281

NOTES

PROLOGUE

1. Graham, Harvey & Rajgopal, The Economic Implications of Corporate Financial Reporting, pp. 3-73. The study is complex and subtle, and statistics vary with respect to given behaviors. Nonetheless my generalization in the text accurately captures a principal finding in the article.

2. TONELLO, REVISITING STOCK MARKET SHORT TERMISM; CFA CENTRE FOR FINANCIAL MARKET INTEGRITY/BUSINESS ROUNDTABLE INSTITUTE FOR CORPORATE ETHICS, BREAKING THE SHORT-TERM CYCLE; MITCHELL, CORPORATE IRRESPONSIBILITY.

ONE: THE PRINCIPLE OF COOPERATION

1. WlEBE, THE SEARCH FOR ORDER, gives a wonderful portrayal of the confusion that characterized American society, including business, in the late nineteenth century. His story stands in contrast to the relatively orderly evolution of centralized, professional management that Alfred Chandler describes as beginning in the 1840s and neatly developing from that point; CHANDLER, THE VISIBLE HAND. But the path of industrial evolution is not part of my story. I am more interested in how the birth and growth of the giant modern corporation affected American business in the twentieth century.

2. Navin and Sears, studying the period from 1893 to 1896 “when almost no mergers were taking place” observe how the securities market and, in my view, the modern corporation with it, might have developed in the absence of the merger movement, with limited stock ownership spread from the heirs of industrialists who were looking to liquidate their positions in their family corporations; Navin & Sears, The Rise of a Market for Industrial Securities, p. 127.

3. Navin & Sears, The Rise of a Market for Industrial Securities, pp. 109-12; DODD, STOCK WATERING, p. 23.

4. George Edwards, in his study of American finance capitalism, claims that what he calls “security capitalism,” the system of financing business with individual savings, began in 1873 and was more or less complete by 1907; EDWARDS, THE EVOLUTION OF FINANCE CAPITALISM, pp. 161-62. The story I tell, using a somewhat different notion of finance capitalism, begins in 1897 and ends in 1919, both later than the period Edwards identifies.282

5. The efficiency and managerial rationales form the central theses of Chandler’s great work; CHANDLER, THE VISIBLE HAND; CHANDLER, SCALE AND SCOPE.

6. I rely heavily on interpretations by Kolko, Wiebe, Weinstein and especially Sklar, for the relationship between business and government and their more or less cooperative construction of corporate regulation. KOLKO, THE TRIUMPH OF CONSERVATISM; WIEBE, BUSINESSMEN AND REFORM; WIEBE, THE SEARCH FOR ORDER; WEINSTEIN, THE CORPORATE IDEAL IN THE LIBERAL STATE; SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM.

7. COWING, POPULISTS, PLUNGERS, AND PROGRESSIVES. Klein provides a revisionist account of Gould as a constructive businessman; KLEIN, THE LIFE AND LEGEND OF JAY GOULD.

8. Carnegie’s statement is reported in Meade, The Genesis of the United States Steel Corporation, p. 542. Meade describes the Carnegie Company as “purely industrial. Financial considerations had little weight.” Id. By contrast, finance was a driving force behind Morgan’s creation of U.S. Steel.

I use Carnegie and Morgan here as ideal types. Carnegie was not a pure industrialist, and Morgan not a pure securities salesman. David Nasaw describes Carnegie’s employment in the period between his career at the Pennsylvania Railroad and his creation of Carnegie Steel as consisting largely of selling bonds (including through the firm of Junius Morgan and, indirectly, his son Pierpont). While Carnegie earned his early fortune as a railroad manager, he also participated as a shareholder in a number of different enterprises, including rather unsavory railroad construction companies (explained infra at n. 9) and dabbled in securities speculation; NASAW, ANDREW CARNEGIE, pp. 118-36. Nonetheless, Carnegie Steel was an industrial model along the lines described by Meade and Carnegie did display later contempt for pure financiers like Morgan.

Morgan took an interest in industry, although Nasaw describes his early work in correspondence with his father as more manipulative than the financial statesmanship for which he became known; NASAW, ibid., p. 136. Jean Strouse, in her magnificent biography of J. P. Morgan, places less emphasis on considerations of finance. She notes the distaste with which Morgan and his father considered the post-Civil War chaos in the railroad industry and their desire to stabilize it, albeit for the safety of the securities issued by the railroads and sold by the Morgan firms. She also credits Morgan with creating U.S. Steel convinced of the efficiency gains to be had rather than for the sake of salable watered stock; STROUSE, MORGAN, pp. 133-34, 406

9. CLARK, HISTORY OF MANUFACTURES IN THE UNITED STATES, vol. 2, 1860-1893. Arthur Hadley’s history of the railroads, while not specific, suggests that early railroads were financed by stock subscribed for by local merchants, bankers and others with free cash to invest, but bond financing predominated at least by the 1880s as the source of railroads’ permanent capital. This source allowed stockholders to manipulate a railroad’s wealth in order to divert profits to themselves (often in the form of what was referred to as a “construction company,” which was essentially a finance company formed to construct and control the railroad and controlled by the railroad’s founders). Construction companies frequently drove the railroads into bankruptcy because the diversion of funds to the founders made it hard for the railroads either to complete construction or to meet their fixed costs if they did; HADLEY, RAILROAD TRANSPORTATION, pp. 45-55. William Ripley writes that railroad finance in the beginning was almost always in the form of stock such that, by 1855, the combined capital stock of railroads exceeded their aggregate bonded debt by 42 percent. Bonds became more common when lines moved away from Eastern money centers, and were also popular because they facilitated founders’ abillities to own the railroads with other people’s money by using construction companies; RlPLEY, RAILROADS: FINANCE AND ORGANIZATION, pp. 10-23. Early railroads also often received very significant state and federal financial support; HUGHES, THE VITAL FEW, pp. 363-65. Chandler provides evidence that, as early as the 1850s, railroads were financed largely with European debt, but by the 1870s, wealthy individual financiers like Vanderbilt, Gould and Forbes, among others, owned the controlling stock of railroads which remained largely financed with debt. Finally, by the 1890s, especially after an extraordinary number of railroad reorganizations, control of a number of major railroads was held by the first group of modern investment banks, including J. P. Morgan & Co.; Kuhn, Loeb & Co.; August Belmont & Co.; Lee, Higginson & Co.; and Kidder, Peabody & Co., although their control was through financial influence rather than direct investment; CHANDLER, THE VISIBLE HAND, pp. 91-172.283

Railroad stock was the frequent subject of speculative activity. Chandler gives railroad speculators credit for overcoming the lassitude of permanent stockholders, whose goal simply was to maintain dividends, to force the investments necessary for the consolidation of the great railroad systems; CHANDLER, THE VISIBLE HAND, p. 148.

10. THORELLI, THE FEDERAL ANTITRUST POLICY, p. 63; CHANDLER, THE VISIBLE HAND, pp. 240-83. Thorelli shows virtually no increase in the number of factories created between 1869 and 1879 but attributes this to “the extraordinary mortality of small businesses” and instead relies upon increases in wage earners and product values to sustain his point.

11. Employment classification calculations are based on HISTORICAL STATISTICS OF THE UNITED STATES, MILLENNIAL ED., vol. 2, Table Ba 814-830. Numbers demonstrating similar trends, although slightly different, appear in UNITED STATES DEPARTMENT OF COMMERCE, HISTORICAL STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, Part 1, Series D 152-166 (1976); see also UNITED STATES DEPARTMENT OF COMMERCE, BUREAU OF THE CENSUS, HISTORICAL STATISTICS OF THE UNITED STATES: EARLIEST TIMES TO THE PRESENT. Post-1900 data are drawn from HISTORICAL STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, Part 1, Series F 6-9.

12. Throughout the book I have used dollar values as presented in the primary sources except as otherwise indicated. Thus I have adjusted for inflation neither to the present nor within the twenty-three-year period I cover.

Historians are not in complete agreement as to the dates of the merger wave. Kolko dates it from 1897 to 1901; KoLκo, THE TRIUMPH OF CONSERVATISM, p. 24. Naomi Lamoreaux considers it to have occurred from 1895 to 1904; LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS. Thomas McCraw agrees with Lamoreaux (relying both on his data and on Lamoreaux and several of her empirical sources); MCCRAW, PROPHETS OF REGULATION, pp. 97-98. Gardiner Means seems to have considered the most active period to have been 1898 to 1903; BONBRIGHT & MEANS, THE HOLDING COMPANY, pp. 69-70. And Arthur Dewing, writing in 1914, traces it from late 1896 until it “ceased abruptly before the depression of 1903”; DEWING, CORPORATE PROMOTIONS AND REORGANIZATIONS, p. 522.284

My periodization relies both on the first post-depression jump in combination activity and the first significant effects of economic growth for the beginning of the merger wave, which were 1898 and 1897, respectively, and the break following the Rich Man’s Panic of 1903 for the end. Since combination activity in 1897 was relatively modest prior to a significant increase in 1898, my starting date is somewhat arbitrary and reflects a balance of economic and combination activity. In any event, the determination of a precise date for the beginning and end of the merger wave is not critical to my argument.

The amount of new capital raised in the merger wave is unclear, and the issue is complicated by distinctions between nominal capital and the amounts of securities actually issued, and nominal value and the prices at which the securities were sold on the market, as I will discuss in Chapter Three. But the magnitude of the merger wave clearly was dramatic, and contemporary observers almost uniformly spoke in terms of nominal capital rather than actual capital so I need not resolve these distinctions for my purposes.

Conant presents the 1900 total combination capitalization as $5 billion, but this diminishes to $4.4 billion when duplications are eliminated; Luther Conant, Jr., Industrial Consolidations in the United States, p. 18. Thorelli is frank about the paucity of data and the consequent imperfection in the numbers; THORELLI, THE FEDERAL ANTITRUST POLICY, pp. 291-306. Navin and Sears describe the corporate landscape before 1890 as dominated by corporations with equity of less than $2 million, with a small handful having $5 to $10 million and an even smaller number exceeding $10 million. By the turn of the century there were “nearly a hundred” industrial corporations with capitalizations exceeding $10 million; Navin & Sears, The Rise of a Market for Industrial Securities, pp. 109-12, 134.

In emphasizing the importance of finance, I do not mean to disregard those observers who argue that there were significant efficiency gains from at least some number of these combinations. Undoubtedly there were. My point is that American corporate capitalism most likely would not have developed how it did, when it did and with the consequences it had in the absence of the alignment of financial incentives, legal possibilities and economic circumstances. It will of course require the rest of the book to sustain this assertion.

13. MOODY, THE TRUTH ABOUT THE TRUSTS, pp. 485-89; MEADE, TRUST FINANCE; NELSON, MERGER MOVEMENTS IN AMERICAN INDUSTRY, p. 37. Thorelli, based on his modification of a study by Myron Watkins, places the number of combinations at 186 between 1898 and 1901 and 163 for the period covered by Meade; THORELLI, THE FEDERAL ANTITRUST POLICY, at pp. 298-302. Both Nelson and Lamoreaux use significantly lower figures, but employ a more restricted set of criteria in identifying combinations; LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS, at p. ι, n. ι; and see WATKINS, INDUSTRIAL COMBINATIONS AND PUBLIC POLICY, esp. Appendix 2.285

14. The dollar values of acquired securities are found in HISTORICAL STATISTICS OF THE UNITED STATES, MILLENNIAL ED., Table Ce42-68.

The absence of agricultural individuals from the data is not troubling, since during this period farmers tended to invest their money in land; Waring, Life and Work of the Eastern Farmer, ATLANTIC MONTHLY, vol. 39, no. 253 (May 1877), pp. 584-95; Mappin, Farm Mortgages and the Small Farmer.

Gene Smiley provides the trading volumes noted in the text; Smiley, The Expansion of the New York Securities Market, p. 77. NELSON, MERGER MOVEMENTS IN AMERICAN INDUSTRY, p. 90, shows an almost steady upward trend in listed securities from the Civil War until about 1895. These were, as he acknowledges, principally railroad securities. As to the 1901 trading volume, it must be remembered that 1901 was the year of the Northern Pacific battle which, for a brief but intense time, had a significant effect on trading volume. Perhaps the best general account of the fight for the Northern Pacific is provided by Strouse; SτROUSE, MORGAN, pp. 418-27.

15. VEBLEN, THE THEORY OF BUSINESS ENTERPRISE, pp. 25-27, 31, 34, 89,157, 158.

16. The intellectual and social dominance of laissez-faire ideology in nineteenth-century America is not inconsistent with observations that significant forms of regulation appeared during that era. See Novak, Public Economy and the Well-Ordered Market; MCCRAW, PROPHETS OF REGULATION. Laissez-faire was an anti-regulatory philosophy and, as I discuss in this chapter and in Chapter Two, state corporate regulation was rather severe. At the same time, it was a philosophy of competition, and Supreme Court ideology of the last quarter of the nineteenth century through the New Deal, as well as significant state law, blocked cooperation in favor of competition as a business strategy.

17. For good discussions of the political and intellectual life of the era, see BUCK, THE GRANGER MOVEMENT; COMMAGER, THE AMERICAN MIND; CURTI, THE GROWTH OF AMERICAN THOUGHT; DORFMAN, THE ECONOMIC MIND IN AMERICAN CIVILIZATION, vol. 3,1865-1918; GABRIEL, THE COURSE OF AMERICAN DEMOCRATIC THOUGHT, chs. 13-21; GOODWYN, THE POPULIST MOMENT; HOFSTADTER, THE AGE OF REFORM; KOLKO, THE TRIUMPH OF CONSERVATISM; MAY, THE END OF AMERICAN INNOCENCE; SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM; WIEBE, BUSINESSMEN AND REFORM; WIEBE, THE SEARCH FOR ORDER; WEINSTEIN, THE CORPORATE IDEAL IN THE LIBERAL STATE, among others.

18. THORELLI, THE FEDERAL ANTITRUST POLICY, pp. 112-17; CARNEGIE, THE GOSPEL OF WEALTH AND OTHER TIMELY ESSAYS; SUMNER, WHAT SOCIAL CLASSES OWE TO EACH OTHER; GABRIEL, THE COURSE OF AMERICAN DEMOCRATIC THOUGHT, pp. 231-35; COMMAGER, THE AMERICAN MIND, pp. 201-3; DORFMAN, THE ECONOMIC MIND IN AMERICAN CIVILIZATION, vol. 3, pp. 67-69; MAY, THE END OF AMERICAN INNOCENCE, pp. 20-21; KEYNES, THE END OF LAISSEZFAIRE, p. 15.

