# The Brandeis-Berle Debate

(draft)

In the 1930ies there was widespread agreement that the rising power of corporations presents a danger to democracy. But what would be the best way to address this problem?

Roughly speaking, one can identify two different view points which can be exemplified by two influential friends and advisors of Roosevelt, first Governor of New York and then President from 1932.

From the 1890ies on, [Louis Brandeis](https://en.wikipedia.org/wiki/Louis_Brandeis), the first Jewish judge on the Supreme Court (1916-1939), promoted the opinion that big is bad and that anti-trust law should be used to break up big corporations.

Around 1910, [Theodore Roosevelt](https://en.wikipedia.org/wiki/Theodore_Roosevelt#Election_of_1912) abandoned the idea of "trust busting," and introduced the difference between "good" trusts and "bad" trusts. The Supreme Court set forth the famous "rule of reason" by which it seems to have meant that a concentration of industrial power was permissible if the method by which it got its power, and the use it made of that power, were reasonable (quoted from Roosevelt 1932).

Around 1930, [Adolf Berle](https://en.wikipedia.org/wiki/Adolf_A._Berle) promoted the view that big corporations had become a necessary part of the economic system and that, instead of being broken up, their power should to be tamed by the government. The economic theory and justification for these policies was developed in the influential monograph [The Modern Corporation and Private Property](https://archive.org/details/in.ernet.dli.2015.216028/page/n21/mode/2up?view=theater).

This is only a very rough sketch. A more detailed investigation would be interesting. In particular, studying the 1912 presidential campaign from the point of view of anti-trust politics could lead to a better understanding of the role of corporation in American history.

## References

- Berle and Means: [The Modern Corporation and Private Property](https://archive.org/details/in.ernet.dli.2015.216028/page/n21/mode/2up?view=theater). 1933.

Chapter I *Property in Transition* is worth reading today. The trends the authors identify, as well as the methods of their analysis seem still relevant. The main point of Chapter I is that corporations are a novel form of organization because they separate ownership from management control. [^ownership]

To explore the influence the book had on economics, one can start with a [Google Scholar citation search](https://scholar.google.com/scholar?cites=17303090320909412938&as_sdt=2005&sciodt=0,5).

[^ownership]: Let us note that this form of organization is made possible by the law and could be changed by the legislative.

- Nicholas Lemann: *Transaction Man - The Rise of the Deal and the Decline of the American Dream*. 2019

A political and cultural history of the American corporation from the late 1800s to the financial crisis of 2008.

- Matt Stoller: Goliath: The 100-Year War Between Monopoly Power and Democracy, 2019.

- Franklin D Roosevelt: [Campaign Address on Progressive Government at the Commonwealth Club in San Francisco, California](https://www.presidency.ucsb.edu/documents/campaign-address-progressive-government-the-commonwealth-club-san-francisco-california), Sep 23, 1932. The speech was written by Adolf and Beatrice Berle, some relevant quotes follow.

(The highlights are mine. Written in 1932, I was surprised how these quotes speak to our current times 90 years later.)

Woodrow Wilson, elected in 1912, saw the situation more clearly. Where Jefferson had feared the encroachment of political power on the lives of individuals, Wilson knew that **the new power was financial**. He saw, in **the highly centralized economic system**, the despot of the twentieth century, on whom great masses of individuals relied for their safety and their livelihood, and whose irresponsibility and greed (if they were not controlled) would reduce them to starvation and penury. The concentration of financial power had not proceeded so far in 1912 as it has today; but it had grown far enough for Mr. Wilson to realize fully its implications. It is interesting, now, to read his speeches. What is called "radical" today (and I have reason to know whereof I speak) is mild compared to the campaign of Mr. Wilson. "No man can deny," he said, "that the lines of endeavor have more and more narrowed and stiffened; no man who knows anything about the development of industry in this country can have failed to observe that the larger kinds of credit are more and more difficult to obtain unless you obtain them upon terms of uniting your efforts with those who already control the industry of the country, and nobody can fail to observe that **every man who tries to set himself up in competition with any process of manufacture which has taken place under the control of large combinations of capital will presently find himself either squeezed out or obliged to sell and allow himself to be absorbed**." [...]

