Inchoate Law and Public Consensus:

...Yet, because the changes in the United States from the 19th-century model of capitalism have been more gradual, more complex and more subtle, it is no easy task to spell out the basic differences between the old and the new...

...Furthermore, the historic picture of the shareholder as furnisher of capital, particularly of risk capital, has utterly faded away...

...Loan funds from external sources, such as insurance companies, banks and the like, are not typically "risk funds" at all and are not, of course, associated with the privilege of management...

...Something like 60 per cent of capital funds are now internally generated out of retained profits and depreciation allowances...

...Although corporation charters are commonly drawn in terms that allow them to do anything except the impossible, managements are aware that the public expects certain functions and, in effect, requires the corporations to fulfill them...

...This process by which the reality within the cocoon of outward forms changed has always presented problems to the political analyst and historian...

...It is also obvious that the Soviet system departs flagrantly both in origin and in current political and economic structure from any system of socialism foreseen by socialist philosophers of the 19th century...

...Berle believes that the development of pension trusts, mutual funds and insurance companies as sources of capital funds for corporations represents a still further step in the separation of the management from any meaningful relation with stockholders as individuals...

...Adolf Berle, since the publication of The Modern Corporation and Private Property (with Gardiner Means), has been our foremost analyst of these differences...

...It does not confine itself strictly to the subject of power without property, although everything in the book is in one way or another related to this central theme...

...No one without the extraordinary combination of experience in government and business, the legal training and background and the capacity for close analysis possessed by Adolf Berle could have written this book...

...Berle concedes that at present, in most cases of stock ownership by financial intermediaries, the function of voting for or against existing corporate management is not actually exercised...

...Consequently, actions by the executives of one corporation which outrage the "public consensus" are likely to bring serious loss of prestige to their fellows...

...and even into statutory law, which increases the responsibility of corporate management toward the public...

...An economic system is also often so effectively enshrouded by its cocoon of outward forms that the existence of the evolutionary process of change may be resolutely denied long after it is well under way...

...Berle is convinced that "in any case the corporation manager of today is essentially a civil servant seeking reputation, power and a pension...

...It is true that these profits are also the source from which the "fringe benefits" of the corporation executive can be paid...

...He rightly observes that at present there is no well-developed theory of power...

...In a world of quasi-oligopoly, where a few large corporations play a strategic role, corporate management must be aware that an action contrary to the public interest will be considered characteristic of all corporate management in the industry and that punitive measures against the whole industry are likely to follow...

...The corporate manager seeks profits, not because they will in the main accrue to his personal account, for they will not, but because reinvested they furnish the basis for extending the services the corporation must furnish if its public position is to be maintained...

...One is entitled, however, to some skepticism about the possibility of the take-over of election of corporate management in this way...

...Berle believes that corporation managements are increasingly influenced and even controlled by "public consensus...

...He believes there is an area of "inchoate law" steadily developing into common law...

...It might appear just as obvious that the economic system of the United States has departed from the 19th-century model of individual, free enterprise, free market capitalism...

...In the development of these investment intermediaries, the individual stockholder really ceases to exist, since the insurance-policy holder, the beneficiary of a pension trust or the participant in a mutual fund does not own any shares in a corporation as an individual and will ordinarily not even know what shares are held for his account...

...It is a must for college courses in economic systems and for anyone who wishes to understand the fundamental differences between our economic system as it is, and the model of capitalism as it was supposed to have been...

...He does cite a number of authors, however, who have dealt with the concept...

...Berle makes out a persuasive case for his doctrine of "public consensus" as the guide to corporate decisions involving the public interest...

...The process of transfering political power has for generations commonly been concealed by maintaining the outward forms of power and authority, as in the case of the gradual absorption in medieval times of the royal functions and prerogatives of the Merovingian Frankish kings by the Mayors of the Palace, the founders of the Carolingian dynasty...

...He is inclined, however, to believe that the abnegation of this power will not continue...

...Also, there are other actions which "public consensus" would not tolerate though they are not forbidden by law...

...Berle seems to waver somewhat between the belief that the managers of pension trusts, mutual funds and insurance companies may come, through their aggregation of stock ownership, to dominate the selection of corporate management in place of the essentially self-perpetuating process which now exists, and the belief that the increased ownership of common stock by these financial intermediaries will mean simply the further emasculation of the role of the individual stockholder and the strengthening of the autonomy of current management...

...Reviewed by Calvin Hoover Professor of Economics, Duke Univerisity IT IS A commonplace that the traditional "capitalism," "socialism," and "communism" no longer afford workable precision as terms for analyzing current economic systems...

...The current scandalous development of stock-option schemes under the guise of "incentive bonuses," of life-time consultancies for retiring executives and the like emphasize the declining role of capital in modern "capitalistic" society...

...Berle is deeply interested in the whole theory of power, its raison d'etre and the forces which determine the locus of power...

...The book is as full of original ideas as a pudding is of raisins...

...The aggregation of stock ownership through this process might even create substantial lumps of power from which opposition to the new devices for exploitation of the beneficial stock-owners by corporate management might emanate, but Berle does not mention such a possibility...

...Berle has stripped away the cocoon so that we may inspect' the developing reality...

...Berle does not make the point, but it is natural enough that "public consensus" should be more effective in protecting employes and consumers than in protecting stockholders from management...

...in most instances he has long ceased to be an owner or a tycoon seeking billions...