Keeping the club running. Corporations and other legal "persons" are important, and the importance of continuity is one reason.

It is not something people seem to notice much, if they even think about it at all, but the existence of "legal persons" is behind some of the greatest dilemmas we face today, covering a wide range of topics which define the headlines every day.

On the one hand, there are relatively obvious legalistic discussions about this concept. For example, in America, among the various institutional causes of the political malaise there today, at least in more learnèd discussions, one has been the Supreme Court's acceptance of the argument that lobbying corporations have "freedom of speech".

Perhaps less obviously connected to such legal discussions, is the widespread concern about the worsening of income distribution in rich countries, and the increasingly obvious ability of the wealthy to avoid paying taxes. At least in a superficial way, this is so widely understood that it has spread all over social media. But what kind of problem is this, if it is not another one where corporations give leverage and power to their members, or those members who have the most control of them, without giving them any incentive to act responsibly?

If they are so bad, why do our governments allow corporations to exist like this? Could we, should we, try to reduce the importance of corporations, or change the way they work? There are important reasons for them to exist, and it seems to be an important thing to remind ourselves about right now. Economists generally feel that corporations are an important invention, so we had best make sure we understand why. And going beyond economics, it has even been argued by Toby Huff that the concept of legal persons in medieval Europe allowed the birth of Modern Science itself, because of the independence it gave to universities.

But what about this? It could even be argued that even modern countries, and the various governments within them, are now basically corporations, and that this was not the case historically, and nor was it inevitable. Some municipal governments are even called corporations. And the historical reality is that medieval city councils were one of the basic models which lead to both modern "citizen"-based (we might now say stakeholder-based) governments, but also to the modern corporation.

So we are talking about a wide range of institutions, and indeed about a whole way of thinking which we have been "programed" with, so that we hardly notice it any more. It might even be one of the best ways to define what originally made Western culture both different, and worth imitating.

As we will see, the various good reasons for organizations being allowed, or even encouraged, to act as legal human beings are similar to the reasons such organizations sometimes become a concern. It increases the power of a group of people, and reduces some of the risks they face.

We should however distinguish the benefits of corporations, from the benefits of organizations or alliances more generally. Alliances are natural and normal thing, and many of the benefits which we might attribute to corporations are actually benefits which can come to any organization. For example, here are two that might occur to anyone who has studied economics:

• Risk pooling. One obvious benefit of corporations is that they can pool the risks of a group of people. 
• Division of labour: economies of scale and scope. A slightly less obvious, but similar benefit, is that by working together in a pre-agreed way means that individual people, either members of the alliance, or agents brought in to do a specific job, can specialize in what they do, and work in a closely coordinated way, reducing costs, and working more effectively.

Do organizations or alliances need to be recognized as having rights similar to a person, in order to get these benefits? Clearly not. However, being able to use such an option is often a very good way to make such alliances and organizations work better. A simple thought experiment we can use is of a club, for example a sporting club, which, at a certain point, decides to get itself legally recognized. What are the reasons for doing this?

Many of the benefits of converting an organization into something recognized by law as an actor with rights and responsibilities, like a person, come from the clarity which comes from putting something in writing. That is perhaps only logical. That is what laws are all about? By putting things in writing, they become easier to trust, even into the long term. Written laws are certainly not the only ways to create trust and predictability, but they have been extremely successful.

Long-term continuity is perhaps the advantage we think least about. Economists for example tend to be trained using two dimensional static models, which do not make it easy to consider time. At any particular moment, formally defined companies can often bring together a larger number of people than informally defined organizations. Therefore economists, when asked to explain the benefits that companies have over individuals, are likely to talk about economies of scale and scope. This way of thinking is also relatively well-understood by the general public.

However, companies can also connect people who live in different times. Continuity might have been more important than efficiency for the original legal persons in medieval law, and its precursors. Families and clan groups, the natural precursors of all organizational concepts in some ways, have always tended to evolve some traditions to help maintain a predictable and peaceful continuity. 

The general public tends to see the Middle Ages as simple and illiterate, but for anyone who studies it, one of the constant themes of life was the importance that everyone seemed to place in complex legal agreements and debates. In the Middle Ages, power was held to a large extent by military families. That their inheritances should happen peacefully was critical to everyone. These soldier families were however generally not great administrators or economists themselves. Their legal norms, such as the idea of primogeniture, came to be guided by innovative church lawyers who were able to draw upon, and go beyond, Roman law. These innovations proved to be successful.

Churchs, and the cities, were also very important, even to the military class, who constantly needed to negotiate with them. Trust could not be built up not on the basis of any powerful empire, so it was built upon the legal ideas of church lawyers and city people, and it is in this context that written agreements became critically important, and non-human "persons" became important.

If a noble gave land to a church, or rights to the citizens of a town, it was critical that, when new people took over in the future, these agreements would not be seen as terminated or optional. The lords had to make deals with entities which lived beyond the lifetime of one man.

And this is also important today, whenever a club, for example, starts to consider turning itself into a legal entity.