19. As Ely put it, the Industrial Revolution in America transformed an acceptance of laissez-faire into an understanding that it was “an anachronism”; ELY, STUDIES IN THE EVOLUTION OF INDUSTRIAL SOCIETY, p. 61.286

For a detailed analysis of the way dominant businesses could use the railroads to conquer smaller ones, see NEVINS, JOHN D. ROCKEFELLER, vol. ι, pp. 306-412 and passim.

20. UNITED STATES DEPARTMENT OF COMMERCE, HISTORICAL STATISTICS OF THE UNITED STATES: COLONIAL TIMES TO 1970, Part 1, Series F 287-296.

21. UNITED STATES DEPARTMENT OF COMMERCE, HISTORICAL STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, Part 2, Series Q 321-28; CHANDLER, THE VISIBLE HAND, pp. 83, 88; RIPLEY, RAILROADS: FINANCE AND ORGANIZATION, p. 59.

22. UNITED STATES DEPARTMENT OF COMMERCE, HISTORICAL STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, Part 2, Series Q 321-328, Series Q 284-312; CHANDLER, THE VISIBLE HAND, p. 299.

23. THORELLI, THE FEDERAL ANTITRUST POLICY, p. 237, n. 8 (reprinting table from HISTORICAL STATISTICS OF THE UNITED STATES).

24. SELIGMAN, ESSAYS IN ECONOMICS, p. 1 (reprinting an essay published by Seligman in 1886).

25. An excellent summary of the evolution of economic thinking during this period, as well as a description of the principal ideas of some of the most important economists, is found in DORFMAN, THE ECONOMIC MIND IN AMERICAN CIVILIZATION, vol. 3, 1865-1918, pp. 160-213. Thorelli also gives a nice, although sometimes narrow, picture of the economic intellectual history of this period; THORELLI, THE FEDERAL ANTITRUST POLICY, pp. 127-32. Merle Curti provides a good description of the difference between the capitalism of the classical economists and that of the newer generation even as, like Clark, they modified their views over time; CuRTI, THE GROWTH OF AMERICAN THOUGHT, pp. 650-52.

26. Ely, Report of the Organization of the American Economic Association; and Ely, Constitution By-Laws and Resolutions of the American Economic Association, p. 35.

27. Clark, The Nature and Progress of True Socialism; Clark, The Limits of Competition; CLARK, THE PHILOSOPHY OF WEALTH. AS to the development of Clark’s thinking later in his career, see SCHUMPETER, HISTORY OF ECONOMIC ANALYSIS, pp. 867-70; THORELLI, THE FEDERAL ANTITRUST POLICY, pp. 121-23.

28. Adams, Relation of the State to Industrial Action. See also THORELLI, THE FEDERAL ANTITRUST POLICY, pp. 131-32.

29. Ely, The Nature and Significance of Monopolies and Trusts, pp. 275-83; ELY, STUDIES IN THE EVOLUTION OF INDUSTRIAL SOCIETY, pp. 97, 62, 89-91, 99; ELY, AN INTRODUCTION TO POLITICAL ECONOMY, pp. 5, 14.

30. Edwin R. A. Seligman, Railway Tariffs and the Interstate Commerce Law, II, pp. 372-73; HADLEY, RAILROAD TRANSPORTATION, pp. 69, 81; HADLEY, ECONOMICS, esp. chs. 1 and 6; Gunton, The Economic and Social Aspects of Trusts; GUNTON, TRUSTS AND THE PUBLIC (largely a collection of his articles defending trusts); Andrews, Trusts According to Official Investigation.

31. DODD, STOCK WATERING, p. 23, notes that railroads were financed almost entirely with debt, and stock sold to promoters for little or no consideration. SOBEL, THE BIG BOARD, pp. 81-82, notes that by 1869, almost 20 percent of American railroad securities were owned by foreigners. PREVITS & MERINO, A HISTORY OF ACCOUNTING IN AMERICA, p. 75, describe the influx of English, Dutch and German investments in American railroads during the boom period of 1866 to 1873, and the way the depression of 1873, combined with the depression of 1887, led to foreign dumping of American railroad securities at significant losses, enabling Americans to purchase the securities “at greatly reduced prices, the result being that Americans had gained ownership in the railroads at a small portion of the original investment.”287

32. KOLKO, RAILROADS AND REGULATION, p. 7. Chandler also engages in an extensive discussion of railroad overbuilding and competition; CHANDLER, THE VISIBLE HAND, ch. 4. For a wonderful and detailed description of the chaos in the related railroad, refining and oil producing industries in the late 1860s and early 1870s, see NEVINS, JOHN D. ROCKEFELLER, vol. 1, pp. 247 passim. To get a somewhat mundane but highly detailed flavor of the railroad problems, it is worth reading Robert Swaine’s thorough description of the work of the law firm that became the Cravath firm from the end of the Civil War to the second decade of the twentieth century; SWAINE, THE CRAVATH FIRM, vol. 1 from p. 238 episodically through the first several hundred pages of vol. 2. See also CHERNOW, THE HOUSE OF MORGAN; STROUSE, MORGAN, ch. 13.

33. The U.S. Industrial Commission discussed at some length the relationship between some of the large trusts and the railroads and its effect upon public sentiment; UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, 1902, pp. 597-99, 610-11, 615-16. See also MOODY, THE TRUTH ABOUT THE TRUSTS, p. 112.

Attitudes toward the railroads and other big businesses tended to vary by occupation, region and the state of the economy. For a careful empirical study of public opinion, see GALAMBOS, THE PUBLIC IMAGE OF BIG BUSINESS IN AMERICA. See also MARCHAND, CREATING THE CORPORATE SOUL, for a study of the ways in which big corporations used public relations and the media to create public acceptance.

34. Bullock, Trust Literature, p. 177. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, p. 615.

35. LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS, carefully argues that in the middle 1990s most of the truly destructive competition occurred in mass production industries with little product differentiation, high fixed costs and heavy investment made not long before the depression.

36. WIEBE, THE SEARCH FOR ORDER, pp. 7, 23; Puffert, The Standardization of Track Gauge.

37. CHANDLER, THE VISIBLE HAND, pp. 133-43.

38. It is perhaps more accurate to say that Ohio law was silent on the subject of corporations owning the stock of other corporations. The common law rule at the time was that silence in a statute as to a corporation’s powers meant that the corporation lacked those powers unless express permission had been given by the legislature in the corporation’s charter.

One of the best accounts of Standard Oil’s growth through predatory tactics with railroads and competitors leading to a virtual transportation shutout for almost every potential competitor is NEVINS, JOHN D. ROCKEFELLER. More critical accounts inelude TARBELL, THE HISTORY OF THE STANDARD OIL COMPANY and LLOYD, WEALTH AGAINST COMMONWEALTH. While Lloyd’s book was published in 1894, based in part on a series of his articles beginning in 1881, I have relied upon Cochran’s 1963 edition, which was prepared in response to numerous accusations of Lloyd’s factual inaccuracies and distortions. Cochran’s edition is an attempt to present only the verifiable facts from official sources and thus tells a more reliable (yet still gripping) story than the original publication.288

39. NEVINS, JOHN D. ROCKEFELLER, vol. 1, pp. 604-17.

40. A copy of The Trust Agreement of 1882 is appended to TARBELL, THE HISTORY OF THE STANDARD OIL COMPANY, vol. 2, p. 364. It is also available as part of the House Proceedings in Relation to Trusts held in 1888. The description of Dodd is from CHERNOW, TITAN, p. 225. The story of the formation of the Standard Oil trust is carefully reported in NEVINS, JOHN D. ROCKEFELLER, vol. 1, pp. 604-17; and CHERNOW, TITAN, pp. 224-27.

41. People v. North River Sugar Refining Company, 121 N.Y. 582 (1890); State v. Standard Oil Company, 49 Ohio St. 137 (1892); MEADE, TRUST FINANCE. This was, of course, not necessarily the view of those businessmen who were destroyed in the process of combination or who believed they had sold out to the trusts too cheaply.

Exceptions to the acceptance of business combination as natural and beneficial included residents of the farm states of the Midwest, the upper Midwest and the South, who vilified the largely Eastern capitalists and businessmen and whose anger at the effect of Eastern finance on farm prices, as well as their perception that the gold standard favored by Eastern businessmen deflated the prices they could get for their products, led to the Grange and Populist movements, culminating in the presidential campaigns of William Jennings Bryan against McKinley in 1896 and 1900.

Further opposition was centered in the National Association of Manufacturers, an organization composed largely of smaller businessmen. They advocated a broad version of laissez-faire, within business-protective limits such as a strong tariff and good internal infrastructure, largely as a means of opposing organized labor; STEIGERWALT, THE NATIONAL ASSOCIATION OF MANUFACTURERS.

Although I will discuss the Democrats’ position later in relation to the Littlefield bill of 1903, much of the story of the development of consensus on the subject is beautifully told in SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM.

42. By this time New Jersey had introduced the first of its liberalizing amendments and John D. Rockefeller and his trust reorganized safely, at least for the time being, as a corporation in New Jersey.

TWO: SANCTUARY

1. Delaware does have a state income tax, with a rather modest top marginal rate of 5.95 percent; 30 DEL. CODE ANN. sec. 1102 (a)(11)(2006).

2. UNITED STATES DEPARTMENT OF COMMERCE, BUREAU OF THE CENSUS, STATE GOVERNMENT TAX COLLECTIONS: 2005, available at http://www.census.gov/govs/statetax/0508destax.html.

3. As of 1901, the top six states in terms of corporate franchise tax receipts were New York, New Jersey, Massachusetts, Pennsylvania, West Virginia and Maine; Calkins, The Massachusetts Business Corporation Law, p. 270.289

4. Boyer, Federalism and Corporation Law, pp. 1041-42; Ballam, The Evolution of the Government-Business Relationship.

5. Incorporation had been outlawed in Britain since 1720, primarily because of fallout from the collapse of the South Sea Bubble; The Bubble Act, 6 GEO. 1, ch. 18 (1720).

6. Charles River Bridge v. Warren Bridge, 36 U.S. (11 Pet.) 420 (1837). For an extended discussion of corporate chartering and monopoly see Hovenkamp, The Classical Corporation in American Legal Thought.

7. KELLER, AFFAIRS OF STATE, pp. 184-85; CADMAN, THE CORPORATION IN NEW JERSEY, pp. 435-38.

8. CADMAN, THE CORPORATION IN NEW JERSEY, pp. 53-56.

9. Grandy discusses the Morris Canal and Banking Company, incorporated in 1824, which also enjoyed a degree of monopoly power and tax exemption and which flourished until competition with the railroads forced it into decline; GRANDY, NEW JERSEY AND THE FISCAL ORIGINS OF MODERN AMERICAN CORPORATION LAW, p. 20; RAUM, THE HISTORY OF NEW JERSEY FROM ITS EARLIEST SETTLEMENT TO THE PRESENT TIME, vol. 2, pp. 334, 340-41. Granting monopoly power to legislatively chartered corporations was not uncommon (see HOVENKAMP, ENTERPRISE AND AMERICAN LAW, p. 126), but New Jersey’s concessions were remarkably generous.

10. ACTS INCORPORATING THE DELAWARE AND RARITAN CANAL COMPANY, THE CAMDEN AND AMBOY RAILROAD AND TRANSPORTATION COMPANY, AND THE NEW JERSEY RAILROAD AND TRANSPORTATION COMPANY, pp. 17-27, 45. The quote in the text is taken from CLEVELAND & POWELL, RAILROAD PROMOTION AND CAPITALIZATION IN THE UNITED STATES, pp. 166-67.

11. Stoke, Economic Influences upon the Corporation Laws of New Jersey, p. 555; Steffens, New Jersey; GRANDY, NEW JERSEY AND THE FISCAL ORIGINS OF MODERN AMERICAN CORPORATION LAW, p. 22; Important Movement in New Jersey, NILES’ WEEKLY REGISTER, Mar. 19, 1836, p. 45; Stockton’s Appeal, SATURDAY EVENING POST, Oct. 13, 1849, p. 2.

12. Stoke, Economic Influences upon the Corporation Laws of New Jersey, p. 567, n. 49; WATKINS, THE CAMDEN AND AMBOY RAILROAD.

13. RAUM, THE HISTORY OF NEW JERSEY FROM ITS EARLIEST SETTLEMENT TO THE PRESENT TIME, vol. 2, p. 320.

14. RAUM, THE HISTORY OF NEW JERSEY FROM ITS EARLIEST SETTLEMENT TO THE PRESENT TIME, vol. 2, p. 341. Grandy notes that heavy local property taxes were assessed to provide services for which local governments were unable to obtain adequate funding from the state. This created political resentment not only in local lawmakers, but also in local property owners who were being heavily taxed at a time when the railroads were hardly being taxed at all. The result was a fight over whether localities could tax the railroads and whether the state legislature could withdraw the railroads’ tax exemptions, a fight the railroads ultimately lost; GRANDY, NEW JERSEY AND THE FISCAL ORIGINS OF MODERN AMERICAN CORPORATION LAW, pp. 23-39; AN INVESTIGATION INTO THE AFFAIRS OF THE DELAWARE & RARITAN CANAL AND CAMDEN & AMBOY RAILROAD COMPANIES IN REFERENCE TO CERTAIN CHARGES BY “A CITIZEN OF BURLINGTON”; REPORT OF COMMISSIONERS APPOINTED TO INVESTIGATE CHARGES MADE AGAINST THE DIRECTORS OF THE DELAWARE AND RARITAN CANAL AND CAMDEN AND AMBOY RAILROAD AND TRANSPORTATION COMPANIES. This latter report is significantly more critical of the companies, especially the Canal, than the earlier investigation, but attributes financial errors to sloppiness in accounting and bookkeeping and finds nothing to suggest dishonesty or fraud on the part of the directors. See also STOCKTON, ADDRESS BY COMMODORE R. F. STOCKTON TO THE PEOPLE OF NEW JERSEY; WATKINS, THE CAMDEN AND AMBOY RAILROAD, p. 59.290

15. The Lease of the New Jersey Railways to the Pennsylvania Railway Company, p. 338. The lease had been authorized by the legislature conditioned upon a twothirds vote of the United Companies’ shareholders and its payment of “fair value” for the stock of dissenting shareholders.

