Gardiner Means Research Articles

Gardiner Means’ Contributions to Post-Keynesian and Political Economics

ABSTRACT Certain post-Keynesian (PK) authors consider Means as one of the founding figures of PK theory and a notable contributor to heterodox economic thought in general. Paradoxically, many surveys of PK economics do not mention his name at all. It is the purpose of the current study to scrutinize the possible reasons behind the contradictory evaluations of Means’ contributions among PK authors. Based on a critical analysis of his stance on Keynesian and political economics traditions as well as his labor analysis, I argue that Means’ ideas and PK theory remain in harmony on the surface but conflict at a more fundamental level.

Corporate Power and The Return of Inflation

The origin of the current inflation stemmed from the disruptions caused by the COVID-19 induced recession, the subsequent efforts to mitigate those disruptions, and the exercise of corporate power. First, the article addresses the mainstream views of inflation, all of which ignore corporate power. Second, the article considers the concept of administered prices developed by Gardiner Means. Third, the article examines the empirical data, finding that the profit share of domestic income is at its highest since 1929. The fourth section considers the policy of countering inflation by raising interest rates, the threat of recession, and the reallocation of claims to the “functionless investor.”

Neoliberalism and the Defence of the Corporation

This article addresses a little-known event in the history of neoliberalism: a conference at Stanford University held in 1982 to reconsider Adolf Berle and Gardiner Means’ The Modern Corporation and Private Property 50 years after its initial publication. This event is important as it is where key members of the neoliberal thought collective sought to define and defend the powers and freedoms of the corporation. First, this article outlines the political commitments of Berle and Means by considering the core arguments of The Modern Corporation and Private Property; second, it addresses key papers from the event published subsequently in the Journal of Law and Economics; and third, it analyses the neoliberal defence of the corporation that emerged from these papers, and reflects on the limitations of the work of Berle and Means for developing a response to their neoliberal critics.

Considerations on Inequality, Corporate Governance, and Financialization

Disjunctures between corporate governance, increasingly dominated by financial considerations, and social inequality have been among the motor forces of current world-wide “populist” voter revolts. This article looks for clues for the relation between economic inequality, corporate governance, and financialization by re-examining the work of Karl Marx and of Adolphe Berle and Gardiner Means. Marx is widely considered, in Japan, to have pointed out that the division of profit into the wages of management and the profit of enterprise is considered as a path to the association. However, this general interpretation in Japan may not be sufficient for capturing capitalism’s contemporary reality. This presentation develops an alternative interpretation of this chapter by combining Marx’s explanation with the theory of the separation of ownership and management proposed by Berle and Means. We then explore causal relations among income inequality, corporate governance, and financialization.

The rejection of industrial democracy by Berle and Means and the emergence of the ideology of managerialism

One distinctive feature of the American variant of capitalism is the near absence of any of the industrial democracy institutions found in many European firms. This article examines ideology as a factor behind the absence of industrial democracy institutions in the United States. It focuses on the early 1930s, when the ideology of managerialism was being formulated by Adolf Berle and Gardiner Means, the authors of a book that had a well-documented influence on American business culture. As the article shows, many American firms in the 1910s and 1920s experimented with worker representation systems that contemporaries called industrial democracy. Berle and Means were aware of these moves to democratize the American workplace, but they rejected all forms of industrial democracy. The article advances an explanation for their rejection and thereby contributes to our understanding why the United States did not take the path towards democracy within companies.

The Modern Corporation and Private Property Revisited: Gardiner Means and the Administered Price

This essay views The Modern Corporation and Private Property from the perspective of its junior coauthor, Gardiner Means. Means generated the book’s statistical showings of deepening corporate concentration and widening separation of ownership and control, studies also included in a Ph.D. dissertation Means successfully submitted to the Harvard economics department a year after the book’s publication. The dissertation also included a chapter, never published and rejected by the dissertation committee, that set out a theory administered prices. The theory lays out the statistical results’ implications for public policy. In Means’s view, Adam Smith’s picture of supply, demand, and automatic market correction had been partially eclipsed by inflexible pricing administered by corporate managers. Growing corporate concentration exacerbated these “administrated” prices’ distortionary effects. The theory explained the Great Depression’s persistence and yielded a detailed list of problems to be addressed by a new regulatory state. The chapter, only alluded to in the book, provides essential explication of its excursuses on corporate power and social welfare, for it explains in hard economic terms just what Berle and Means thought that “neutral technocrats” in the corporate sector could do to make the economy work better. The essay goes on to describe Means’s later articulations of the theory and to compare his later career path to that of Berle.

