Wednesday, March 15, 2006

Economics: Institutional change:Crucial stage of history of structuration of American businesses

I've always lamented how little historical understanding seems to obtain among the public, especially the Christian public, and especially regarding the formation of the typifying economic institutions of our societies - say, of North American society. For that motive, I try to keep an eye on certain bloggers; and today I'm pleased to find and convey to you a historical tidbit reported by a Professor of Corporate Law at UCLA who blogs as Professor Bainbridge - that's Stephen Bainbridge. He mostly quotes from a colleague, Prof Larry Mitchell.
Mitchell on the History of US Corporations

Larry Mitchell is posting to [the website of Social Science Research Network,] chapters of a book in progress entitled Squeezing Truth from Power: The Rise of American Corporate Capitalism. From the prologue:

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.
Although Mitchell and my politics differ rather substantially (see my Community and Statism, which reviewed Mitchell's book Progressive Corporate Law), he's a careful and thoughtful guy. What I've read so far of the work in progress has been very interesting. I commend it to anyone interested in the history of US corporate governance.
Now, since we rarely get a glimpse of how a historical narrative on an important matter that leads to a societal result important to us today, and since rarely do we get a link between the story with its metaphors, and the startingpoints of the systematic ideas held in scholarly debates like the Mitchell-Bainbridge discussion, I am urging on readers the abstract of Professor Bainbridge's own stance in Community and Statism, which he subtitles A Conservative Contractarian Critique of Progressive Corporate Law Scholarship - where Bainbridge reviews Mitchell's mentioned book (unfortunately now out of print). On the page foregoingly linked, you can read a much lengthier review by Bainbridge than that of the abstract which follows:
Abstract:This essay is nominally a review of Progressive Corporate Law (Lawrence E. Mitchell ed. 1995). However, it uses the book principally as a jumping off point for a critique of the strain of left communitarianism that has recently emerged in corporate law scholarship. The essay begins with a review of left communitarian critique of the nexus of contracts model of the firm and of rational choice. Because the arguments on both sides are well-developed in the literature, the essay focuses on the specific spin given the debate by Progressive Corporate Law's authors. The remainder of the essay is devoted to exploring the emerging communitarian theory of the firm. In the course of doing so, however, I also begin developing an explicitly conservative version of the law & economics account of corporate law. The essay looks to the intellectual tradition that runs from Edmund Burke to Russell Kirk to articulate an alternative to both the left communitarianism of progressive corporate law scholars and the classical liberalism embraced by many practitioners of law and economics.
This brief account fascinates me, not least because it distinguishes three positions, none of them Marxist but one decidedly left. What we don't get here (but see the Amazon review as well) is an address to the key term "communitarian." That lack and the filling of the gap remaining is important to me, as I hold to the Christian philosophy of Dooyeweerd and Vollenhoven where the idea of the work community of the enterprise (whether privately owned, state owned, workforce or co-op owned) is key. But the more general term "community" being so nuanced from societal sphere to sphere, I shrink from trying to elaborate it here beyond this mention. In the end, however, while I wouldn't want to subscribe to Mitchell's view because of the already-signalled difficulties in its problematics, I can't subscribe either to Bainbridge's, however redoubtable the connection to Burke and Kirk may be. These forebears have much to offer, as I presume, Bainbridge does too - but to center a theory of the firm on contract is not the place to begin. The Dutch have a term - beginsel - you've got to get your beginning-point clear or you'll skewer the entirety of your systematic conceptualization. While the concept of contract is important, especially from the standpoint of the legal aspect of the firm, the business enterprise in all its forms has a core (internal structural principle) that can't be reduced to a chief legal feature like contract. - Owlb

[This blog entry will be cross-posted to History News. See the entry for Mar15,2k6. - Owlb]

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