A number of other railroads were chartered between 1832 and 1873 but most of these were short local lines; RAUM, THE HISTORY OF NEW JERSEY FROM ITS EARLIEST SETTLEMENT TO THE PRESENT TIME, vol. 2, pp. 341-43.

16. Keasbey, New Jersey and the Great Corporations. See also N.J. PUB. LAWS 1846, p. 16; N.J. LAWS 1849, p. 300; N.J. LAWS 1865, p. 354; N.J. LAWS 1866, p. 1034.

17. Stoke, Economic Influences upon the Corporation Laws of New Jersey; Dodd, Statutory Developments in Business Corporation Law.

18. EDWARDS, THE EVOLUTION OF FINANCE CAPITALISM, p. 158.

19. N.J. PUB. LAWS 1882, p. 76; N.J. PUB. LAWS 1884, p. 232, setting franchise tax for certain categories of companies; Stoke, Economic Influences upon the Corporation Laws of New Jersey, p. 570, n. 63. GRANDY, NEW JERSEY AND THE FISCAL ORIGINS OF MODERN AMERICAN CORPORATION LAW, Figure 3.4, shows the meteoric rise in New Jersey franchise tax revenues from 1884 to about 1915.

20. Upton Sinclair, II—Justice—Bought and Paid For, FORUM, vol. 79, no. 5 (May 1928), p. 653; James B. Dill, CURRENT LITERATURE, vol. 29, no. 1 (July 1900), p. 24; Earl Mayo, The Trust Builders, FRANK LESLIE’S POPULAR MONTHLY, vol. 52, no. 1 (May 1901), p. 8; Seligman et al., The Taxation of Quasi-Public Corporations: Discussion; Dill, Some Tendencies in Combinations Which May Become Dangerous; Dill, National Incorporation Laws for Trusts; DILL, THE STATUTE AND CASE LAW OF THE STATE OF NEW JERSEY RELATING TO BUSINESS COMPANIES; SCHREINER, HENRY CLAY FRICK, p. 175; STEFFENS, AUTOBIOGRAPHY, pp. 192-96.

21. James B. Dill, CURRENT LITERATURE, vol. 29, no. 1 (July 1900), p. 24; Steffens, New Jersey.

22. The 1889 modifications to New Jersey’s more modest 1888 holding company act were evidently drafted at least in part by lawyers from New York’s Sullivan & Cromwell, counsel for the American Cotton Oil Trust; DEAN, WILLIAM NELSON CROMWELL, p. 100.

23. Steffens, New Jersey; Stoke, Economic Influences upon the Corporation Laws of New Jersey, p. 571.

24. SEAGER & GULICK, TRUST AND CORPORATION PROBLEMS, pp. 44-45. MOODY, THE TRUTH ABOUT THE TRUSTS. Arthur Dewing directly attributes the disappearance of the trust form of doing business to the amendments to New Jersey law; DEWING, CORPORATE PROMOTIONS AND REORGANIZATONS, p. 520, n. 4.291

25. HISTORICAL STATISTICS OF THE UNITED STATES, MILLENNIAL ED., Table Ch293-318. See also EVANS, BUSINESS INCORPORATIONS IN THE UNITED STATES, pp. 47-49 (noting the jump in very large corporations incorporating in New Jersey during the merger wave and the fact that many proclaimed monopolistic intent).

26. Whether or not one agrees with Chandler’s argument that law had little to do with the development of big business, it is clear that the form big business took had a great deal to do with the law, a fact recognized by the Industrial Commission in 1902: “The strongest forms of combination appear to have been promoted by laws intended to prevent them”; UNITED STATES INDUSTRIAL COMMISSION, FlNAL REPORT, vol. 19, p. 605; MASS. PUBLIC STATUTES 1870, ch. 224, sec. 15; MASS. PUBLIC STATUTES 1877, ch. 230, sec. 1, sec. 3; MASS. PUBLIC STATUTES 1875, ch. 177, sec. 2; Calkins, The Massachusetts Business Corporation Law; Dodd, Statutory Developments in Business Corporation Law; MASS. PUBLIC STATUTES 1903, ch. 437.

27. N.J. PUB. LAWS 1888, pp. 385-86. The 1903 sales brochure of the Corporation Trust Company of New Jersey does not even mention mergers as an attraction of New Jersey law; BUSINESS CORPORATIONS UNDER THE LAWS OF NEW JERSEY. D. E. Mowry, The Abuse of the Corporate Charter, ALBANY LAW JOURNAL: A WEEKLY RECORD OF THE LAW AND LAWYERS, vol. 69 (June 1907), pp. 188, 189. By 1896 almost all states provided for the interstate merger of railroad corporations upon a two-thirds vote of the stockholders. Laws permitting the interstate merger of industrial corporations were rare until late in the second decade of the twentieth century, long after the merger wave had passed.

For an interesting revision of the history of New Jersey’s modern corporation law, see Parker-Gwin & Roy, Corporate Law and the Organization of Property in the United States. I believe they understate the credibility of the traditional story, much of which is consistent with my own research as presented in the text, by discounting the fact that some of the most significant changes in New Jersey law occurred during Governor Abbett’s second term, which ran from 1890 to 1893; Steffens, New Jersey; HOGARTY, LEON ABBETT’S NEW JERSEY; HOGARTY, LEON ABBETT OF NEW JERSEY.

The fact that New Jersey was not the first state to provide legislatively for holding companies also helps to put the relative importance of the holding company act in perspective; Freedland, History of Holding Company Legislation in New York State. The holding company act was important and did quickly attract corporations, but it was in 1893, during Abbett’s second term, that it was amended to work broadly for industrial corporations and not until 1896 that it was perfected.

28. Elkins v. The Camden and Atlantic Railroad Company, 36 N.J. Eq. 5 (1882); Berry v. Yates, 24 Barb. 199 (N.Y. 1857); Peabody v. Chicago Gas Trust Co., 130 Ill. 268 (1889); First National Bank of Concord, N.H. v. Hawkins, 174 U.S. 364 (1899) (under national bank law); Easun v. Buckeye Brewing Co., 51 F. 156 (N.D. Ohio 1892) (under Ohio law); Buckeye Marble & Freestone Co. v. Harvey, 20 S.W. 427 (Tenn. 1892) (apparently under Tennessee law); Booth v. Robinson, 55 Md. 419 (1881) (Maryland permitting intercorporate stockholdings and insisting that it was the majority rule). See also ANGELL & AMES, A TREATISE ON THE LAW OF PRIVATE CORPORATIONS, AGGREGATE, 7th ed., sec. 158; ANGELL & AMES, A TREATISE ON THE LAW OF PRIVATE CORPORATIONS, AGGREGATE, 10th ed., sec. 158 (language identical to 7th ed.); MORAWETZ, TREATISE ON THE LAW OF PRIVATE CORPORATIONS OTHER THAN CHARITABLE, sec. 229; BOONE, A MANUAL OF THE LAW APPLICABLE TO CORPORATIONS GENERALLY, sec. 107; DILL, THE STATUTORY AND CASE LAW APPLICABLE TO PRIVATE COMPANIES, sec. 51; Power of a Corporation to Acquire Stock of Another Corporation. But see Compton, Early History of Stock Ownership by Corporations, detailing the extent to which corporations held stock in other corporations under special charter provisions from at least the middle of the nineteenth century.292

29. N.J. PUB. LAWS 1888, pp. 385-86; Coler v. Tacoma Railway and Power Co., 64 N.J. Eq. 117 (1902); Parsons v. Tacoma Smelting and Refining Company, 25 Wash. 492 (1901).

30. N.J. PUB. LAWS 1893, p. 301.

31. N.J. PUB. LAWS 1896, pp. 293-94; N.J. PUB. LAWS 1896, p. 279, as amended; N.J. PUB. LAWS 1899, p. 473 (allowing a corporation to incorporate for “any lawful purpose or purposes”). Dittman v. The Distilling Company of America, 64 N.J. Eq. 537 (Ch. Ct. 1903); Ellerman v. Chicago Junction Railways & Union Stock-Yards Co., 23 A. 287 (N.J. Ch. 1891); New Jersey v. Atlantic City and Shore Railroad Company, 69 A. 468 (N.J. S.Ct. 1907). See Taylor, Evolution of Corporate Combination Law, pp. 698-99, 749-53; SEYMOUR D. THOMPSON, COMMENTARIES ON THE LAW OF PRIVATE CORPORATIONS, 1st ed., vol. 5, sec. 6405.

The corporate personality argument was, in part, that corporations had the same rights as individuals to acquire property; EDDY, THE LAW OF COMBINATIONS, pp. 665-66; HORWITZ, THE TRANSFORMATION OF AMERICAN LAW, p. 87; Mark, The Personification of the Business Corporation in American Law.

32. As early as 1883, New Jersey permitted mergers and consolidations of specific kinds of corporations on a majority vote of the stockholders, first those maintaining stockyards, storehouses, piers, or docks, and, in 1888, hotels and common carriers. The 1889 act was a significant advance in that it permitted any New Jersey corporation to merge or consolidate, albeit only with any other New Jersey corporation, upon approval of the boards of directors of both companies and two-thirds of the stockholders of each company; N.J. PUB. LAWS 1883, p. 242; N.J. PUB. LAWS 1888, p. 441; N.J. PUB. LAWS 1893, p. 121. Still, the statute authorized only horizontal mergers and consolidations. While this may seem, and was, somewhat limiting, it is important to note that a principal reason for corporate combination at this time was to restrain and eliminate competition and therefore most of the mergers that took place through the early twentieth century were horizontal. LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS, p. 1. So the limitation was, in practice, less significant than it appears at first blush. A concise summary of the changes in New Jersey law through 1896 is provided in Grandy, New Jersey Corporate Chartermongering.

33. I have not been able to find aggregated data detailing the technical legal forms of combinations. Economic, business and legal historians typically use the term “merger” to apply to any kind of corporate consolidation. Nelson, for example, says that while “it is true that the simultaneous consolidation of a number of firms into one company was the most common form of merger in this period, there were some important exceptions.” He then contrasts this with corporations acquired one by one, suggesting that by “consolidation” he does not technically mean what we would refer to as consolidation or merger; NELSON, MERGER MOVEMENTS IN AMERICAN INDUSTRY, p. 13; LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS; Bittlingmayer, Did Antitrust Policy Cause the Great Merger Wave? Thorelli argues that most of the “trusts proper” reorganized into single corporations, not holding companies. This is consistent with the idea that, at least at this early stage before the merger movement, sales of assets for stock were more common than stock-for-stock exchanges; THORELLI, THE FEDERAL ANTITRUST POLICY, p. 83. Cheffins appears to use the terms “merger” and “consolidation” interchangeably; Cheffins, Mergers and Corporate Ownership Structure, pp. 478-80.293

Hovenkamp implies that asset transfers for stock were far more common than stock for stock transactions. HOVENKAMP, ENTERPRISE AND AMERICAN LAW, pp. 251-52. Seager and Gulick imply the same when they describe the typical initial combination proposal; “they turn over their properties and business to the new corporation to be organized in exchange for a fair proportion of the stock.” In fact Seager and Gulick do not even mention mergers among the forms of combination they describe; SEAGER & GULICK, TRUST AND CORPORATION PROBLEMS, p. 65. Bonbright and Means support Thorelli’s conclusion as to the early trusts. They note that during the merger wave prior to 1900, the holding company device was not frequently used. Rather, corporations engaged in “fusion.” But Bonbright and Means define fusion as “merger, amalgamation, or purchase of assets,” which hardly resolves the question. They do note that most fusions were “horizontal” but, as we have seen, this would have been a requirement of New Jersey law for mergers anyway. They also agree with Thorelli that most of the “trusts proper” did not use the holding company device; BONBRIGHT & MEANS, THE HOLDING COMPANY, pp. 29, 68-72. Jenks writes that the preferred form after the initial creation of the holding companies was merger, describing the transactional form as assets for stock with the dissolution of the selling corporation, which is not technically a merger but a sale of assets now characterized as a “de facto” merger. Later, holding companies became more predominant, but Jenks observed this in 1929 when holding companies had indeed become prominent and he did not set any time parameters on the evolution he describes; JENKS & CLARK, THE TRUST PROBLEM, pp. 37-38. Finally, the Industrial Commission found that although the early combinations tended to be holding companies, most of the consolidations at the height of the merger wave (that is, by 1901) were in the form of mergers or asset sales forming a single corporation; UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, pp. 607-8.

It seems that the best conclusion is that combinations that did not use the holding company device used one central corporation to buy the assets of other corporations for stock rather than merge.

34. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, p. 607; BONBRIGHT & MEANS, THE HOLDING COMPANY, pp. 67-76; People v. North River Sugar Refining Company, 121 N.Y. 582 (1890); United States v. Northern Securities Company, 193 U.S. 197 (1904); Standard Oil Co. of New Jersey v. United States, 221 U.S. ι (1911); United States v. American Tobacco Co., 221 U.S. 106 (1911); Bittlingmayer, Did Antitrust Policy Cause the Great Merger Wave?.294

35. REPORT OF THE COMMISSIONERS APPOINTED TO REVISE THE GENERAL ACTS OF THE STATE OF NEW JERSEY RELATING TO CORPORATIONS, p. ii. Dill, in his 1898 treatise on New Jersey corporate law, puts the language of section 49 giving directors the conclusive right to determine value in bold letters; DILL, THE STATUTORY AND CASE LAW APPLICABLE TO PRIVATE COMPANIES, sec. 49.

36. BUSINESS CORPORATIONS UNDER THE LAWS OF NEW JERSEY, p. 17. As the Industrial Commission described matters, sometimes promoters would organize a new company and pay cash to the owners of factories they wanted to buy. “More frequently,” notes the Report, the plants were purchased with securities in the new corporation. When the plants were owned by corporations, the new company exchanged stock with the old, thereby acquiring ownership by stock of the constituent companies; UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, pp. 607-8. It is worth noting here, although I will discuss the issue more specifically in Chapter Three, that New Jersey manufacturing corporations could not issue stock for services (N.J. PUB. LAWS 1896, pp. 286, 293, 315), although Dill suggests, despite explicit statutory limitations, that one case could be read to permit this; DILL, THE STATUTORY AND CASE LAW APPLICABLE TO PRIVATE COMPANIES, sec. 50. This limitation affected the way promoters structured deals. Typically they bought options to buy the constituent companies and sold the options to the new combination in exchange for stock.

