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

William W. Bratton is the Nicholas F. Gallicchio Professor of Law and Co-Director of the Institute for Law & Economics at the University of Pennsylvania Law School. This post is based on a recent paper by Professor Bratton.

My paper, The Modern Corporation and Private Property Revisited: Gardiner Means and the Administered Price, prepared for the Berle X conference at Seattle Law School, views the famous book from its junior coauthor’s perspective. It is a project that began with a memory. Back in 1982, the Hoover Institute at Stanford sponsored a conference on The Modern Corporation on the occasion of its fiftieth anniversary. The apparent objective was to bury the book as a living policy statement. Luminaries of economic theory of the firm presented: Demsetz, Fama, Jensen, Stigler, and Williamson, among others. Their papers, collected in the Journal of Law & Economics in 1983, remain essential reading.

Means, the surviving co-author and then well into his 80s, appeared at the conference and contributed a paper and a comment to the collection, writings that I found somewhat mystifying when I first read them back in the mid-1980s. Everybody else at the conference addressed microeconomics and governance, talking past Means; Means in turn talked past them, going on about macroeconomics and product pricing, repeating old points in a hostile environment populated by a new and different generation, a generation just then hitting its stride as a force in public policy. I came away wondering whether he should have turned down the invitation, for it looked as if he had played into the hands of hostile conference organizers with shopworn, irrelevant contributions. That read lingered in my memory.

I recently took another look at the 1982 symposium papers. This time Means’s contributions impressed me for their strength and courage. There was also unexpected historical value. The papers provide an unexplored access route to the gestation of The Modern Corporation. We can use them to reconstruct Means’s perspective on the book and thereby enhance our understanding of its more expansive rhetoric—the famous passages stating that the corporate profit stream should no longer be deemed private property, that we needed a convincing system of community obligations, and that corporate managers should evolve into purely neutral technocrats.

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 he 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 theoretical chapter 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 “administered” 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. Means spent a long career in government and in policy circles filling in the theory’s missing details and updating it as economic events unfolded. He had great influence during the first two Roosevelt administrations only eventually to find himself in the policy wilderness, displaced by neo-Keynesians. But he made a final, late in the day comeback when the economy deteriorated into stagflation during the 1970s. Stagflation brought down the post-war Keynesians, who had no way to explain it. Means did have a theory, first articulated in his preface to the 1967 edition of The Modern Corporation and further articulated at Stanford in 1982.

The complete paper is available here.

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