The Rise and Fall (?) of the Berle-Means Corporation

This paper forms part of the proceedings of the 10th Annual Berle Symposium (2018), which focused on Adolf Berle and the world he influenced. He and Gardiner Means documented in The Modern Corporation and Private Property (1932) what they said was a separation of ownership and control in major American business enterprises. Berle and Means became sufficiently closely associated with the separation of ownership and control pattern for the large American public firm to be christened subsequently “the Berle-Means corporation”. This paper focuses on the “rise” of the Berle-Means corporation, considering in so doing why ownership became divorced from control in most of America’s biggest companies. It also assesses whether developments concerning institutional investors and shareholder activism have precipitated the “fall” of the Berle-Means corporation, meaning U.S. corporate governance is no longer characterized by a separation of ownership and control.

Adolf Berle During the New Deal: The Brain Truster as an Intellectual Jobber

Thirty-seven year old law professor Adolf Berle had a career year in 1932. His book published that year, The Modern Corporation and Private Property (written with Gardiner Means), framed the fundamental twentieth century change in understanding modern corporations. Berle’s exchange with Merrick Dodd on the purpose of the corporation that played out that spring on the pages of the Harvard Law Review launched a still fierce debate over the role of shareholders and other stakeholders. His service as a brain truster for Franklin Roosevelt during the fall election gave voice to the transformative economic policies of the New Deal. This article looks at what came next, particularly Berle’s career development and policy impact during the twelve years of the Roosevelt administration. Somewhat surprisingly, he didn’t join the government for its first five years, and when he eventually moved to Washington it was for a job in the State Department. This exploration of his role between 1933 and 1945 reveals a driving force of these career choices—his strong affinity (evidenced not just in this period but in the time before and after) to work as a brain truster. What that meant to Berle was to be an intellectual jobber and free-lancer, taking on a series of important tasks, often suggesting big ideas, before moving on to the next challenge. Part II takes a deep dive into the planning for post-war international economic policy that commenced immediately after World War II broke out in Europe in 1939, not long after Berle had joined the State Department, and in which he was assigned a key role. This examination provides a fuller picture of the process leading to new international institutions in trade, monetary policy, and assembling global capital while at the same time illustrating the familiar characteristics of Berle as an intellectual jobber.

The Rise and Fall (?) of the Berle-Means Corporation

This paper forms part of the proceedings of the 10th Annual Berle Symposium (2018), which focused on Adolf Berle and the world he influenced. He and Gardiner Means documented in The Modern Corporation and Private Property (1932) what they said was a separation of ownership and control in major American business enterprises. Berle and Means became sufficiently closely associated with the separation of ownership and control pattern for the large American public firm to be christened subsequently “the Berle-Means corporation”. This paper focuses on the “rise” of the Berle-Means corporation, considering in so doing why ownership became divorced from control in most of America’s biggest companies. It also assesses whether developments concerning institutional investors and shareholder activism have precipitated the “fall” of the Berle-Means corporation, meaning U.S. corporate governance is no longer characterized by a separation of ownership and control.

“Berle and Means’ The Modern Corporation: a Stakeholder Model of Corporate Governance

Our paper explores how a seminal text influenced corporate governance systems in the United States and abroad. The Modern Corporation and Private Property by Adolf Berle and Gardiner Means (1932) r...

Herbert Spencer on Corporate Governance

Abstract Herbert Spencer (1820–1903) wrote on the emergence of railroad corporations and corporate governance matters. Since Spencer is typically considered a staunch libertarian, the fact that he expressed some criticisms over the emergent corporate capitalism might surprise many. But what Spencer did was mainly identifying the so-called “agency problem,” which he considered very much worth addressing, especially in a market economy. Writing on the “railway mania,” Spencer was appalled by fraudulent schemes. But he did not consider them an inevitable feature of the capitalist economy. He focused on the institutional dimension of conflict of interests within the then-emerging corporation, and suggested to uphold freedom of contract in its strictest meaning, as to offset those. Spencer’s theory may be seen as a pure freedom of contract answer to agency problems, that stands in striking contrast with theories – such as Adolf Berle and Gardiner Means’s – that stresses the need for a technocratic solution, to make corporate capitalism viable in society.