37. Navin and Sears make the argument that there was an upper limit on the extent to which directors and promoters could overissue stock in payment for assets (Navin & Sears, The Rise of a Market for Industrial Securities, p. 132), but the conditions of the merger wave seem to have expanded, if not eliminated, these limits.

38. Wetherbee v. Baker, 35 N.J. Eq. 501 (1882); Coit v. Gold Amalgamating Company, 119 U.S. 343 (1886).

39. Wood v. Dummer, 3 Mason 308 (C.C. Me. 1824); Wetherbee, supra n. 38; Boynton v. Hatch, 47 N.Y. 225 (1872).

40. Coit, supra n. 38; Van Cott v. Van Brunt, 82 N.Y. 535 (1880).

41. Bickley v. Schlag, 46 N.J. Eq. 533 (1890); Edgerton v. The Electric Improvement and Construction Company, 50 N.J. Eq. 354 (1892) (to same effect, although decided under the New Jersey corporations statute of 1882); Coit, supra n. 38. One relatively contemporaneous commentator notes that the court in Bickley “ranged itself squarely on the side of the good faith rule”; Wallstein, The Issue of Corporate Stock for Property Purchased, p. 118.

42. BIRMINGHAM, “OUR CROWD,” p. 11.

43. Donald v. American Smelting and Refining Company, 62 N.J. Eq. 729 (1900).

44. American Smelting Co. Loses on Appeal, NEW YORK TIMES, Mar. 29, 1901, p. 10; Corporation’s Safeguards, NEW YORK TIMES, Mar. 30, 1901, p. 12; Financial: Buying with Inflated Stock, THE INDEPENDENT, May 2, 1901, p. 1041.

45. American Smelting Company in Court, NEW YORK TIMES, Feb. 17, 1901, p. 1; Guggenheim Plant Sold, NEW YORK TIMES, Apr. 9, 1901, p. 1; Big Deal Closed, BOSTON DAILY GLOBE, Apr. 9, 1901, p. 4.

46. One exception to the commentators who ignored statutory difference was Leonard Wallstein; Wallstein, The Issue of Corporate Stock for Property Purchased.295

47. See v. Heppenheimer, 69 N.J. Eq. 36 (1905).

48. H. S. Richard, Exchange of Stock for Capitalized Profits, p. 526; H. L.W. [presumably H.L. Wilgus, a frequent legal commentator], Creditors’ Right to Hold Shareholders Liable on Corporate Stock Issued for Property Valued on the Basis of Prospective Profits, p. 220; Wallstein, The Issue of Corporate Stock for Property Purchased (not discussing See but approving the same basic rule); Liability for Stock Issued for Overvalued Property, p. 366.

49. See v. Heppenheimer, supra n. 47 at 849.

50. Wickersham, The Capital of a Corporation, p. 326.

51. N.J. PUB. LAWS 1896, pp. 279, 286, 315; Dill, National Incorporation Laws for Trusts, pp. 280-81.

52. Testimony of Howard K. Wood before the United States Industrial Commission, Oct. 18, 1899, UNITED STATES INDUSTRIAL COMMISSION, PRELIMINARY REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 1, p. 1089.

53. Steffens, New Jersey; Stoke, Economic Influences upon the Corporation Laws of New Jersey.

54. Pennoyer, How to Control the Trusts; Remedies for Monopolistic Trusts Proposed by the St. Louis Antitrust Conference; Recent Trust Conferences, NEW YORK OBSERVER AND CHRONICLE, vol. 77, no. 40, Oct. 5, 1899, p. 433; Review of the Month, GUNTON’S MAGAZINE, NOV. 1899, p. 337.

55. MASS. REV. LAWS 109, sec. 19; 110, sec. 44 (1903); Calkins, The Massachusetts Business Corporation Law.

THREE: TRANSCENDENTAL VALUE

1. Charles Conant places strong emphasis on these economic conditions in bringing about the merger wave; CONANT, WALL STREET AND THE COUNTRY.

2. ALLEN, THE GREAT PIERPONT MORGAN, p. 165. It is worth noting that Morgan had little but contempt for Gates (CAROSSO, THE MORGANS, p. 503), but he had no choice but to deal with him, especially in the U.S. Steel combination. It is also only fair to Morgan to note that he did not think of himself as a speculator like Gates, but took a serious interest in the combinations he created both for finance purposes and, relatedly, because of his desire to bring order to industry; SτROUSE, MORGAN. The point in the text is not to characterize all trust promoters simply as speculators, but rather to distinguish their interest in the profits to be made from speculative securities from those of the industrialists whose profits came from industrial production in precisely the way Veblen distinguished businessmen from industrialists.

3. A significant amount of debate has taken place over the causes of the merger wave. Regardless of how they may have evaluated the business and economic consequences of the merger wave, contemporary economists almost always saw its business origins in ruinous competition; e.g., MEADE, TRUST FINANCE, pp. 64, 76-78. Meade also discusses, at least theoretically, potential economies of scale from combination. See ibid., pp. 67-68. See also MEADE, CORPORATION FINANCE, p. 27. Sea-ger and Gulick also treat excessive competition as a major impetus for the movement, although they (and Meade) acknowledge the public appetite for stock during the period with its potential for promoters’ profits as a significant factor; SEAGER & GULICK, TRUST AND CORPORATION PROBLEMS, pp. 60-67. See also DODD, STOCK WATERING, p. 206; DEWING, CORPORATE PROMOTIONS AND REORGANIZATIONS, p. 518; and JENKS, THE TRUST PROBLEM, p. 87. Ely identifies the primary cause underlying the creation of large corporate enterprises as efficiency, which he takes pains to distinguish from monopoly; Ely, The Nature and Significance of Monopolies and Trusts, pp. 282-83; and ELY, STUDIES IN THE EVOLUTION OF INDUSTRIAL SOCIETY, p. 91, although Ely also explains the need for industrial cooperation in order to achieve that efficiency. See ibid., pp. 89, 90. Charles Conant couples excessive competition with promoters’ greed as the principal causes of the merger wave; CONANT, WALL STREET AND THE COUNTRY, p. 15. See also MEADE, TRUST FINANCE, pp. 56-57 (Meade argues that promoters’ high profits were justifiable); NOYES, FORTY YEARS OF AMERICAN FINANCE, p. 286.296

Modern historians also have debated the causes of the merger wave. Some say that it was the simple desire for monopoly, created out of the fire of competition, and the best way to achieve monopoly was to swallow your competitors. In some cases this was true. J. Fred Weston, looking at a sample of the largest mergers, as well as Moody’s more comprehensive list, disputes the argument that most industries were characterized by large numbers of competing firms, and writes instead that these mergers consolidated relatively small numbers of already large plants. Most increases in corporate size, he argues, came from internal growth. But many of the corporations combined during the merger wave had themselves previously grown by consolidation. Gates’s American Steel & Wire Company, for example, had acquired at least 28 different companies comprising at least 31 different plants during the few years before it was swallowed into the Steel Trust; WESTON, THE ROLE OF MERGERS IN THE GROWTH OF LARGE FIRMS, pp. 31-44.

Weston understates the number of corporations that had undergone combination prior to the merger wave. His reliance on John Moody’s average of the 305 largest trusts (16) misrepresents, as do all averages, the significant competition existing in a number of industries. In addition, the 305 mergers he examines are only industrial corporations—Moody actually reports 440 “large industrial, franchise, and transportation trusts”; MOODY, THE TRUTH ABOUT THE TRUSTS, pp. xi, 485-86. Finally, Weston does not note data demonstrating significant variance in the reported number of firms that disappeared. Moody identifies 4,900 plants absorbed during the merger wave (except for the Sugar Trust which had earlier been completed).

Naomi Lamoreaux argues that too many new corporations in competitive mass production and capital intensive industries had sunk too much money into technological and marketing improvements. As a result, when the depression of 1893 brought decreased sales, these corporations were particularly “susceptible to price cutting” in order to continue operations and cover their fixed costs. This resulted in price wars that were resolved by the rationalization of industry through combination; LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS, p. 85; O’Brien, Factory Size, pp. 639-49.

Alfred D. Chandler, Jr., describes the formation of the six major trusts in the 1880s as fully integrated, vertical operations that could take advantage of centralized managerial techniques, and attributes the success of the modern giant corporation to centralized and efficient management. But he also acknowledges a significant financial motivation for mergers at the end of the century; CHANDLER, THE VISIBLE HAND, pp. 331-35. The problem with Chandler’s managerial argument is that while the true trusts, like Standard Oil, became vertically integrated over time, most of the mergers characterizing the merger wave were horizontal; Richard B. Du Boff and Edward S. Herman, Mergers, Concentration, and the Erosion of Democracy, Monthly Review, vol. 53, no. 1 (May 2001), pp. 14-29.297

Yet another suggestion, supported by Ralph Nelson, is that the development of capital markets and fluctuations in securities prices at the end of the nineteenth century were a significant cause of the merger movement, as was businessmen’s desire for market control; NELSON, MERGER MOVEMENTS IN AMERICAN INDUSTRY. Navin and Sears give a variety of reasons, from the desire to avoid destructive competition to plant owners’ and their families’ interests in liquidating their investments; Navin & Sears, The Rise of a Market for Industrial Securities. George Stigler, Jesse Markham and, in part, Myron Watkins conclude that it was promoters’ profits from producing and selling securities that was the primary motivation; GEORGE J. STIGLER, THE ORGANIZATION OF INDUSTRY, pp. 101-3; Jesse W. Markham, Survey on the Evidence and Findings of Mergers, pp. 141, 162-65. WATKINS, INDUSTRIAL COMBINATIONS AND PUBLIC POLICY, p. 33; REID, MERGERS, MANAGERS AND THE ECONOMY, p. 40, found a “common thread of agreement” that the promoter was important.

Stigler notes that mergers for the purpose of monopolizing given industries would likely have been profitable long before the merger wave actually happened. Lance Davis tends to agree with Nelson, that the impetus for the merger wave was financial, but adds, through an interesting comparison with the United Kingdom, that in the latter country capital markets had been so well developed for so long that smaller enterprises had easy access to capital and did not need to combine, whereas in the traditionally poor capital markets of the United States, access to capital was available only to large enterprises. The improvement in American capital markets in the late nineteenth century led to even greater concentration as already large companies sought more capital; Lance Davis, The Capital Markets and Industrial Concentration. George Bittlingmayer argues that Supreme Court antitrust jurisprudence was a likely cause of the merger wave; Bittlingmayer, Did Antitrust Policy Cause the Great Merger Wave?.

Most economic and business historians have focused on the business consequences of the mergers in terms of productive efficiency and industrial concentration rather than on the consequences for the financial structure of the American economy.

4. See, e.g., BENTLEY, THE SCIENCE OF ACCOUNTS, p. 37: “The question of value of property taken in exchange for stock is, however, left to the judgment of the directors, which frequently results in property being taken over by corporations at greatly inflated values.”

5. The Drew story is found in slightly different versions in multiple sources. I have relied upon KLEIN, THE LIFE AND LEGEND OF JAY GOULD, p. 77; JOSEPHSON, THE ROBBER BARONS, p. 18; and ALLEN, LORDS OF CREATION, p. 12.

6. The description of Vanderbilt is from ALLEN, LORDS OF CREATION, p. 100. RIPLEY, RAILROADS: FINANCE AND ORGANIZATION, p. 228; RIPLEY, RAILROADS: RATES AND REGULATION, pp. 444, 448; JOHNSON, AMERICAN RAILWAY TRANSPORTATION, pp. 403-5. Some corporations paid these dividends in bonds. Bond dividends were more dangerous for the corporation than stock dividends because directors had legal discretion as to whether to pay dividends on the corporation’s stock but they had no choice but to pay interest on the bonds. The practice burdened the railroad engaged in it with higher fixed costs but no greater capital base with which to generate more profit.298

7. RIPLEY, TRUSTS, POOLS, AND CORPORATIONS, pp. xxiii-xxiv, notes that overcapitalization “invites unearned profits on the part of promoters, … stimulates extravagance on the part of banking syndicates, …” in setting prices for plant owners, “facilitates internal mismanagement … [a]nd finally, it invites speculation and stock market jobbery.” At the same time, he acknowledges that it was “certainly difficult to trace a direct relation between capitalization and prices,” arguing that “the evils ascribed to overcapitalization are merely concomitant rather than resultant.” Ripley remained a strong opponent of overcapitalization. Even some of the most staunch defenders of overcapitalization as a legitimate means of capitalizing a corporation’s future profits recognized both its possibility for abuse and the ways, both legitimate and not, that it could be used to conceal a corporation’s true rate of return. See COOPER, FINANCING AN ENTERPRISE, pp. 175-76,188; GREENE, CORPORATION FINANCE, pp. 134-45.

8. I follow Marian Sears, who, in her deeply insightful article on businessmen in 1900, writes: “The goal is to discover what businessmen of that day, rather than the historian of a later day, considered important”; Sears, The American Businessman at the Turn of the Century, p. 383. The important thinkers in my story include politicians and other policy-makers as well as businessmen, lawyers, economists and intellectuals.

It is far from clear that the combinations resulting from the merger wave generally were successful. It is not my goal in this book to examine the successes or failures of the combinations, although I discuss some of the literature in this chapter. The resolution of that issue does not affect the conclusion that combination was seen as the solution to a major business problem. As to the successes or failures of combinations, compare Shaw Livermore, The Success of Industrial Mergers, with DEWING, CORPORATE PROMOTIONS AND REORGANIZATIONS; DEWING, FINANCIAL POLICY OF CORPORATIONS; LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS; NELSON, MERGER MOVEMENTS IN AMERICAN INDUSTRY.

Overcapitalization made a meaningful difference with respect to the railroads, frequently natural monopolies and therefore different from industrial corporations; TRANSPORTATION ACT OF 1920, 49 U.S.C. 1.

