two of their greatest offenses against the Constitution.

The case involves a political documentary made during last year’s Presidential primaries about then-Senator Clinton called “Hillary: The Movie.” It wasn’t what you’d call a glowing portrayal. Funded by a group called Citizens United, the film was intended to be shown on cable TV during the primary season, a profile that got it caught in the net of campaign finance reform laws that control political advertising.

At stake are two major precedents in the campaign-finance canon, Austin v. Michigan Chamber of Commerce (1990) and a portion of McConnell v. FEC (2003). In Austin, the Court ruled the government may ban corporations from engaging in what’s known as “express advocacy” directly from corporate treasury funds, requiring the funds to be channeled through a separate political action committee. In McConnell, the Court built on that decision to uphold most of the Bipartisan Campaign Reform Act, a.k.a.

the 2002 McCain-Feingold law, including a section that banned “electioneering communications.”

. . . The First Amendment was designed specifically to protect speech in just the kind of scenario “Hillary: The Movie” presents—the right to engage in the political process and to challenge and comment on candidates. Citizens United is the ideal opportunity to overturn a major swath of bad law.

No, the First Amendment was not “designed to specifically protect speech” by business organizations — it was intended to protect speech by individuals. It’s an amazing argument from those who would normally argue that we need to stick to the Original Intent of the Framers, but it shows too that Original Intent is merely a means to a political end, not a reasoned position.