Innovative Enterprise or Sweatshop Economics? In Search of Foundations of Economic Analysis

In Capitalism, Socialism, and Democracy, Joseph Schumpeter asserts: “perfect competition is not only impossible but inferior, and has no title to being set up as a model of ideal efficiency.” For neoclassical economists, the large corporation is a “market imperfection” that, compared with “perfect competition,” should result in higher product prices and lower industry output. Yet business history reveals the capability of the most productive enterprises to generate massive quantities of output at low costs to attain large market shares with buyers benefiting from low prices even as employees receive higher pay and shareholders ample dividends. By integrating the history of industrial development in Britain and the United States with the ideas of leading economic thinkers, this essay demonstrates the absurdity of perfect competition as the ideal of economic efficiency. Indeed, I show that, in their desire to make the market rather than the firm the main arbiter of resource allocation, neoclassical economists have enshrined the sweatshop as the foundation of their analysis, with profoundly negative consequences for understanding how a modern economy actually operates and performs. In doing so, neoclassical economists ignore not only the economic history of capitalism but also the intellectual history of their own discipline. I conduct a journey through two hundred years of economic thought – from Adam Smith’s The Wealth of Nations (1776) to Alfred Chandler’s The Visible Hand (1977) – to derive analytical foundations for a theory of innovative enterprise that can explain and explore firm-level sources of productivity growth in the economy. What then do more sophisticated theories of the firm rooted in the neoclassical tradition have to offer? In a section of this essay that I call (borrowing a phrase from Adolf Berle and Gardiner Means) “Economic Theory for ‘an Era of Corporate Plundering’,” I outline the shortcomings of Williamsonian transaction-cost theory and Jensenian agency theory for analyzing the role of the business corporation in the operation and performance of the economy. From the perspective of the theory of innovative enterprise, I demonstrate how the methodology of constrained optimization trivializes the business enterprise while the ideology that companies should be run to maximize shareholder value legitimizes financial predators, many senior corporate executives among them, in the looting of the industrial corporation. The “era of corporate plundering” since the mid-1980s has contributed to extreme concentration of income among the richest households and the erosion of middle-class employment opportunities. Finally, I call for a transformation of economic thinking so that the innovative enterprise is at the center of economic analysis. The theory of innovative enterprise exposes as costly intellectual failures “perfect competition” as the ideal of economic efficiency, “constrained optimization” as the primary tool of economic analysis, and “maximizing shareholder value” as the ideology of superior corporate governance. The theory of innovative enterprise provides, moreover, a clear and compelling rationale for sharing the gains of business enterprise among stakeholders in the broader community, in conjunction with government policies that seek to support sustainable prosperity, characterized by stable and equitable economic growth.

Roll over George Stigler: Berle and Means meet Chicago price theory

Abstract:Recent writings by Richard Posner in this Journal and elsewhere appear to mark a departure from the Chicago price theory tradition with which Posner long has been associated. This paper picks up on one facet of this: the similarity of Posner's views of the corporation, and of executive compensation in particular, to the perspective laid out by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property – a perspective that has for decades been harshly rejected by the Chicago school.

Perspectives on La Porta et al’s Corporate Ownership around the World

Rafael La Porta, Florencio Lopez-De-Silanes, and Andrei Shleifer conducted a detailed work on Corporate Ownership Around the World, to identify the real shareholders (owners) and how they control firms. La Porta et al reviewed the findings of Adolph Berle and Gardiner Means that corporations in the United States were largely owned by small shareholders and that control is in the hands of professional managers who are not really accountable to the small shareholders (Berle & Means 1932). They (La Porta et al) averred that control is in the hands families or the state. They found that families and/or for state were the ultimate shareholders, while financial institutions usually had smaller equity control. These families and state also exercise control above their rights by using a form of pyramid structure and by being involved in the firm’s management. They also discovered exceptions where firms are widely held in economies with good legal protection for minority shareholders. In the view of this author, the title did not fully represent the scope of the paper. First their work did not cover ownership around the world but selected 27 wealthy economies, excluding Africa. Secondly, the title did not capture the desire of the authors to evaluate the relationship between ownership and control. A title like “Corporate ownership and control in selected wealthy economies of the world” would have been more appropriate. In this paper, this author will try to critically review this article with a view to highlight its relevance and appropriateness.

