The Modern Corporation and Private Property
In 1932 Berle and Means published a major work of the New Deal era, The Modern Corporation and Private Property. Through or from this book flowed many concepts of corporations and corporation law, once thought maverick, but now fashionable, even conventional: the inability of thousands of stockholding “owners” to govern, often even to influence, the managers actually in charge of giant companies; the emergence of modern management in large self-financing corporations which reflects this “separation of ownership and control”; the growing concentration of capital in these legally personified aggregations to a point where they dominate modern capitalist societies. Since the book was written, Berle has been prominent not only in academic and legal circles but also in political and diplomatic life.
During the New Deal Berle was a pioneer in the debate about the nature of corporate power and for that he is likely to be best remembered. For instance, in 1932 he engaged in a famous exchange in the Harvard Law Review on the question—then revolutionary in itself—“For Whom are Corporate Managers Trustees?” Traditionally, directors’ duties relate to the interests of the corporation and especially of the stockholders. Professor Merrick Dodd in the Review argued that it was appropriate by then to recognize wider duties to the community at large. Berle was attracted by this view, new in 1932, but, as a lawyer, could not adopt it. The various corporation laws in the United States did not then (and still do not) go much further than to permit management to devote corporate assets to philanthropic purposes, and the interests of stockholders still dominate the rhetoric of its legal duties.
Yet, as usual, social organization moved on, paying scant regard to legal rhetoric. By 1954, Berle asserted that in practice the argument had been settled “squarely in favor of Professor Dodd’s contention” (The Twentieth Century Capitalist Revolution). Managers, he argued, say they consider, and do consider, the corporation’s interest in a very wide setting. The managers of the giant corporations have become, Berle claimed, imbued thereby with a social “conscience.” By 1959 he doubted even the desirability of stockholder control, which he held to be little more than ritualistic (Power Without Property).
To those traditionalists, then, for whom “control” by stockholders exercised through corporation meetings and the stock market is an integral part of the model of capitalism, Berle is a maverick; but he has withstood their attacks. The criticism of Professor Henry Manne in 1962, for example, he called an attempt to describe twentieth-century institutions with “nineteenth century economic folklore.” Three years later he replied to the economist, Professor Shorey Peterson, that classical economics just did not account for modern corporate capitalism: “A vast sector of the American economy is not, even theoretically, within the classical economic system.” Supply and demand are not what they were; prices are widely fixed, not competitive; large enterprises with guaranteed markets do not behave like the classical entrepreneur in the market place. If the profit motive is still “regnant …
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