Bullitt, Stimson

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Washington Law Review Volume 30 Number 3 Washington Legislation-1955 8-1-1955 The 20th Century Capitalist Revolution, by Adolph A. Berle, Jr. (1954) and American Capitalism: The Concept of Countervailing Power, by John Kenneth Galbraith (1952) Stimson Bullitt Follow this and additional works at: https://digitalcommons.law.uw.edu/wlr Recommended Citation Stimson Bullitt, Book Review, The 20th Century Capitalist Revolution, by Adolph A. Berle, Jr. (1954) and American Capitalism: The Concept of Countervailing Power, by John Kenneth Galbraith (1952), 30 Wash. L. Rev. & St. B.J. 261 (1955). Available at: https://digitalcommons.law.uw.edu/wlr/vol30/iss3/16 This Book Review is brought to you for free and open access by the Law Reviews and Journals at UW Law Digital Commons. It has been accepted for inclusion in Washington Law Review by an authorized editor of UW Law Digital Commons. For more information, please contact cnyberg@uw.edu. BOOK REVIEWSTHE 20TH CENTURY CAPITA.IST REVOLUTION, by Adolph A. Berle, Jr., Harcourt, Brace& Co., 1954. Pp. 192.AmICAN CAPITALIsm, THE CONCEPT OF COUNTERVAILING POwnR, by John KennethGalbraith, Houghton Mifflin Co., 1952. Pp. 217A century ago, m his historic work, "Ancient Law," Sir Henry Maine wrote, "Thesociety of our day is mainly distinguished from that of preceding -generations by thelargeness of the sphere which is occupied in it by Contract." Berle makes a convincingargument that the modem corporation has taken over first place. A lawyer with a firstrate mind, his understanding of institutional- economics mi-ses the current excellence ofGalbraith and Drucker. He gropes as often as he grasps.He declares the commonplace that in the last 30 years the structure of Americanbusiness has been transformed to a .pattern undreamed of m any popular economictheory; to him, the corporation was the major cause. Unlike the atom, the corporationdid not logically proceed from theory to practice. This book flies the reader over thepanorama of corporations in action and from it undertakes to synthesize a theory ofwhat is seen. IIt draws an informative design by assembling well known facts. The corporationhas become a quasi-private institution and remains a person only by a space-ship fiction.Management has grown independent of some lformer controls, such as ownership whosediffusion reaches the ultimate in the great mutual insurance companies. The favor ofinvestors counts for less due to internal financing from retained earnings (The presentCabinet, representative of contemporary business leadership, is identified more withindustrial and commercial, management than with investment banking). Competitionhas declined from a lash to an influence.A new set of limiting factors has come into play, less subject, than the old ones toprecise determination by present law. The unrestrictedfreedom of the classical entre-,preneur is no longer allowed a corporation of a size that its powers are governmentalin nature. Boards tread carefully to avoid provoking more public regulation. A bigPme executive with enormous legal power dares not throw his weight- around m thefashion of his rapacious predecessors who by comparison ran two-bit operations. Nojresident of a corporation with listed stock ever says in the hearing of the public that itbe damned. The level of business honesty has risen. For example, a mutual investmentgroup hoped to be named "Capital Gain Fund," but the SEC sternly refused to grantthis innocent wish unless the name be extended to "Capital Gain or Loss Fund." (Itgave up and settled on "Capital Venture Fund.")Under these pressures, both direct and indirect, management "voluntarily" has begunto curtail the exercise of some of its "unlimited" powers: e.g. cancellation of dealers'franchises, refusal to grant sub-contracts to qualified applicants, job discrimination ongrounds.other than union activity or lack of merit. (Should Boeing retain its rightsuddenly to leave Seattle?) Even that laggard The Law is beginning to catch up tothese new attitudes which the book favors.Other notes beside the main theme: In international affairs, corporations ,haveserved as a useful solvent, showing a capacity to work out economic problems amongnations more easily than governments for the reason that their executives tend to knowthe subject matter, put less insistence on dogma and face, and have more spirit ofWASHINGTON LAW REVIEWworkmanship. Locally, corporations have acquired more power and responsibility toassist the development of the communities where they do business. They have surpluswealth for gifts which they have come into the habit of making, often despite lack ofprovision either by statutes or charter; less exclusive concern for profit than in thepast; capacity to influence a whole community or a segment of the national economy.Secretary Wilson had a point in equating the welfare of General Motors and