9. I am grateful to Mary O’Sullivan for reminding me that the question of value underlying the issue of overcapitalization was as much a question about corporate governance as it was about finance. Both the resolution of the issue during the early part of the century and our contemporary solutions rely on the acceptance of shareholder value maximization as the touchstone for corporate behavior. Episodically over the century, and certainly at the turn of the twenty-first century, that premise has been called into question; MITCHELL, CORPORATE IRRESPONSIBILITY; KENNEDY, THE END OF SHAREHOLDER VALUE.299

Livermore, The Success of Industrial Mergers, p. 84; Martin, Overcapitalization Has Little Meaning, pp. 407-27. Benjamin Graham and David Dodd, in their landmark work on securities valuation, note that some corporations retained earnings rather than paid dividends in order to eliminate overcapitalization, that is, to eliminate goodwill from their balance sheets, as in the case of F. W. Woolworth or, similarly, to increase the value of their equity accounts to rectify their overvaluations of their assets, as in the case of U.S. Steel, which, they write, took until 1929 fully to account for the value of its watered common stock issued in 1901. They describe managements’ desires to “make good these deficiencies” as “only natural”; GRAHAM & DODD, SECURITY ANALYSIS, pp. 326, 331-32.

10. Perhaps the best valuation book from the era is COOPER, FINANCING AN ENTERPRISE, vol. 1, pp. 163-251 passim, which gives an extraordinarily thoughtful, thorough and grounded lesson in the various stages and components of corporate valuation. Cooper notes that economists generally were leery of capitalizing goodwill, although businessmen were not. Ibid., pp. 213-14. The story I tell in this chapter bears out Cooper’s observation.

“Tangible assets” was the term typically used to describe the assets covered by preferred stock. In fact preferred stock was also often used to cover some intangibles, like patents. As a matter of historical accuracy, the term tangible assets should generally be read to exclude items that ordinarily would not appear on a corporation’s balance sheet or income statement, like goodwill and future profits, but the Industrial Commission observed that some combinations would value intangible assets as “the cash selling value of the properties purchased as going concerns. This, of course, includes good will in its proper sense”; UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, p. 617. A combination engaging in this practice and issuing common stock as well as preferred stock was arguably double-counting goodwill. Sometimes, as I discussed in Chapter Two, courts would ignore the value of all intangibles.

11. For a good history of the Havemeyer family as well as the history of the Sugar Trust itself, see MULLINS, THE SUGAR TRUST.

12. Testimony of Henry O. Havemeyer, June 14, 1899, UNITED STATES INDUSTRIAL COMMISSION, PRELIMINARY REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 1, part 2, pp. 110-11. Even thirty years after the fact, when capitalizing earnings had become broadly accepted, Jenks remained somewhat tied to physical valuation as the appropriate standard of capitalization, although one cannot help but notice his equivocation. JENKS & CLARK, THE TRUST PROBLEM, pp. 201-8.

On Havemeyer and the Sugar Trust, see Franklin Clarkin, The Great Business Combination of Today, CENTURY ILLUSTRATED MAGAZINE, vol. 65, no. 3 (Jan. 1903), p. 470; Robert N. Burnett, Henry Osborne Havemeγer, THE COSMOPOLITAN, vol. 34, no. 6 (Apr. 1903), p. 701; Zerbe, The American Sugar Refining Company; Doyle, Capital Structure and the Financial Development of the U.S. Sugar Refining Industry.

Navin and Sears give substantial credit to “many industrialists” for having a solidly grounded knowledge of the value of their plants; Navin & Sears, The Rise of a Market for Industrial Securities, p. 132; MEADE, CORPORATION FINANCE, p. 43. A very general but positive explanation of the process is provided in Fairchild, The Financiering of Trusts.300

13. James C. Bonbright, in his preface to DODD, STOCK WATERING, p. vi, suggests that the “death knell” that had been rung for overcapitalization by corporate finance theorists proclaiming the virtues of no-par stock was premature. Dodd’s book provides substantial evidence that he was right. For readers who are engaged by the techniques of watering and the problems they created, detailed examination is provided in RIPLEY, RAILROADS: FINANCE AND ORGANIZATION, at chs. 7 and 8. Some thinkers, like the members of the Hughes Committee discussed in Chapter Seven, believed that par value led unsophisticated investors to think the stock was worth its nominal, or par, value; COOPER, FINANCING AN ENTERPRISE, pp. 175-76; CLE-PHANE, THE ORGANIZATION AND MANAGEMENT OF BUSINESS CORPORATIONS, 2d ed., p. 98. There were experts, like Edward Meade, who took par value seriously enough to argue that it was management’s responsibility to ensure that stock traded at par; Meade, The Genesis of the United States Steel Corporation, p. 517.

14. Par value at $100 was most common, although “the more speculative corporations such as mining companies” typically set par at $1.00. Other common amounts of par were $10 and $50; BENTLEY, CORPORATE FINANCE AND ACCOUNTING, p. 394.

15. Sanger v. Upton, 91 U.S. 56, 60 (1875); COOK, A TREATISE ON THE LAW OF CORPORATIONS, vol. 1, sec. 46 (noting cases in which shareholders were held liable only for the subscription prices of their stock and not the total par value if the latter was higher).

16. Hawkins, The Development of Modern Financial Reporting Practices, pp. 152—53. Manning and Hanks argue that the initial purpose of par value was to ensure that each subscriber paid an equal amount for his shares and that creditor protection was an afterthought (and a poor one at that). I do not evaluate the first point because the way par value came into being does not matter to my argument, only that the law did come to treat it as creditor-protective; MANNING & HANKS, LEGAL CAPITAL, p. 24.

17. Navin & Sears, The Rise of a Market for Industrial Securities, trace the development of a trading market for industrial securities as it developed after the depression of the mid-1890s.

18. Navin & Sears, The Rise of a Market for Industrial Securities, note that there was an upper limit on the prices plant owners would demand because they knew the value of their own plants and could come up with reasonable estimates of the value of the combination. Prices that were too high meant stock that was too risky, and suspicious plant sellers would then demand cash; Navin & Sears, The Rise of a Market for Industrial Securities, p. 132. In contrast, MEADE, CORPORATION FINANCE, pp. 37-40, describes the difficulty promoters had negotiating with sellers on the basis of earnings alone, showing that plant owners demanded high premia in order to be induced to sell their companies. Sears also notes that prices had to be sufficiently high in order for promoters to induce plant owners to take stock instead of cash; Sears, The American Businessman at the Turn of the Century, p. 412.

19. By 1910, New Jersey only allowed the issuance of stock for services in quasi public corporations, those involved in railroads, public utilities, tunnels, wharves, canals, hotels and the like. See Chapter Two, note 36. But other states, like Delaware, were less restrictive; 22 DEL. LAWS, ch. 166, sec. 1 (1901); 23 DEL. LAWS, ch. 155, sec. 1 (1904). Masslich, Financing a New Corporate Enterprise, p. 73, discusses the ways promoters evaded the rules prohibiting bonus stock.301

20. I discuss the issue of disclosure in Chapter Four.

21. UNITED STATES INDUSTRIAL COMMISSION, REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 13, pp. 14-15; MOODY, THE TRUTH ABOUT THE TRUSTS, p. 137; ALLEN, LORDS OF CREATION, p. 34; ALLEN, THE GREAT PIERPONT MORGAN, p. 183; Meade, The Genesis of the United States Steel Corporation, p. 546; CONANT, WALL STREET AND THE COUNTRY, pp. 17-18. Strouse puts the syndicate fee at a more modest $50 million in stock, and notes the outraged public reaction even of such business-friendly voices as The Wall Street Joumal; STROUSE, MORGAN, p. 408. While she is sympathetic to the problems of valuing Steel, she concedes that the common stock was water; id., p. 406. It is worth noting that within two decades Steel had fully grown into its capitalization. I should also note that Steel, like a number of combinations, sold some of its new stock to raise working capital in addition to the sales made by promoters and participants in the combination.

22. Dos PASSOS, COMMERCIAL TRUSTS.

23. LUDINGTON, JOHN DOS PASSOS, pp. 2-13; CARR, DOS PASSOS, pp. 9-14.

24. Testimony of Mr. John R. Dos Passos, Dec. 12, 1899, UNITED STATES INDUSTRIAL COMMISSION, PRELIMINARY REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 1, p. 1150; Masslich, Financing a New Corporate Enterprise, p. 71.

25. UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 35, 88.

26. SEAGER & GULICK, TRUST AND CORPORATION PROBLEMS, p. 64. See BENT-LEY, CORPORATE FINANCE AND ACCOUNTING, p. 399.

27. Although New Jersey’s statute did not reach its final form until 1896, as I noted in Chapter Two, the law already permitted the purchase of stock for assets. The merger wave did not begin until 1897, but, prior to the Panic of 1893 and the depression that followed, there had been a mini-boom in corporate combinations in the early 1890s.

28. Luther Conant, Jr., Industrial Consolidations in the United States. Conant only looked at combinations with capitalizations above $1 million, but it is fair to say that corporations of this size were the ones that would have a significant effect on the stock market.

Seager and Gulick note that this method of valuation aided promoters in overcapitalizing their combinations and bailing out before they had a track record of performance; Seager & Gulick, TRUST AND CORPORATION PROBLEMS, pp. 65-66.

29. Navin and Sears report that a multiple of three times earnings was relatively common, at least before the merger wave; Navin & Sears, The Rise of a Market for Industrial Securities, p. 108; UNITED STATES INDUSTRIAL COMMISSION, REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 13, pp. ix-xv. On “squeezing out the water” see SEYMOUR THOMPSON, COMMENTARIES ON THE LAW OF PRIVATE CORPORATIONS, 2d ed., vol. 4, sec. 3674; COTTER, THE AUTHENTIC HISTORY OF THE UNITED STATES STEEL CORPORATION, p. 31; SALIERS, PRINCIPLES OF DEPRECIATION, pp. 25-26; Baker, Regulation of Industrial Corporations, p. 321; Dill, Industrials as Investments for Small Capital, p. 110; Jobbery in Stocks Strongly Denounced, NEW YORK TIMES, Apr. 21, 1900, p. 3.302

30. CAROSSO, INVESTMENT BANKING IN AMERICA, pp. 82-83. WEIL, SEARS, ROEBUCK, U.S.A.; HISTORICAL STATISTICS OF THE UNITED STATES, MILLENNIAL ED., Table Cj1238-1242.

31. SEAGER & GULICK, TRUST AND CORPORATION PROBLEMS, p. 66.

32. CLEPHANE, THE ORGANIZATION AND MANAGEMENT OF BUSINESS CORPORATIONS, 2d ed., ch. 9; LOUGH, CORPORATION FINANCE, vol. 4, p. 348; Patterson, The Problem of the Trusts, p. 8; KOLKO, THE TRIUMPH OF CONSERVATISM; DEWING, CORPORATE PROMOTIONS AND REORGANIZATIONS, p. 533 (table). Compared with Dewing, who does not blame merger failure on this overcapitalization (id. p. 531), Kolko (who looked at a larger number of consolidations) argues that overcapitalization had a significant role in the failure of consolidations; KOLKO, THE TRIUMPH OF CONSERVATISM, p. 20; UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, p. 616; DEWING, CORPORATE PROMOTIONS AND REORGANIZATIONS.

33. Luther Conant, Jr., Industrial Consolidations in the United States; Noyes, The Recent Economic History of the United States, p. 192. Common Sense in Investments, WALL STREET JOURNAL, June 27, 1902, p. 10; BURTON, CORPORATIONS AND THE STATE, p. 29; Dill, Industrials as Investments for Small Capital, pp. 109-10; SEAGER & GULICK, TRUST AND CORPORATION PROBLEMS, p. 224; Baker, Regulation of Industrial Corporations, pp. 306-31; Beck, The Federal Power over Trusts; Meade, The Investor’s Interest in the Demands of the Anthracite Miners, pp. 36-45. I have taken Meade’s assertion at face value, but it is worth noting that the article is an argument for giving investors priority over labor in the case of the anthracite mine railroads because of the precarious financial position of the roads, which had led to the nonpayment of dividends to many investors. His discussion of promoters’ interests is designed to show that both stockholders and labor should be united against the promoters. Yarros, The Trust Problem Restudied; BURTON, CORPORATIONS AND THE STATE, p. 29. Sears claims that it was business interest in trust formation, not promoters’ interests, that stimulated the most activity, The American Businessman at the Turn of the Century, p. 388, but also notes that common stock typically was given to promoters and that the new combinations led to “tremendous activity” on stock exchanges. Id., pp. 412, 414. Dewing evaluates a handful of promotions and concludes that, on average, 10 percent of water in combination capitalization went to promoters, another 10 percent to bankers, 20 percent to plant owners “as a gift in excess of the value of their plants,” 15 percent “to the public as bait” to persuade them to buy the stock, and 5 percent for other work done for the combination; DEWING, CORPORATE PROMOTIONS AND REORGANIZATIONS, pp. 541-42, 538; DODD, STOCK WATERING, p. 99.

34. COMMERCIAL & FINANCIAL CHRONICLE, vol. 67, Aug. 27,1898, p. 427; COMMERCIAL & FINANCIAL CHRONICLE, vol. 67, Dec. 31,1898, p. 1349.

35. The Company’s Official Statement upon completing the initial consolidation notes that Baring Magoun & Co. and F. S. Smithers & Co. underwrote “the new company,” not the stock, suggesting perhaps that all of the stock was issued to the sellers and promoters. Baring, Magoun was one of the two principal industrial underwriters in New York before the turn of the twentieth century and an affiliate of the respected Boston firm, Kidder, Peabody. COMMERCIAL & FINANCIAL CHRONICLE, May 6,1899, vol. 68, p. 872; COMMERCIAL & FINANCIAL CHRONICLE, Apr. 22,1899, vol. 68, p. 774; CAROSSO, INVESTMENT BANKING IN AMERICA, p. 44.303

36. COMMERCIAL & FINANCIAL CHRONICLE, Feb. 4, 1899, p. 224; COMMERCIAL & FINANCIAL CHRONICLE, May 13,1899, vol. 68, pp. 292, 930; COMMERCIAL & FINANCIAL CHRONICLE, NOV. 17,1899, vol. 69, p. 1010; COMMERCIAL & FINANCIAL CHRONICLE, Dec. 30, 1899, vol. 69; Flour Trust in Danger, Los ANGELES TIMES, Jan. 26, 1900, p. 12.