Is Berle and Means Really a Myth?

Adolf Berle and Gardiner Means famously declared in 1932 that a separation of ownership and control was a hallmark of large U.S. corporations, and their characterization of matters quickly became received wisdom. A series of recent papers has called the Berle–Means orthodoxy into question. This survey of the relevant historical literature acknowledges that the pattern of ownership and control in U.S. public companies is not monolithic. Nevertheless, a separation between ownership and control remains an appropriate reference point for analysis of U.S. corporate governance.

Trapped in a Metaphor: The Limited Implications of Federalism for Corporate Governance

Trapped in a metaphor articulated at the founding of modern corporate law, the study of corporate governance has - for some thirty years - been asking the wrong questions. Rather than a singular race among states, whether to the bottom or the top, the synthesis of William Cary and Ralph Winter’s famous exchange is better understood as two competitions, each serving distinct normative ends. Managerial competition advances the project that has motivated corporate law since Adolf Berle and Gardiner Means - effective regulation of the separation of ownership and control. State competition, by contrast, does not promote a race to either the top or the bottom in shareholder-managerial relations. Rather than the vertical allocation of wealth between shareholders and managers, state competition is directed to its horizontal allocation between the state and the firm as a whole. Even as state competition shifts surplus from state to firm, thus, it is agnostic as to the distribution of that surplus within the firm. Although it may generate effective rules of corporate law, it is not determinative of the substantive quality of corporate governance. Understood as such, the metrics of “efficiency” in corporate governance - and hence the core inquiries of the corporate law literature - must necessarily shift. Prevailing approaches to questions from the potential utility of federal corporate law to the long persistence of state antitakeover statutes must likewise be reconsidered.

Berle and Means Reconsidered at the Century's Turn

I. INTRODUCTION Adolf Berle and Gardiner Means's The Modern Corporation and Private Property1 still speaks in an active voice. Since it first appeared in 1932, corporate law has been reckoning with its description of a problem of management responsibility stemming from a separation of ownership and control. This history has two phases. During the first phase, which lasted for fifty years, the book, and particularly its recommendation of stepped-up fiduciary constraints, became the basis of a paradigm that dominated the field. The second phase began in the early 1980s, when the book lost its paradigmatic position along with the general collapse of confidence in regulatory solutions to economic problems. A body of hostile criticism also had an effect.2 Some claimed that events had superseded the book's salience.3 Others asserted it to be wrong on the facts.4 Yet today, despite diminished status and generations of criticism, The Modern Corporation and Private Property has not gone away. At the end of the second phase's second decade, Berle and Means retain an enviable place at the forefront of policy discussion in a field where even a highly successful academic contribution rarely has a shelf life exceeding ten years. The database confirms their continued presence.5 Westlaw's JLR index shows citations of The Modern Corporation and Private Property in 677 articles as of March 2001. Fifty-one of those articles were published in 1999, the most recent year for which complete data are available.6 The 1999 figure compares instructively with those of the two leading corporate law volumes published in the 1990s, Frank Easterbrook and Daniel Fischel's The Economic Structure of Corporate Law7 and Mark Roe's Strong Managers, Weak Owners.8 Berle and Means firmly hold their ground against the newcomers: Easterbrook and Fischel's book was cited in eighty-one articles in 1999; Roe's in thirtyone. They do better still against their contemporaries. During the 1920s and 1930s, John Dewey and William O. Douglas also joined in reconstructing corporate legal theory. Dewey came first with an essay, The Historic Background of Corporate Legal Personality,9 offering a definitive critique of a set of inherited concepts about the firm. Douglas and Berle followed, taking similar paths. Douglas's academic work on bankruptcy at the Columbia and Yale Law Schools led to Washington appointments and the rare chance to turn an academic policy construct into real world law reform. The Modern Corporation and Private Property likewise influenced New Deal legislation.10 Berle, moreover, was a member of the Brain Trust that advised Roosevelt during the 1932 presidential campaign and an occasional advisor in Washington thereafter.11 But the two career paths diverged over time, with Douglas becoming a Supreme Court Justice and Berle remaining a professor. Yet, at least in the area of business law, Berle's voice remains stronger today. Douglas and Dewey tend to speak to us in the context of historical inquiry, whereas Berle and Means show up in discussions of present problems. The citation numbers again provide confirmation. Where The Modern Corporation and Private Property shows up in 677 articles, Dewey's essay has been cited in a much smaller (but respectable) total of 54 articles.12 Douglas runs a distant third. His collaboration with Jerome Frank on the absolute priority rule shows up in only six articles in the Westlaw database;13 his empirical work on small bankruptcies14 is mentioned in eleven. IS He is better remembered for making new bankruptcy law some years later as a Supreme Court Justice. His opinion for Case v. Los Angeles Lumber16 is cited in 349 articles I 7-foundational no doubt, but not as much as The Modern Corporation and Private Property, which of course never had the benefit of the status of positive law. The Modern Corporation and Private Property's endurance is a singular event in the last century of academic corporate law. …