the U.S.Another digression: In those fields which tend to be dominated by a few largefirms, management exercises a degree of comprehensive planning for the whole industrywhich would alarm many people if it were undertaken by a public body for any stepbeyond a zoning code. Such planning is in the public interest. It sometimes runs afoulof the Sherman Act which should be modified to permit it. Not considered: A newset of problems in sight, mergers of labor with ownership and of management withlabor leadership.The book holds that so long as our economy is diverse and pluralistic, there is agood chance for a free society. But the way to salvation is obscure. Montesquieu said,"It is in the freest countries that the merchant finds innumerable obstacles."Our ancestors regretted that corporations had no conscience. Now, some fear,perhaps they do. Berle suggests the corporation has become so human that it hasdeveloped a spirit and a measure of free will similar to those thought to be possessedby natural persons.From this notion of an emerging soul he concludes that management should shaperules of corporate conduct as the Chancellors made the system of equity. He warnsof the stagnation of wider public control if corporations either abuse or abdicate theirpowers. He urges corporations to work out a philosophy to give coherence to theiracts. Instead of bending to public opinion, executives and boards should establishtheir owns rules to improve justice; that is, constitutional government rather thanmobocracy. But the new confining forces may be too strong. Even so, the narrowdiscretion remaining to management will be exercised with significance in the futureby the choice of ends for charitable gifts.Berle compares to regal sovereignty the corporation's independence of internalinterference by courts; ergo, corporations should check themselves, just as kingswould sometimes waive their sovereignty from sense of moral duty and to forestallrevolt. But the two are not analogous. The castle of internal corporate affairs is amodern fiction. In practical wisdom courts bow before it. But royal authority didnot use to be a made up story. A monarch's obedience to a court was a voluntarysurrender. And since that time the rise of public power has passed the point of divi-sion between degree and kind. Courts share in this even distribution of authorityembodied in Tocqueville's gloomy predictions of equality running riot. The low-angled pyramid of our society is so close to being concave that it would bewilder aNorman of any rank. The Tort Claims Act is like the condescension of an ancientking. Though the constitutional democracy which produced the Act is an imperfectfusion of sovereign and people, the government, even if less capricious, is absolute asever to each man among the lonely crowd.This hastily written book will not be the landmark study that the author's workwith Gardiner Means was. Like a new anchor chain, its heavy erudition shines withself conscious brilliance. His pompous imitation of the Supreme Court style is noeasier to swallow than his muscle-bound levity when he plays the faculty wit. A boygenius who has never grown up, he resembles George Sisler, the great first basemanwho made the hard ones look easy and the easy ones look hard. Because it informswithout pleasing, it is good this book is short.Both Berle and Galbraith are concerned with the new American economy. Bothappreciate and describe the nature and magnitude of what has come to pass. Berle[AUGUSTconfines his attention to the corporation, while Galbraith's work embraces Supplyand Demand and All That. Berle asserts the heady freedom of corporate manage-ment, while Galbraith puts more weight on the new limiting factors and makes someof them the thesis for his book.This is it. Price competition, the pride and essence of the classical system, hasdwindled until only remnants survive. Alas. Most business has come to be conductedby a few big companies. By the old theories this state of things should cause injusticeand stagnation. Yet abundance pours from the American horn of plenty in a floodthat steadily increases in volume and equality of distribution. Why?Galbraith claims the blessings of bigness and limited competition are twofold. Posi-tive: Efficiencies of large scale operation, capacity to finance research, try outuntested products, etc. (stressed by Lilienthal). :Negative: Big units tend to generateopposition to themselves in the form of other big units on the opposite side of themarket where the same concentration process takes place. This Galbraith calls"Countervailing Power." Thus: unions v. employers, retail chains v. manufacturers,auto companies v. steel mills. Power attracts and creates power. A manufacturerwith monopoly profits tempts units of labor and retailers to insist on a division of the,swag. The collision of peers forms a balance which keeps its members operating effi-ciently and in the public interest. Thucydides