37. Whether shareholders relied upon nominal capital is less clear. Sears, The American Businessman at the Turn of the Century, p. 412 (quoting Iron Age to the effect that nobody took nominal capital seriously); CLEPHANE, THE ORGANIZATION AND MANAGEMENT OF BUSINESS CORPORATIONS, 2d ed., p. 98 (stating that the public believes nominal capital to be equal to stated capital).

38. FISHER, THE NATURE OF CAPITAL AND INCOME, p. 80. Concern for investor well-being was articulated by some reformers. Burton writes that “the investor is the one who has suffered most from … overcapitalization,” yet the laws ignored him; BURTON, CORPORATIONS AND THE STATE, p. 116. The Supreme Court had sanctioned the use of goodwill in capitalization; CLEPHANE, THE ORGANIZATION AND MANAGEMENT OF BUSINESS CORPORATIONS, 2d ed., p. 100. It had also taken a sophisticated approach to the valuation of a corporation for taxation purposes by approving the assessment of the market value of its capital stock as an appropriate means of corporate valuation, clearly and expressly including the corporation’s goodwill; Adams Express Company v. Ohio State Auditor, 165 U.S. 194 (1897); San Francisco National Bank v. Dodge, 197 U.S. 70 (1905). Speech of R. S. Taylor, in CHICAGO CONFERENCE ON TRUSTS, pp. 72-73 (but stressing that consumers more important); Speech of James R. Weaver, id., p. 295; Speech of Edward W. Bemis, id., p. 397, but investor protection was at best a tertiary theme during the period and did not attract significant federal attention.

39. U.S. Steel began a practice of retaining and reinvesting earnings shortly after its formation so that by 1929 its asset value was equal to its capitalization; COTTER, THE AUTHENTIC HISTORY OF THE UNITED STATES STEEL CORPORATION, p. 31 (claims water eliminated by 1915); Baker, Regulation of Industrial Corporations, p. 321; McCraw & Reinhardt, Losing to Win, p. 595 (noting successful distribution and long-term performance of Steel stock “despite press complaints about watering”). Other combinations reduced the outstanding amount of their securities as a means of reducing or eliminating overcapitalization; RlPLEY, TRUSTS, POOLS AND CORPORATIONS, pp. xxiv-xxv.

40. Franklin Clarkin, The Great Business Combination of Today, CENTURY ILLUSTRATED MAGAZINE, vol. 65, no. 3 (Jan. 1903), p. 470; Zerbe, The American Sugar Refining Company.

41. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, pp. 641-42. Noyes is characteristically unsympathetic, describing the public’s appetite for stock during the merger wave as something of a feeding frenzy; Noyes, The Recent Economic History of the United States, p. 191, passim. Both Cooper and Greene complained about the distorting effect of stated par value, and the securities commissions of the end of the decade, which I discuss in Chapter Seven, also recommended eliminating par as a means of reducing speculation; COOPER, FINANCING AN ENTERPRISE, vol. 1, pp. 175-76,188; GREENE, CORPORATION FINANCE, pp. 134-35,138-39.304

42. Goodwill is, of course, an asset. But unlike tangible assets, and even intangibles like patents, it was particularly difficult to value, especially in the case of a newly formed combination.

43. Despite the unsophisticated public debate, the concept of using going-concern value by capitalizing earnings was well understood. COTTER, THE AUTHENTIC HISTORY OF THE UNITED STATES STEEL CORPORATION, p. 29; CLEPHANE, THE ORGANIZATION AND MANAGEMENT OF BUSINESS CORPORATIONS, 2d ed., pp. 99-100; ROLLINS, MONEY AND INVESTMENTS, p. 212. But its practice was heavily debated. Writing in 1928 about public utility valuation, John Sumner examines the many different ways “going value” was defined, describing it as “one of the seemingly insoluble and least understood elements encountered in the development of principles of ratemaking valuation,” and “the most intangible of the intangibles”; Sumner, Going Value, p. 59. Railroads presented an opportunity well before the merger wave for valuation techniques to have been developed. But railroads were different. As natural monopolies, goodwill would not have been part of their valuation for ratemaking purposes. And overcapitalization of the railroads typically took the form of bonus stock where admittedly no consideration was received by the corporation. It may simply be that the obviousness of the practice required no further elaboration; RlPLEY, RAILROADS: FINANCE AND ORGANIZATION, pp. 35, 232-67. Cooper had no problem exploring the various aspects of valuing goodwill and coming up with some rather good rules for determining it; COOPER, FINANCING AN ENTERPRISE, vol. 1, ch. 20.

44. James C. Bonbright, Preface to DODD, STOCK WATERING, p. v (noting that judicial valuation methods vary greatly with the purpose of valuation); id., p. 100 (Dodd discussing the unsuitability of other valuation methods for the purpose of valuing corporate stock), pp. 101, 102.

45. DODD, STOCK WATERING, esp. chs. 6 and 7 and pp. 269-70, reaches this conclusion after an exhaustive analysis of the cases.

46. As should be clear so far, practitioners like Greene, an auditor, and Conyngton, a lawyer (and Cooper, Conyngton’s nom de plume) were far more engaged in the subject of valuation, and far more advanced in their approaches, than were the theoretical economists.

47. COMMAGER, THE AMERICAN MIND, p. 229. In 1917, William T. Lough, former professor of finance at New York University and president of the Business Training Corporation, tied the legal and economic problems together more neatly perhaps than anyone: “It may be asked why the courts do not more frequently enforce a closer adherence to the intent of the law [in valuing intangibles as well as physical assets.] … The intangible assets and the services which are accepted by corporations in payment for their stock are difficult to value, and for this reason it is only in exceptional cases that bad faith on the part of corporations in making their valuations can be conclusively shown”; LOUGH, BUSINESS FINANCE, p. 94.

48. COMMONS, LEGAL FOUNDATIONS OF CAPITALISM. It bears noting that the proliferation of books on corporate valuation and finance did not really begin until the mid-1920s. E.g., BADGER, VALUATION OF SECURITIES (quotation from p. vii); SLOAN, EVERYMAN AND HIS COMMON STOCKS; SMITH, COMMON STOCKS AS LONG TERM INVESTMENTS; and GRAHAM & DODD, SECURITY ANALYSIS.305

49. ESQUERRE, THE APPLIED THEORY OF ACCOUNTS, p. v. Thorstein Veblen, whose appreciation of the soundness of capitalizing earnings was perfectly clear, writes: “Earning-capacity is practically accepted as the effective basis of capitalization for corporate business concerns, particularly for those whose securities are quoted on the market. It is in the stock market that this effective capitalization takes place. But the law does not recognize such a basis of capitalization, nor are business men generally ready to adopt it in set form….”; VEBLEN, THE THEORY OF BUSINESS ENTERPRISE, p. 70, n. 5. Irving Fisher, the first American mathematician to become an economist, was equally influenced by legal principles in discussing valuation. Although he was perhaps the first economist to introduce cash flow as a substitute for more stylized accounting concepts, like earnings, into the calculus of value, he did not venture far from the corporate balance sheet in his discussion of overcapitalization. But Fisher carefully distinguishes between corporate valuation and stock valuation in developing his theory of value; FISHER, THE NATURE OF CAPITAL AND INCOME, pp. 71-72, 77-78, 101, 103, 203, 227 et. seq. John R. Commons drew his entire theory of value from the history of the law; COMMONS, LEGAL FOUNDATIONS OF CAPITALISM.

During this period Clark developed a clear account of marginal theory and Veblen introduced the groundwork for institutional economics. It was also during this period that economics began to become the distinct branch of study that it is today, replacing the earlier broad discipline of political economy. DORFMAN, THE ECONOMIC MIND IN AMERICAN CIVILIZATION, pp. 369-70. See also LYON, CAPITALIZATION. Lyon, both a lawyer and a finance professor at Dartmouth’s Amos Tuck School of Administration and Finance, as late as 1912 treated par value as the cash equivalent of asset value, and asset value as the only basis for capitalization, although he defended the practice of overcapitalization to compensate promoters. He did not even mention capitalizing earnings, although he briefly discussed separating the “speculation” from the “investment.” In his extreme conservatism, Lyon strikes me as a bit of an outlier, but his book demonstrates the tenacity of legally based thinking about valuation.

50. MEADE, COPORATION FINANCE, p. 40; Meade, The Genesis of the United States Steel Corporation, p. 517.

51. RIPLEY, TRUSTS, POOLS, AND CORPORATIONS, pp. 121-48.

52. RIPLEY, MAIN STREET AND WALL STREET, pp. 192-93.

53. JENKS, THE TRUST PROBLEM, 1st ed., pp. 98-106.

Richard Ely wrote very little about capitalization and valuation in discussing the trust issue, but from the little he wrote he appears to have favored physical valuation. In an early discussion of corporate capitalization, he raises the subject of Wisconsin’s use of physical valuation in railroad regulation, and notes that “physical valuation is one element only, but it certainly is one of very great importance.” But he also claims to have modified his position in opposition to stock watering. Corporations needed capital at different rates and might legitimately keep stock payments below par for a time. This does not give us direct evidence of Ely’s thoughts on valuation, but his emphasis on the legal notion of paid-in capital does reinforce the conclusion that he was committed to physical valuation. Commons, in the introduction to Legal Foundations of Capitalism, mentions the difficulty he and his students had encountered in determining the judicial meaning of “reasonable value”; little was to be found in the writings of economists, “except those of Professor Ely that threw light on the subject.” Ely seems also to have been tied to the legal model; ELY, MONOPOLIES AND TRUSTS, p. 270; Swayze et al., Capitalization of Corporations, pp. 424-25; COMMONS, LEGAL FOUNDATIONS OF CAPITALISM, p. vii.306

54. For example, see MARCUS NADLER, CORPORATE CONSOLIDATIONS AND REORGANIZATIONS, p. 135 et seq. The particularly interesting aspect of Nadler’s book is that his training was as a lawyer, yet he assumes capitalized earnings to be the only method of valuation to be used in valuing combinations. No other valuation method is even discussed. Two other relatively late contributions to the valuation debate stand out. Arthur Hadley tackles the distinction between law and finance straight on, arguing that the first and determinative question in any valuation proceeding was the purpose for which the valuation was being made. Railroad ratemaking, for example, was more in the nature of a government assessment or tax than any meaningful attempt to determine the economic value of the road; Hadley, The Meaning of Valuation. John R. Commons struggles to draw out of legal history an economic concept of valuation that recognizes the centrality of going-concern value and goodwill, drawing heavily (if often implicitly) on his teacher Veblen’s distinction between industry and business; COMMONS, LEGAL FOUNDATIONS OF CAPITALISM, ch. 8.

55. Stockwell, Appraisements. Sometimes appraisers were hired by promoters. The Audit Company of New York, of which financial writer Thomas Greene was vice president, performed an appraisal for Charles Flint’s Rubber Goods Manufacturing Company. Flint was the prototype of the promoter, but the underwriters of the combination were highly reputable.

56. DODD, STOCK WATERING, pp. 25-26.

57. DODD, STOCK WATERING, pp. 54, 25,135, 98,101,104,159,118, 214 and passim; COMMONS, LEGAL FOUNDATIONS OF CAPITALISM, p. vii.

58. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, pp. 408-12, 415-16, 616-18.

59. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, REPORT NO. 3375, 57th Cong., 2d Sess., Jan. 26, 1903, pp. 20, 21; CONGRESSIONAL RECORD, 57th Cong., 2d Sess., vol. 36, pp. 1291-1915 (Feb. 5-7, 1903).

FOUR: THE NEW PROPERTY

1. MARKHAM, A FINANCIAL HISTORY OF THE UNITED STATES, vol. 1, pp. 330-33; NOYES, FORTY YEARS OF AMERICAN FINANCE; Ray Stannard Baker, The New Prosperity, MCCLURE’S MAGAZINE, vol. 15, no. 1 (May 1900), pp. 86-94.

2. NOYES, FORTY YEARS OF AMERICAN FINANCE, pp. 257-58; Future of this Country, NEW YORK TIMES, Sept. 29, 1901, p. 19 (reflecting continuing European fears of American financial dominance).

3. NOYES, FORTY YEARS OF AMERICAN FINANCE, p. 265.307

4. Ray Stannard Baker, The New Prosperity, MCCLURE’S MAGAZINE, vol. 15, no. 1 (May 1900), pp. 86-94; NOYES, FORTY YEARS OF AMERICAN FINANCE, pp. 273-83; MEADE, TRUST FINANCE, p. 5; Henry Clews, The Citadel of Money Power: I. Wall Street, Past, Present, and Future, THE ARENA, vol. 18, no. 92 (July 1897), p. 1; An American, The Degradation of Wall Street, FRANK LESLIE’S POPULAR MONTHLY, vol. 57, no. 2 (Dec. 1903), p. 0_048 (noting 1900 as the “high water mark” of American prosperity); Investors Inclined to Wait, NEW YORK TIMES, Dec. 10, 1896, p. 10; As the Brokers View It, NEW YORK TIMES, Feb. 14, 1897, p. 17; The Financial Situation, NEW YORK TIMES, Jan. 10, 1897, p. 17; Business Outlook Bright, NEW YORK TIMES, Dec. 31,1897, p. 8; Early Morning Matter, WALL STREET JOURNAL, Apr. 24, 1895, p. 2; The Bond Market, WALL STREET JOURNAL, Feb. 5, 1897, p. 2; Plenty of Money to Invest, WALL STREET JOURNAL, NOV. 19, 1897, p. 2; A Promoter Talks, WASHINGTON POST, July 5, 1895, p. 8; Bond Bidders Innumerable, WASHINGTON POST, Feb. 5, 1896, p. 6; Why Investors Are Hesitating, WASHINGTON POST, Jan. 6, 1897, p. 3; The Year in Wall Street, BROOKLYN EAGLE, Dec. 31, 1897, p. 14.

