Rothman, David

English

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THE YALE LAW JOURNAL
THE LmFE INsuRA cE ENTERPRISE, 1885-1910: A STUY IN TUE LIMITS OF
CORPORATE POWER. By Morton Keller.* (Publication of the Center for the
Study of History of Liberty in America, Harvard University.) Cambridge:
Belknap Press of Harvard University Press, 1963. Pp. 338. Illustrations.
$7.25.
IN October, 1905, Louis Brandeis in his famous Boston Commonwealth
Club address indicted the American life insurance companies as "the greatest
economic menace of today."' The corporations owned assets of one billion
dollars. Three New York based organizations dominated the field - New
York Life, Mutual, and Equitable - and their rise had been meteoric. The
jurist's fears did not appear groundless, for these giant institutions with their
vast resources might conceivably have come to control every aspect of Ameri-
can economic life. Yet this threat was never realized, and the companies,
for all their efforts, never achieved their grandest goals. The story behind this
circumscription of power is told by Morton Keller in a remarkably intricate
and detailed study of the life insurance industry between 1885 and 1910.
The power of the corporation in America has been a persistent concern.
Most commentators tend to be pessimistic; for all the strength of countervail-
ing economic organizations, public opinion, and government regulatory agen-
cies, the corporations still seem to hold the upper hand. The external controls
never appear adequate. Keller, more optimistic in tone, emphasizes the self-
limiting quality of corporate action. The turn of the century "was not notable
for the balance of social forces ;"2 a group of companies might have fulfilled
dangerous ambitions. They failed mainly because of the "significant factor of
internal restraints: the problems and consequences inherent in the processes
of institutional growth and maturity."3
With meticulous documentation drawn from insurance company records
Keller describes how internal checks limited the expansion of the leading firms.
Costs rose unavoidably as volume increased; growth did not bring savings.
Larger organization created an entangling bureaucracy, hampering executive
leadership. Moreover, growth did not stimulate a harmony of interests. The
stakes may have been too great, the personalities too diverse - but mergers
never became popular. A series of other factors prevented the corporations
from expanding internationally. Expenses were high, and every success en-
couraged nationalistic antagonism and regulation. At home and abroad, size
ran well below ambition.
Perhaps most intriguing was the failure of insurance firms to dominate the
financial world, despite a tremendous and stable surplus of funds. Other cor-
porations, to be sure, contested their ventures, but internal rather than external
causes seem to have been most vital. Disabled by law to invest directly in many
*Professor of History, Brandeis University.
1. BRa DEis, BusINEss - A P.orzssioN 118 (1914).
2. P. 291.
3. P. 292.
[Vol. 74: 390
REVIEWS
sorts of activities, including common stocks, the companies often set up sub-
sidiary trusts to circumvent restrictive legislation. But the relationship between
parent and offspring, confusing at best and corrupting at worst, kept down
profits. Then too, leading executives with astonishing frequency were caught in
conflicts of personal interest; typical was George Perkins, torn between his
allegiance to Morgan on the one hand and New York Life on the other. The
firms often failed to profit from panics, hesitating to injure a favored banker.
And all too regularly ties of family and friendship brought company funds into
highly speculative and unprofitable schemes. A combination of greed, poor
administration and nepotism effectively limited the investing power of the in-
surance business.
Equally disappointing and frustrating to the corporations were the practices
of judges and politicians. By the start of the twentieth century the courts leaned
decidedly to the cause of the insured. In an era when most regulatory statutes
were declared unconstitutional, state supervision of insurance firms was up-
held. Applications were often considered representations, not warranties; for-
feitures for non-payment were allowed only when specifically included in the
contract. Politics was even more bothersome. Lobbyists were expensive and
efforts had to be duplicated in state after state. The legislation enacted was
more often bark than bite, but insurance men, preferring to deal with Congress
rather than with forty-odd legislatures, urged pre-emptive federal regulation.
Yet, never having learned the art of cooperation, the industry could not muster
sufficient strength to enact favorable measures in Washington. Finally, it was
the New York investigation of insurance practices in 1905, led by Charles
Evans Hughes, that stimulated basic reforms. Uncovering pervasive sham and
subterfuge, the hearings made a return to the pre-1905 conditions impossible.
By the time Brandeis made his pronouncement, the menace from the insurance
enterprise was over.
The implications of Keller's study are optimistic. Although he warns at the
outset that mediocrity and sterility demand our full attention,4 it would seem
that the dangerous misuse of vast resources of power by the corporations -
the traditional concern - is not, in Keller's view, so serious a problem. In-
ternal checks, he suggests, in adjunct with external forces, can keep the threat
well in hand. Flaccid exercise of power, not systematic exploitation, has really
been the paramount issue all along.
These notions, however, are open to some question, and the details so ably
catalogued by Keller may prompt new apprehension. First, any generalizations
derived from a study of life insurance companies must be balanced by the
reminder that these firms are not typical American corporations. Everyone,
citizen and manager alike, recognized the unique, quasi-public character of life
insurance. Hedged in from the start with peculiar restrictions, and subjected
to political oversight as early as the 1870's, the institutions still managed to
warrant the balanced judgment of investigator Hughes that, if unrestrained,
4. P.x.
THE YALE LAW JOURNAL
these companies "will soon become a serious menace to the community." We
may wonder what would turn up in an equally intricate study of a corporation
bound by nothing more than a desire for profit.
Keller argues that the insurance firms could not fulfill their "drive to
power."0 But here we must note his vantage point. The companies, in point of
fact, did not dominate the nation, much less control American, Latin American,
and European economic and political life. But they could do more or less as
they pleased with a billion dollars worth of funds. Grandiose ambitions went
unachieved but more modest control did extend to considerable sums of money.
If the insurance enterprise did not succeed in threatening the community, it
may well be testimony to the wealth of America rather than the limitations
upon the power of the corporations.
Finally, what went into the internal restraints that Keller emphasizes? What
were "the problems and consequences in the processes . .. of institutional
growth and maturity" ?7 Some purely economic checks, to be sure, existed -
in the insurance business, rising costs accompanied growth. But these sorts of
considerations do not occupy the bulk of Keller's volume. Much more signifi-
cant seems to have been the greed, venality, and ineptitude of leading execu-
tives. Keller, prone to the current jargon, describes these evils as "the conse-
quences ...of institutional growth," and pinpoints "fractionalized, diffused
decisionmaking." Or, in other words, incompetence and corruption held sway.
More vigilance, not less, may well thus be the moral of the story. For internal
restraints of this kind are as condemnable as the most patent abuse of power.
Nevertheless, Keller's findings do make clear the need to reassess our tradi-
tional view of the corporation. The image of a monolithic and efficient organi-
zation is certainly inappropriate where conflict of interest, ineptitude, and
irrationality may be more basic qualities. In such cases the systematic exploita-
tion of power is not the ultimate threat of the corporation: rather, its inability
to make use of the resources at hand, its tendencies to squander and corrupt
valuable opportunities may be the cause for greater concern. The lofty facades
of the insurance company buildings in 1900 masked a good deal of internal
confusion. It may be worth pondering today how much the hum of the com-
puter drowns out unproductive noise.
DAVID ROTHMANt
5. P. 254.
6. P. 292.
7. Ibid.
8. Ibid.
tDepartment of History, Columbia University.
(Vol. 74.,390


Keller: The Life Insurance Enterprise, 1885-1910: A Study in the Limits of Corporate Power

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Keller: The Life Insurance Enterprise, 1885-1910: A Study in the Limits of Corporate Power

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