The American economy has changed drastically in recent decades: the population has expanded greatly; the labor force increasingly favors white-collar occupations over traditional factory work; automation makes possible greater production, but means fewer jobs; and a fifth of our society barely manages to meet its minimum needs.

Why have we drifted into this situation? It is David Bazelon’s challenging thesis that much of our trouble stems from the traditional confusion between making goods and making money. As Thorstein Veblen demonstrated seventy-four years ago, there is no necessary agreement between the two objectives. Our industrial system has the capacity to provide the material means for a good life, but our economic structure has never made full use of this capacity. Even today the difference between what we can produce and what we do produce amounts to $1,000 per person, or roughly $185 billion a year.

The major concern of those who control our industrial plant is money, and money can be gained in ways that have little to do with moving products along the assembly line and on to consumers. Instead there are available to “industrialists” a variety of financial techniques which they can manipulate to extract new money from old money without necessarily adding to the country’s real wealth: this is what David Bazelon calls the “Paper Economy.” This is the system by which the corporate elite—the managers of our technology—lives.

The paper economy, simply enough, is that complex of pyramided values on which corporations, banks, investment trusts, stockbrokers and finance companies subsist. In this world a two-point rise in the market creates the same sense of satisfaction that marijuana creates in another. These men hunger for money, but not, as Bazelon puts it, the money that buys a pack of cigarettes or builds the factory that makes the cigarettes, but for “pure” money, money that buys other money but that will never be spent for anything else. Thus money in the traditional sense, as a medium of exchange, becomes less important than money as a standard of deferred payment, for it is the latter which is vital to a society always looking toward greater accretions in future paper values. As this high aim is attained, the paper economy tends to make gold and other forms of standard money redundant.

Why this absurd situation in which fiction is substituted for reality? Bazelon turns to the idea of property in our time and reveals with stunning clarity the alterations that have taken place in its structure. Before the Civil War, and before corporations began to fill the economic landscape, property corresponded to things—to corporeal objects, as the lawyers might say. In the colonial period and through the age of Jackson such property guaranteed freedom and independence, for you couldn’t knock a man down or deny him the right to vote if he owned a horse and a homestead. But with the rise of the corporation property and ownership split apart. The discovery of the process, which dates back to Veblen, was explored by Berle and Means in 1933 in their classic study of the modern corporation. Nevertheless, in the light of at least one recent effort (by Gabriel Kolko) to deprecate the Berle-Means case, it is good to have Bazelon’s shrewd demonstration of its continuing validity.

Bazelon’s exploration of how the paper economy functions is thorough and savage. He has a remarkable Ironic talent for fluttering the dovecotes of conventional economic thinking which recalls Veblen; and though he is not an economist, he makes more sense than the experts who ruminate endlessly over stock market reports. He writes with great style, unlike most writers on economics, and he has produced a book worthy of a place next to Galbraith’s The Affluent Society.

Few people own things as things. Rather, they own paper: shares of stock which may perhaps give them a right to a portion of liquidated assets in case of bankruptcy, but little else. They do not possess an absolute right to income, since this stems from the largesse of the managers, who may or may not feel like paying out dividends. All the stockholder can do, then, is to sell his paper: hence the hunger for a healthy stock market.

The stockholder’s lack of genuine interest in what companies do, the widespread dispersion of shareholding and the proxy system (originally devised as an instrument of convenience) have all worked to place control of the corporations with the managers. As Bazelon demonstrates, Boards of Directors exercise power because no one else can. Moreover, corporation managers have obliterated the family capitalism of the 19th century, and, by the adroit use of the paper system (technically, the capitalization structure of the corporation), they have even superseded the old-fashioned financier. The managers long ago discovered that with an adequate supply of internal funds they could get long quite well without help from Wall street. Today, the “hired hand” governs the corporation: ownership in the old sense no longer means anything.


How, Bazelon asks, can anyone say that such a system is based on private property or private enterprise? Owned by a disorganized, impotent public and controlled by a private, self-perpetuating managerial clique, it can be only a system of private government. Here, then, is the central issue of the paper economy:

The strength and purpose of the nation are in the hands of a few thousand men who control the few hundred bureaucracies which dominate the economy. These organizations and men are the stewards of the permanent technological revolution which is the economy.

But the evidence shows that there is little urge on the part of these stewards to exercise a proper stewardship of the real economy. Much of the country’s “wealth” is dedicated to constant accretions in paper value, and if these accretions fall short of expectation, the Government is called in as in underwriter for the system to guarantee that prices and values will continue to rise. Nevertheless the corporate oligarchs, on whose behalf the United States Government pays out direct and hidden subsidies, exalt the name of free enterprise—only when they make a mess of things, as in the 1930s, do they take the Government’s handouts without complaint. Yet they know that their protests are merely a part of the game, for they are too deeply involved in the underwriter’s subsidies to believe in their own slogans or to be restrained by the underwriter’s rules. Consider, for example, antitrust and the myth of competition. Bazelon calls antitrust an elusive Arcadia. True, but that would suggest a measure of belief in the ultimate efficacy of competition, and this is a rather Utopian notion. Antitrust does not display even that much character; it is more like a ritual dance whose final step is a gentle slap on the wrist barely felt beyond the courtroom. (General Electric was a rule-proving exception.) As Bazelon points out, in the fifty-six years from 1890 to 1946 only seven businessmen were convicted of violating the antitrust laws, and all their sentences were suspended.

As for competition, Bazelon argues that it simply doesn’t exist. And when corporations want to build new plants, or to buy out rivals, they no longer use their own resources or borrow the cash, but merely compel the public to pay for it by raising prices. Bazelon calls this private taxation, an elegant fiscal maneuver last tried on a big scale by U. S. Steel, until it encountered an irate White House.

The central issues in our economy, as Bazelon sees them, are technology, organization, power and politics. The technology is provided by innocent scientists whose behavior is politically irrelevant; organization is a matter of creating harmony and super-efficiency in the corporation; power is something to be exercised by the managers but not discussed in public; and politics is “a form of ideological ancestor worship.” Our inability to relate any one of these to the others, to make them viable forces for the building of a decent society, accounts for the present drift. In the meantime, paper as a symbol of non-property obscures economic and social reality.

How can the dilemma be resolved? The question is essentially a political one, Bazelon insists: it is to be resolved by making political considerations—i.e., the well-being of the body politic—the responsibility of the actual leaders of American society. This would mean, I take it, reviving the same posture of public responsibility that characterized the Founding Fathers. This is a noble sentiment, but I fail to see that “the corporate guy-on-the-grab,” as Bazelon calls him, has the wit to learn that there might be some function for him other than increasing the value of his paper. The oligarch’s sole concern, to judge by the recent flow of managerial literature, is just the kind of organizational behavior that will make the inflation of paper so much easier to attain than the actual production and distribution of things that people need and want. For Bazelon to suggest that a functioning democracy can stem from a humanistic exercise of power by corporate archons is to contradict what he himself has already admitted. Here he has allowed his admiration for Adolf Berle’s more recent writings to get the better of him, for the public responsibility that classical politics demands requires an awareness of our current difficulties which neither Roger Blough nor Ralph Cordiner have thus far displayed. Yes, we do need a “higher” level of politics to deal with the increasingly oppressive effects of a paper economy, but I doubt that it can be located in the upper reaches of the corporate milieu.


Nevertheless Bazelon has written an important book, one that merits the closest attention, for he has initiated a dialogue that must be continued with all seriousness. Otherwise, the mindlessness, the self-satisfaction, the drift, will continue uncontrolled until we have been pounded to pieces against the sharp rocks of historical accident.

This Issue

June 1, 1963