5. How to Choose Investments, WALL STREET JOURNAL, May 1, 1899, p. 1; Hints on Finance for Women, ARTHUR’S HOME MAGAZINE, vol. 46, no. 6 (June 1897), p. 382B; Mrs. Finley Anderson, Women in Wall Street: The American Woman in Action, FRANK LESLIE’S POPULAR MONTHLY, vol. 57, no. 5 (Mar. 1899), p. 22; Woman as a Financier, CHICAGO DAILY TRIBUNE, Feb. 21, 1900, p. 16; Charles H. Dow, The Woman with a Little Money to Invest, LADIES’ HOME JOURNAL, vol. 22, no. 11 (Oct. 1903), p. 12; An American, The Degradation of Wall Street, FRANK LESLIE’S POPULAR MONTHLY, vol. 57, no. 2 (Dec. 1903), p. 0_048; George Morris Philips, What to Do with Small Savings, LADIES’ HOME JOURNAL, vol. 22, no. 10 (Sept. 1905), p. 28; Alexander D. Noyes, Finance, FORUM, vol. 35, no. 3 (Jan. 1904), p. 353.

6. The Rev. Daniel H. Overton, The Real Riches, BROOKLYN EAGLE, May 13, 1901, p. 12. Some cautioned clergymen themselves to go no further than ‘“gilt-edged”’ corporate bonds. Professor L. T. Townsend, Christian Ministers and Money Matters IV, CHRISTIAN ADVOCATE, May 2, 1901, p. 690; Farmers Money in Bonds, WALL STREET JOURNAL, Feb. 1, 1904, p. 5.

7. Savings Versus Gambling, NEW YORK TIMES, Apr. 18, 1900, p. 6; The Bond Market: Investments; The Secret of Great Wealth, WALL STREET JOURNAL, Dec. 15, 1904, p. 5; Savings Bank Investments, WALL STREET JOURNAL, Apr. 14, 1903, p. 8.

8. Many Losers in Washington, NEW YORK TIMES, May 11, 1901, p. 2; Review and Outlook, A Remarkable Period, WALL STREET JOURNAL, Mar. 3, 1901, p. 1; The Mighty Power of a Few Words, WALL STREET JOURNAL, Aug. 14, 1901, p. 8; Studies in Value, WALL STREET JOURNAL, Dec. 7, 1901, p. 1; Common Sense in Investments, WALL STREET JOURNAL, June 27, 1902, p. 1; Sound Investments, WASHINGTON POST, July 20, 1902, p. 4; WALL STREET JOURNAL editorial quoted in MEADE, TRUST FINANCE, pp. 150-51; Who Own the Corporations, NEW YORK TIMES, Oct. 4, 1908, p. 8.

9. Noyes, The Recent Economic History of the United States, p. 205.

10. MOODY, THE TRUTH ABOUT THE TRUSTS, pp. 479-82. Despite the fallout from the Panic of 1903, the period between 1897 and 1907 largely was characterized by a continuous bull market; SOBEL, THE BIG BOARD, pp. 153, 182. See also UNITED STATES INDUSTRIAL COMMISSION, REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 13, p. ix.308

11. Investment Buying in Stocks Heavy, NEW YORK TIMES, NOV. 16, 1907, p. 13; A Market View, WALL STREET JOURNAL, NOV. 4,1907, p. 7; If A Ban Should Be Put on Speculation, NEW YORK TIMES, Mar. 1, 1908, p. SM1. Bargain buying evidently “took” with the average investor; C. M. Keys, The Buyer of Bargains, Los ANGELES TIMES, Aug. 1, 1913, p. II9.

I should note that this report, while expressing the turnover rate without comment, was issued in the spring of 1908, following the fall Panic of 1907 in which turnover could be expected to have been unusually high. Sobel describes turnover rates of 200 percent in each of four years during the period 1900 to 1907, rates he calls historically unprecedented as of 1965; SOBEL, THE BIG BOARD, p. 159.

12. WIEBE, THE SEARCH FOR ORDER, pp. 166,164; HOFSTADTER, THE AGE OF REFORM, p. 216.

13. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, pp. 804-5. The increase in wage workers and their loss of control over their jobs had been taking place for quite some time; MONTGOMERY, CITIZEN WORKER.

14. Romyn Hitchcock, Corporate Regulation, Letter to the Editor, NEW YORK TIMES, June 2, 1900, p. 8.

15. Grosscup, The Corporation Problem and the Lawyer’s Part in Its Solution; Grosscup, The Rebirth of the Corporation, AMERICAN MAGAZINE, vol. 62, no. 2 (June 1906), p. 188; Who Shall Own America? A Study of the Corporation Problem, NEW YORK TIMES, NOV. 26, 1905, p. SM6; Aldace F. Walker, Anti-Trust Legislation, FORUM (May 1899), p. 257; Dill, Some Tendencies in Combinations Which May Become Dangerous, p. 177; The Real Danger in Trusts, CENTURY MAGAZINE, vol. 60, no. 1 (May 1900), p. 152; Edward Godwin Johns and Duncan Macarthur, The Concentration of Commerce, THE ARENA, vol. 24, no. 1 (July 1900), p. 3.

16. Editorials, The Reign of Law and the Modern Tools of Industry, MCCLURE’S MAGAZINE, vol. 30, no. 4 (Feb. 1908), p. 516; Incorporating Farms, WASHINGTON POST, Sept. 1, 1907, p. 2.

17. “The Tyranny of Capital,” NEW YORK TIMES, July 6, 1899, p. 6.

18. The Vanderlip quote is found in A Nation of Investors, WALL STREET JOURNAL, Oct. 26, 1904, p. 1. The Journal expressed its own opinion on the dangers of investing as the French did only three years later; A Timely Warning, WALL STREET JOURNAL, Jan. 29, 1907, p. 1.

19. Who Own the Corporations, NEW YORK TIMES, Oct. 4, 1908, p. 8.

20. Workmen as Investors, NEW YORK TIMES, May 8, 1903, p. 8.

21. Two Million Partners Own the Corporations, NEW YORK TIMES, Oct. 4, 1908, p. SM1; Steel Trust’s Plan Approved, NEW YORK TIMES, Jan. 11, 1903, p. 10; Workmen as Investors, NEW YORK TIMES, May 8, 1903, p. 8; Not Eager for Steel Stocks, WASHINGTON POST, Jan. 13, 1906, p. 3; Warshow, The Distribution of Corporate Ownership in the United States, p. 32. McCraw and Reinhardt provide the number of Steel workers; McCraw & Reinhardt, Losing to Win, p. 598.

22. Workingmen as Capitalists, NEW YORK TIMES, Feb. 17, 1903, p. 8.

23. Labor’s New Doctrine, NEW YORK TIMES, Dec. 14, 1903, p. 1; The Emancipation of Labor, NEW YORK TIMES, Dec. 15, 1903, p. 8.309

24. Lawyers on the Trusts, BOSTON DAILY GLOBE, Sept. 25, 1903, p. 6.

25. Gov. Black Signs 22 Bills, NEW YORK TIMES, Apr. 14, 1898, p. 11; Railroad Bonds as Securities, WALL STREET JOURNAL, Feb. 12, 1904, p. 1; The Investing Public, WALL STREET JOURNAL, May 5, 1904, p. 1; Davis, The Investment Market, p. 383. KELLER, THE LIFE INSURANCE ENTERPRISE, provides a richly detailed picture of insurance company investment practices and their move from investing primarily in real estate mortgages to corporate securities during the period he studies.

26. Men Who Make the Market, WALL STREET JOURNAL, Oct. 23,1905, p. 1.

27. Tendencies of Bank Investments, WALL STREET JOURNAL, NOV. 4, 1905, p. 1.

28. As early as 1905, The Wall Street Journal noted the argument that permitting bank investments in bonds would lead to bank speculation in securities; Tendencies of Bank Investments, WALL STREET JOURNAL, NOV. 4, 1905, p. 1. It is fair to say that the argument was prescient. If A Ban Should Be Put on Speculation, NEW YORK TIMES, Mar. 1, 1908, p. SM1. NOYES, FORTY YEARS OF AMERICAN FINANCE, pp. 355-78, gives a detailed account of the Panic of 1907.

29. The Investing Public, WALL STREET JOURNAL, May 5, 1904, p. 1; A Nation of Investors, WALL STREET JOURNAL, Oct. 26, 1904, p. 1; Two Million Partners Own the Corporations, NEW YORK TIMES, Oct. 4, 1908, p. SM1; Hawkins, The Development of Modern Financial Reporting Practices, p. 145; Warshow, The Distribution of Corporate Ownership in the United States.

30. Chicago News, reprinted in THE WALL STREET JOURNAL, Sept. 21, 1907, p. 6.

31. MEADE, TRUST FINANCE, pp. 115-17.

32. MEADE, TRUST FINANCE, p. 122. The Pennsylvania listed only “capital stock,” without classification, in its annual reports; COMMERCIAL & FINANCIAL CHRONICLE, vol. 82, Mar. 9, 1901, p. 489.

33. Edward Sherwood Meade, What Chance Has a “Lamb” in the Stock Market?, LIPPINCOTT’S MONTHLY MAGAZINE, vol. 88, no. 525 (Sept. 1911), p. 441; Meade, Safe Methods of Speculation, id., vol. 88, no. 526 (Oct. 1911), p. 603; Meade, Shall I Buy Stocks or Bonds?, id., vol. 88, no. 527 (Nov. 1911), p. 763; Meade, Safe Investments, id., vol. 88, no. 528 (Dec. 1911), p. 924; Meade, The Banking House as an Aid to Investors, id., vol. 89, no. 529 (Jan. 1912), p. 156.

34. See generally HAWKINS, CORPORATE FINANCIAL DISCLOSURE.

35. On the lack of disclosure and the frequency of professional manipulation see The Financial Situation, NEW YORK TIMES, Jan. 10, 1897, p. 17; John C. Sanborn, The Wrong and the Remedy, Letter to the Editor, NEW YORK TIMES, Apr. 30, 1897, p. 8; Charles A. Conant, The Uses of Speculation, FORUM, vol. 31, no. 6 (Aug. 1901), p. 698; Dill, Some Tendencies in Combinations Which May Become Dangerous, p. 177; and Edward Godwin Johns and Duncan Macarthur, The Concentration of Commerce, THE ARENA, vol. 24, no. 1 (July 1900), p. 3.

36. Report of the Board of Directors of the Westinghouse Electric and Manufacturing Co. to the Stockholders, Feb. 20, 1901, in Historic Corporate Report Collection, Baker Library, Harvard University.

37. Hawkins, The Development of Modern Financial Reporiing Practices. Testimony of Henry O. Havemeyer, June 14, 1889, UNITED STATES INDUSTRIAL COMMISSION, PRELIMINARY REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 1, p. 123; Credits and Corporation Economics, WALL STREET JOURNAL, Dec. 30, 1903, p. 1.310

38. Testimony of Mr. John R. Dos Passos, Dec. 12, 1899, UNITED STATES INDUSTRIAL COMMISSION, PRELIMINARY REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 1, pp. 1142-69.

39. For Chandler’s discussion of the development of railroad accounting, see CHANDLER, THE VISIBLE HAND, pp. 109-20.

40. Hawkins, The Development of Modern Financial Reporting Practices.

41. TEWELES & BRADLEY, THE STOCK MARKET, pp. 118-19; SOBEL, THE BIG BOARD; Hawkins, The Development of Modern Financial Reporting Practices; Stock Exchange Plans, NEW YORK TIMES, Mar. 12, 1882, p. 14; The Investing Public, WALL STREET JOURNAL, May 5, 1904, p. 1; MCLAREN, ANNUAL REPORTS TO STOCKHOLDERS.

42. NOYES, THE MARKET PLACE, pp. 142-43.

43. PREVITS & MERINO, A HISTORY OF ACCOUNTING IN AMERICA, p. 80; SOBEL, THE BIG BOARD, p. 178. Accounting courses were taught in a handful of universities, beginning in 1883 at the Wharton School of the University of Pennsylvania.

44. Political Economy for Beginners, WALL STREET JOURNAL, May 19, 1904, p. 1; Wall Street Bargains, PORTSMOUTH (N.H.) HERALD, NOV. 24, 1900, p. 3; DES MOINES DAILY READER, Feb. 16, 1902, p. 22; CAROSSO, INVESTMENT BANKING IN AMERICA, pp. 104-6. SOBEL, THE BIG BOARD, pp. 178-80, is more critical of advertising methods than is Carosso.

45. MEADE, TRUST FINANCE, pp. 130-37; The Incorrigible Investor, from CHICAGO DAILY TRIBUNE, WASHINGTON POST, Feb. 18, 1903, p. 6.

46. See, for example, General Electric Company, Sixth Annual Report—For the Year Ending January 31, 1898, COMMERCIAL & FINANCIAL CHRONICLE, vol. 66, Apr. 30, 1898, pp. 858-60; First Annual Report to the Stockholders of the United Fruit Company for the Fiscal Year Ended August 31, 1900; Second Annual Report to the Stockholders of the United Fruit Company for the Fiscal Year Ended August 31, 1901; Third Annual Report of the International Paper Company for Fiscal Year Ending June 30, 1900, all available in the Historic Corporate Report Collection, Baker Library, Harvard University. MCLAREN, ANNUAL REPORTS TO STOCKHOLDERS. The change in AT&T’s reports from before Morgan’s involvement to after he became the corporation’s main banker is dramatic; COMMERCIAL & FINANCIAL CHRONICLE, vol. 72, Mar. 30, 1901, p. 625; COMMERCIAL & FINANCIAL CHRONICLE, vol. 80, Mar. 18, 1905, p. 1110; COMMERCIAL & FINANCIAL CHRONICLE, vol. 80, Mar. 25, 1905, pp. 1180 et seq.; CAROSSO, THE MORGANS, p. 493; STROUSE, MORGAN, p. 563.

47. RIPLEY, MAIN STREET AND WALL STREET; Brief, Corporate Financial Reporting at the Turn of the Century, provides a nicely nuanced discussion of the variety of accounting practices that existed during the first decade of the century.

48. PREVITS & MERINO, A HISTORY OF ACCOUNTANCY IN THE UNITED STATES, esp. chs. 4 and 5; Hawkins, The Development of Modern Financial Reporting Practices. The British accounting profession had been developing through local societies of accountants from the 1850s in Scotland and the 1870s in England and Wales; MIRANTI, ACCOUNTANCY COMES OF AGE, p. 30.311

49. The sophisticated reader will note that the combination of known capitalization and dividend rate would permit interested parties to reach some conclusions as to a corporation’s business performance, since rate of return could at least be calculated. But one of the problems of overcapitalization combined with nondisclosure was that the trusts could hide their true performance. This became even more complicated by the legal ability of corporations to pay dividends from accumulated surplus (and sometimes paid-in capital) and thus pay dividends even in bad years, and by the introduction and rapid acceptance of the institution of no-par stock, which I will discuss later.

