History of American Corporate Capitalism

"Squeezing Truth from Power: The Rise of American Corporate Capitalism - Prologue (book in progress)"

GWU Law School Public Law Research Paper No. 194
GWU Legal Studies Research Paper No. 194

Contact: LAWRENCE E. MITCHELL
George Washington University - Law School
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Squeezing Truth From Power: The Rise of American Corporate Capitalism (book in progress), will examine the history of American corporate capitalism from 1890 to 1960, with an epilogue that brings the study to the present. I argue that the giant modern American corporation was created for financial reasons during the merger wave of 1897 to 1903, primarily for the sake of promoters' profits. The consequences of this age of consolidation were profound for the course of American capitalism. As Thorstein Veblen predicted, it resulted in a capitalism that privileged finance over business and, indeed, finance at the expense of business. Since the primary product of the corporation created during this period was capital stock, not industrial goods, the merger wave created the modern securities market just as a prosperous middle class with the means to invest was emerging at the beginning of the Progressive Era. That class internalized stock trading as a substitute for the land and small proprietorships underlying the earlier, and now gone, American Jeffersonian ideal. Stock became the new property. As such it gradually was pushed to the forefront of American business life.

In the beginning, stock was intimately bound up with the problems of trusts, the principal regulatory issue of the day. Trusts had been the focus of federal business concern since before 1890. Yet the first decade of the 20th century saw the trust problem merged with the problems created by the giant new combinations. This resulted in the first federal incorporation movement which intertwined issues of monopoly, railroad and utility rates, and securities regulation. Gradually, the three categories of concern began to be pursued not together but on their own as the federal incorporation movement faded away. The common theme in all was disclosure. Yet disclosure during this period was used as a tool, not as the remedy it would become. "Regulatory disclosure," as I call it, was designed to provide the federal government with information to permit the government to regulate and perhaps supervise industry, including the securities industry. The first
serious attempts at securities regulation were designed more to ensure a stable banking system than to provide investor protection. Only as middle class investment shifted from bonds to preferred stock to common stock, and common stock became a popular vehicle for speculation rather than investment, did the regulatory shift to disclosure as a remedy in and of itself, what I call "consumer disclosure," take place, with the enactment of
the New Deal securities laws.

Once the market was stabilized and made reasonably efficient by the information provided by mandatory disclosure, financial economists (who until the middle 1920s had barely studied common stock at all) began to examine the behavior and characteristics of common stock. The resulting modern financial theory ultimately detached the stock from the corporation, further leading to public focus on the stock market rather than business. From the 1960s on, this stock market focus accelerated until the business
behavior of the last decade of the 20th century came to resemble the business behavior of the turn of that century.

The Prologue lays out the central arguments of the book and provides a broad overview of its scope.