A glance at the situation today only too clearly indicates that **equality of opportunity as we have known it no longer exists**. Our industrial plant is built; the problem just now is whether under existing conditions it is not overbuilt. Our last frontier has long since been reached, and there is practically no more free land. More than half of our people do not live on the farms or on lands and cannot derive a living by cultivating their own property. There is no safety valve in the form of a Western prairie to which those thrown out of work by the Eastern economic machines can go for a new start. We are not able to invite the immigration from Europe to share our endless plenty. We are now providing a drab living for our own people. [...]

Just as freedom to farm has ceased, so also the opportunity in business has narrowed. It still is true that men can start small enterprises, trusting to native shrewdness and ability to keep abreast of competitors; but area after area has been preempted altogether by the great corporations, and even in the fields which still have no great concerns, the small man starts under a handicap. The unfeeling statistics of the past three decades show that the independent business man is running a losing race. Perhaps he is forced to the wall; perhaps he cannot command credit; perhaps he is "squeezed out," in Mr. Wilson's words, by highly organized corporate competitors, as your corner grocery man can tell you. Recently a careful study was made of the concentration of business in the United States. It showed that **our economic life was dominated by some six hundred odd corporations who controlled two-thirds of American industry. Ten million small business men divided the other third.** More striking still, it appeared that if the process of concentration goes on at the same rate, at the end of another century we shall have all American industry controlled by a dozen corporations, and run by perhaps a hundred men. Put plainly, we are steering a steady course toward economic oligarchy, if we are not there already.

Clearly, all this calls for a **re-appraisal of values**. A mere builder of more industrial plants, a creator of more railroad systems, an organizer of more corporations, is as likely to be a danger as a help. The day of the great promoter or the financial Titan, to whom we granted anything if only he would build, or develop, is over. Our task now is not discovery or exploitation of natural resources, or necessarily producing more goods. It is the soberer, less dramatic business of administering resources and plants already in hand, of seeking to reestablish foreign markets for our surplus production, of meeting the problem of underconsumption, of adjusting production to consumption, **of distributing wealth and products more equitably**, of adapting existing economic organizations to the service of the people. The day of enlightened administration has come.

**Just as in older times the central Government was first a haven of refuge, and then a threat, so now in a closer economic system the central and ambitious financial unit is no longer a servant of national desire, but a danger.** I would draw the parallel one step farther. We did not think because national Government had become a threat in the 18th century that therefore we should abandon the principle of national Government. Nor today should we abandon the principle of strong economic units called corporations, merely because their power is susceptible of easy abuse. **In other times we dealt with the problem of an unduly ambitious central Government by modifying it gradually into a constitutional democratic Government. So today we are modifying and controlling our economic units.**

As I see it, the task of Government in its relation to business is to assist the development of an **economic declaration of rights**, an economic constitutional order. This is the common task of statesman and business man. It is the minimum requirement of a more permanently safe order of things.

Happily, the times indicate that to create such an order not only is the proper policy of Government, but it is the only line of safety for our economic structures as well. We know, now, that these economic units cannot exist unless prosperity is uniform, that is, unless purchasing power is well distributed throughout every group in the Nation. That is why even the most selfish of corporations for its own interest would be glad to see wages restored and unemployment ended and to bring the Western farmer back to his accustomed level of prosperity and to assure a permanent safety to both groups. **That is why some enlightened industries themselves endeavor to limit the freedom of action of each man and business group within the industry in the common interest of all; why business men everywhere are asking a form of organization which will bring the scheme of things into balance, even though it may in some measure qualify the freedom of action of individual units within the business.**