stated the value of this concept:"We both alike know that into the discussion of human affairs the questionof justice arises only where the pressure of necessity is equal, that thestrong take what they can and the weak grant what they must"Even in the now typical oligopoly situation, competition of a sort remains amongthe few producers of each product and between substitutes (e.g. trains and trucks).Countervailing Power supplements it to keep the titans on their toes. When themany face the few in business, unlike the battlefield, the few. have it their own way.So the many merge to get there fustest with the fewest. Countervailing Power, likepure competition, is a self-generating, self-regulatory mechanism, which, togetherwith imperfect competition, does the job which used to be done by competition alone.The huge counterparts now curb each other, and relative power flows back and forthb etween them like electricity on a grid system.Except in case of one against one, Countervailing Power works against oligopolybut not monopoly. (The difference between the two is more than used to be thought.)A single unit on one side of the market is immune to the power of even a few bigopponents on the other side.The proper target of anti-trust action is an unrestricted power unit. But the prose-cution of one member of a counterpoise upsets the delicate ecology of the economy. Thisis like the experience of the Australians who imported rabbits to eat the weeds; therabbits ate everything. The Robinson-Patman Act sometimes has the same effectwhen it cuts down the Countervailing Power of big buyers (like Sears, Roebuck andA. & P.) which are the only ones able to bargain "from positions of strength" withbig manufacturers.State intervention in the economy has two uses: To stabilize, and to prevent themisuse of private power. That is, to insure that the flow of goods and services israpid and steady and is taken in fair shares. The development of CountervailingPower has been a major peacetime function of government over the past 25 years (e.g.the protective farm and labor legislation to help the many bargain as few). Its aimhas been to strengthen the capacity of the economy for self-regulation and thus toreduce the need for public controls.The greatest asset of capitalism is its capacity for decentralized decision. Thiscontributes to both justice and technical efficiency; the foot knows best where the1955] -.BOOK REVIEWSWASHINGTON LAW REVIEWshoe pinches. Keynesian fiscal policies and other devices can take care of deflationwithout much state interference. But the risk to capitalism comes in time of stronginflationary pressure because Countervailing Power fails to work when seller needsno carrot and buyer has no club. War is the only cause of inflation too severe to behandled by the combination of Countervailing Power and deflationary fiscal policies,but full scale war is such that meddling authorities would be among the least of ourworries.Galbraith makes a cosmos of the chaotic facts around him just as did the classicaleconomists in their day. One finishes the book feeling gratitude to the author for en-tertainment, and reassurance to be told we are protected from capsizing by a built-ingyroscope which works as well as a swarm of hidden hands under the old theory.In delight with his creation, this economessiah claims much for it. He does not makeclear how in the long run the consumer will be protected against excessively peacefulcoexistence among the giants. Perhaps our legislation to prevent trade restraintshould be adjusted to the concept of Countervailing Power, and then applied. Nor doeshe see a need to disperse authority in the firms which dominate the American scene.They furnish us with machinery for decision which is decentral only in comparisonto national direction of the largest integrated economy in the world. Judged by standardsof human dignity and operating efficiency, executive control of these companies istoo concentrated.Galbraith is the most amusing economist in print. (No damnation by faint praiseintended.) His wit makes the material easy to swallow and sometimes is the mediumfor insights. Yet humorous paradoxes and analogies, like poetic symbolism, often areless lucid than plain words about the things symbols stand for or at which allusionshint. Sometimes clarity is better than imagery.STIMsoN BuLLiTr** Member of the Washington Bar[AUGUST

\u3ci\u3eThe 20th Century Capitalist Revolution\u3c/i\u3e, by Adolph A. Berle, Jr. (1954) and \u3ci\u3eAmerican Capitalism: The Concept of Countervailing Power\u3c/i\u3e, by John Kenneth Galbraith (1952)

https://digitalcommons.law.uw.edu/cgi/viewcontent.cgi?article=3138&amp;context=wlr

\u3ci\u3eThe 20th Century Capitalist Revolution\u3c/i\u3e, by Adolph A. Berle, Jr. (1954) and \u3ci\u3eAmerican Capitalism: The Concept of Countervailing Power\u3c/i\u3e, by John Kenneth Galbraith (1952)

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