Retesting Gardiner Means’s Evidence on Administered Prices

Gardiner Means developed his doctrine of administered prices in the 1930s within the context of a specific conception of the American economy [Means 1935, 1939; Lee 1998]. He was concerned with drawing on empirical data of all sorts to identify and describe the causal mechanisms underlying pricing behavior in the corporate economy. The most important of the mechanisms, known as the administered price thesis, was the coordination and organization of economic activity through the interplay of administrative control and the market. The thesis stated that in markets where enterprises exercised administrative control over prices, prices would remain constant for a series of transactions and for a period of time; whereas in markets where administrative control was absent, prices were determined coincidentally with the market transaction and hence would vary with each transaction. As a result, the behavior of administered prices and market prices were, under cyclical business conditions, quite different. That is, market prices declined relative to administered prices when demand declined and rose relative to administered prices when demand increased; over the business cycle, there were no changes in the absolute prices of both groups or in the relative prices between the two groups. In addition, the behavior of production relative to administered and market prices was also quite different. When business activity declined, the outcome in administered-price markets was that prices declined relatively little compared to production declines, whereas in market-price markets, prices declined significantly relative to production declines; and the reverse was the case when business activity increased. Finally, the basis of administered control over prices was in part grounded in the degree of market con-

Corporate Finance, the Theory of the Firm, and Organizations

Much of the modern research on firm boundaries, following Ronald Coase (1937), assumes that firms are run by owner-managers. This contrasts with the agency literature, following Adolph Berle and Gardiner Means (1932), that emphasizes the problems that arise when managers are not owners. In this paper, the authors argue that a richer theory of the firm should integrate Coase and Berle and Means. They illustrate this point by reexamining the oft-cited merger of General Motors and Fisher Body. The authors also show how linking these literatures can be used to understand one of the key roles of corporate headquarters, the allocation of capital.

Rise of the Institutional Equity Funds: Implications for Managerialism

Two salient features of fin de siecle economy in the United States and Western Europe are (1) the hollowing out of social relations between major corporations, their employees, and the communities in which they are located; and (2) the failure of the body politic to evolve socially protective responses to this change. Institutionalists and other concerned parties are moved to wonder: what combination of forces gave rise to the contemporary brand of hard-edged, shareholder value-oriented corporatism? And what might be done about it?1 The purpose of this article is to examine the following issue: to what extent has the growing concentration of control overfinancial assets in the postwar era (but especially since 1974) contributed to the (apparent) single-minded pursuit of shareholder value among many top-level corporate decision makers? Adolph Berle and Gardiner Means [1934] claimed that the separation of ownership and control of tangible assets was a critically important aspect of the corporate revolution. The argument is made here that a widening fissure between the ownership and control of financial or intangible assets is a distinctive characteristic of the postwar era in the industrialized world. Moreover, a serious consequence of the rising concentration of control over the disposition of intangible assets has been a shift in the distribution of economic and political power in favor of the custodians of giant pension and mutual funds. The following sections argue that the expanding concentration of control over