FIVE: THE COMPLEX WHOLE

1. WOODWARD, ORIGINS OF THE NEW SOUTH, ch. 11.

2. United States v. E. C. Knight Company, 156 U.S. 1 (1895); United States v. Trans-Missouri Freight Association, 166 U.S. 290 (1897); United States v. Joint Traffic Association, 171 U.S. 505 (1898); Addyston Pipe and Steel Company v. United States, 175 U.S. 211 (1899).

On antitrust policy generally, including the Supreme Court’s early interpretations, see HOVENKAMP, ENTERPRISE AND AMERICAN LAW; LETWIN, LAW AND ECONOMIC POLICY IN AMERICA; THORELLI, THE FEDERAL ANTITRUST POLICY. There is a large body of work on the Supreme Court’s interpretation of the Sherman Act between 1890 and 1911. For a nice argument summarizing the claim that the Supreme Court was behaving in an economically rational manner, and summarizing the literature that supports that claim, see John R. Carter, From Peckham to White.

Interstate Commission Appeals to Congress, ATLANTA JOURNAL, Dec. 22, 1904, p. 6; Raymond, Roosevelt Backs Garfield Plan, CHICAGO DAILY TRIBUNE, Dec. 23, 1904, p. 1; Federal License to Corporations, CHICAGO DAILY TRIBUNE, Dec. 22, 1904, p. 4; KNOX, THE COMMERCE CLAUSE OF THE CONSTITUTION AND THE TRUSTS. William Jennings Bryan, speaking at the first Chicago Conference on Trusts, noted that in the preceding three years far more people who had not worried about trusts had become worried, largely because of the increase in the number of trusts and their overcapitalization; CHICAGO CONFERENCE ON TRUSTS, pp. 496-97.

The states had not been idle in the face of federal paralysis. Twenty-seven of them had passed antitrust laws by 1900 and an additional four had adopted constitutional provisions relating to trusts. State courts were active, too. In Jenks’s 1900 compilation of federal and state antitrust laws for the Industrial Commission, he wrote that many states found common law principles adequate to the task and “many courts have found these principles sufficient, even when special statutes were at hand”; UNITED STATES INDUSTRIAL COMMISSION, TRUSTS AND COMBINATIONS, vol. 2, p. 3.

3. MOWRY, THE ERA OF THEODORE ROOSEVELT, pp. 8-10. While securities problems were not front and center as such, some people understood them quickly.

Some recent evidence suggests that the separation of ownership from control began considerably earlier than this period. Eric Hilt begins to identify it as early perhaps as the 1820s in New York; Hilt, When Did Ownership Separate from Control? While this data is interesting, and while there may well have been some early separation of ownership from control, the creation of broad public markets for widely dispersed industrial stock did not take root until the merger wave.312

4. Sternstein, Corruption in the Gilded Age Senate, gives an excellent account of how Nelson Aldrich, as senator, became a wealthy man by legislatively protecting the Sugar Trust.

MOWRY, THE ERA OF THEODORE ROOSEVELT, pp. 115-17, gives a good overview of the power structure in the Senate. A nice brief description of the development of the Republican party as the business party is given in RUSSELL, THE PRESIDENT MAKERS. For additional discussions of the Republican leadership, see MERRILL & MERRILL, THE REPUBLICAN COMMAND; MORRIS, THEODORE REX, pp. 71-75; CROLY, MARCUS ALONZO HANNA.

5. While I will explore Roosevelt’s takeover of regulation later, it is worth noting the comments of the Baltimore Sun on the Nelson Amendment: “While it is amusing to find some of the corporations protesting in the name of ‘State’s rights’ against the proposed enlargement of Federal power, and in the same breath charging that the States usurp power in the legislation aimed at the trusts, it is clear that the tendency is to minimize the power of the States to a dangerous extent. If this tendency is to prevail it will not be long before a State will be a mere geographical expression”; Uncle Sam’s “Big Stick” For Interstate Corporations, BALTIMORE SUN, Dec. 23, 1904, p. 4.

Taft did not shy from antitrust controversy. He brought more antitrust litigation than Roosevelt and had considerably more faith in the courts, as a number of his administration’s successful antitrust prosecutions attest; WlEBE, THE SEARCH FOR ORDER, p. 203.

6. For Democratic platforms, see The American Presidency Project, Political Party Platforms for 1896, 1900, 1904, 1908 and 1912, available at: http://www.presidency.ucsb.edu/platforms.php.

7. TSUK MITCHELL, ARCHITECT OF JUSTICE (analyzing the role of groups and collective institutions in Progressive America).

8. LAMOREAUX, THE GREAT MERGER MOVEMENT IN AMERICAN BUSINESS; United States v. American Tobacco Co., 221 U.S. 106 (1911); Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911); HOVENKAMP, ENTERPRISE AND AMERICAN LAW; Chapter Seven; GRANT, MONEY OF THE MIND, pp. 113-15; CAROSSO, INVESTMENT BANKING IN AMERICA, pp. 84-85; PEACH, THE SECURITY AFFILIATES OF NATIONAL BANKS.

9. Bullock, Trust Literature, p. 168. I have, except where technically necessary or when quoting, tried to avoid as much as possible the word “trust” to describe the giant corporations, because for the most part this is a legal misnomer. It is worth noting the fact that before the merger wave of the late 1890s, trusts—whether in their original legal form or in the form of holding companies or corporate consolidations—were few and far between. The only truly significant technical trusts prior to the enactment of the Sherman Act, or during the period from 1879 to 1896, to which Seager and Gulick refer as “the period of the trust proper” (SEAGER & GuLICK, TRUST AND CORPORATION PROBLEMS, p. 49), were the Standard Oil Trust, the Sugar Trust, the Cotton-Seed Oil Trust, the Linseed Oil Trust, the National Lead Trust and the Whiskey Trust. Other dominant business groups during this period, organized either as corporations or holding companies, were Diamond Match Company, American Tobacco Company, United States Rubber Company, General Electric Company and United States Leather Company. The real proliferation of giant corporations (other than, of course, the railroads), began to take place only at the end of the 1890s, and when they began to explode, they typically took the form either of consolidated corporations or holding companies.313

10. STATUTES AT LARGE OF THE UNITED STATES OF AMERICA FROM MARCH, 1897 TO MARCH 1899, vol. 30, ch. 466; GOULD, THE PRESIDENCY OF WILLIAM MCKINLEY, pp. 161-64. McKinley evidently had no particular interest in the trusts while in Congress, and his first statement as president about the issue (and perhaps his only statement) was made to Congress as part of the presidential campaign of 1900. Even when he recognized the political need to address the issue of trusts he chose not to, as, for example, in his final speech on Sept. 5, 1901 in Buffalo, New York, the day before he was shot; President M’Kinley Favors Reciprocity, NEW YORK TIMES, Sept. 6, 1901, p. 1; LEECH, IN THE DAYS OF MCKINLEY, pp. 35, 119, 547, 575-76. RHODES, THE MCKINLEY AND ROOSEVELT ADMINISTRATIONS, only mentions trusts once in the portion of the book dealing with McKinley’s administration, and that in connection with Bryan’s opposition to the trusts. Only McKinley’s hagiographer writes that he clearly saw the dangers posed by trusts and was working hard to develop legislation, but even this writer dates McKinley’s concern to be as late as the 1899 to 1900 period; OLCOTT, THE LIFE OF WILLIAM MCKINLEY, vol. 2, pp. 298-300.

11. Salvato, Historical Note; KOLKO, THE TRIUMPH OF CONSERVATISM, pp. 66, 129; SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, pp. 204 eíseg.;WEiNSTEiN, THE CORPORATE IDEAL IN THE LIBERAL STATE, pp. 8,9; JENSEN, THE NATIONAL CIVIC FEDERATION, pp. 23, vii-viii and passim. The work of the NCF will be discussed more thoroughly in Chapters Seven and Eight.

12. CHICAGO CONFERENCE ON TRUSTS, pp. 5, 12-26; Trust Conference Begun, NEW YORK TIMES, Sept. 14,1899, p. 1.

13. CHICAGO CONFERENCE ON TRUSTS, p. 7; the delegates are identified by affiliation and name at pp. 12-26.

14. CHICAGO CONFERENCE ON TRUSTS, Jenks at p. 27, Wooten at p. 42; Trust Conference Begun, NEW YORK TIMES, Sept. 14, 1899, p. 1.

15. CHICAGO CONFERENCE ON TRUSTS, Bonaparte at p. 620, Bryan at p. 496.

16. CHICAGO CONFERENCE ON TRUSTS, Howe at pp. 623-25.

17. CHICAGO CONFERENCE ON TRUSTS, p. 626.

18. Legislative data was drawn from a complete examination of the Congressional Record during this period as well as the bills introduced, ranging from the 47th Congress to the first year of the 56th Congress. The period from 1881 to the introduction of the Sherman Act in 1889 was not a particularly active one legislatively. Standard Oil had not taken its final form until 1882. But Congress did investigate trusts during this period and some legislation was introduced.

Another two proposed pieces of legislation beyond those mentioned in the text would have given United States district attorneys power to initiate antitrust actions without the approval of the attorney general: H.R. 8358, introduced on Feb. 12, 1900, 56th Cong., 1st Sess.; S. 5849, introduced on Feb. 2, 1901, 56th Cong., 2d Sess.; and another four were offered as amendments to the only legislatively successful antitrust bill, the Sherman Antitrust Act of 1890. The Sherman Act is codified at 15 U.S.C. 1-7.314

19. See, e.g., H.R. 91, introduced on Dec. 18, 1889, 51st Cong., 2d Sess.; H.R. 89, introduced on Jan. 5, 1892, 52d Cong., 1st Sess.; H.R. 11343, introduced on Sept. 3, 1888, 50th Cong., 1st Sess.; S. 1, introduced on Dec. 4, 1889 (the Sherman Act), 51st Cong., 1st Sess.; H.R. 868, introduced on Dec. 9, 1895, 54th Cong., 1st Sess. BANK, BUSINESS TAX STORIES, pp. 13-22.

20. H.R. 7505, introduced on June 20,1894, 53d Cong., 2d Sess. A number of leading businessmen, including heads of trusts, testified before the Industrial Commission to the effect that the tariff had been important to the growth of their businesses; UNITED STATES INDUSTRIAL COMMISSION, PRELIMINARY REPORT ON TRUSTS AND INDUSTRIAL COMBINATIONS, vol. 1, pp. 23-24. For the items the Democrats wanted to put on the “free list” in 1903, see Henry De Lamar Clayton, Speech on Tariffs, CONGRESSIONAL RECORD, 57th Cong., 2d Sess., Feb. 5, 1903, p. 1757.

21. H.R. 7739, introduced on July 17, 1893, 53d Cong., 2d Sess.

22. KENKEL, PROGRESSIVES AND PROTECTION, pp. 3-7, 58.

23. H.R. 10313, introduced on Feb. 15, 1897, 54th Cong., 2d Sess.; H.R. 9509, introduced on Mar. 13, 1900, 56th Cong., 1st Sess. The importance of the change in form was nicely explained by Taft during the 1908 presidential campaign; Taft, Mr. Bryan’s Claim to the Roosevelt Policies, Sandusky, Ohio, Sept. 8, 1908, in THE COLLECTED WORKS OF WILLIAM HOWARD TAFT, vol. 2, pp. 46-47. Davis, Corporate Privileges for the Public Benefit, pp. 625-28.

24. In addition to H.R. 10313, the bills for federal corporate supervision were H.R. 398, introduced on Mar. 18, 1897, 55th Cong., 1st Sess. (also introduced by Phillip Low), and H.R. 4583, introduced on Dec. 10, 1897, 55th Cong., 2d Sess. (also introduced by Low). The bills addressing overcapitalization were S. 3618, introduced on Jan. 29, 1897, 54th Cong., 2d Sess.; S. 25, introduced on Mar. 16, 1897, 55th Cong., 1st Sess.; S. 2339, introduced on Jan. 11, 1900, 56th Cong., 1st Sess.

25. North, The Industrial Commission, p. 708. As I noted earlier, McKinley appears to have been silent on the trust issue. He even ignored the Industrial Commission’s preliminary recommendations until late in the presidential campaign of 1900—and when he addressed the issue he was less than convincing. It appears, moreover, that the Republicans who both created and controlled the Commission varied in the strength of their real commitment to reform; LEECH, IN THE DAYS OF McKlNLEY, pp. 545-48; MERRILL & MERRILL, THE REPUBLICAN COMMAND, pp. 70-73.

26. SτROUSE, MORGAN, pp. 430, 342, uses the common identification of Stetson as “Morgan’s Attorney General.”

27. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, pp. 642-43.

28. Supplementary Statement of Thomas W. Phillips, UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, vol. 19, p. 669.

29. There was, not surprisingly, widespread public dispute over whether one could distinguish “good” trusts from “bad” trusts; Conference on Trusts, CHICAGO DAILY TRIBUNE, Sept. 14,1899, p. 12; Ohio Fight Warms Up, WASHINGTON POST, Oct. 13, 1899, p. 3; Trust Remedy, BOSTON DAILY GLOBE, Sept. 29, 1899, p. 4.315

30. STATUTES AT LARGE OF THE UNITED STATES OF AMERICA FROM MARCH, 1913 TO MARCH, 1915, vol. 38, ch. 311. The FTC did not provide regulatory guidance until 1925; Davis, The Transformation of the Federal Trade Commission.

31. MORRIS, THEODORE REX, pp. 90-92; STROUSE, MORGAN, pp. 440-41.

32. UNITED STATES INDUSTRIAL COMMISSION, FINAL REPORT, p. 645.

33. Dill, National Incorporation Laws for Trusts, p. 274. To be fair to Dill, he did go on to explain why he believed the corporate law of New Jersey to be responsible, id. at 280-81, but his argument, in light of his personal history, rings rather hollow. One wonders how the contemporary listener reacted.

34. STEFFENS, AUTOBIOGRAPHY, p. 195.

35. Adams, Federal Control of Trusts, p. 1. Much of the work on this subject postdates the Bureau of Corporation’s First Annual Report and legislative proposal and, to the extent significant, will be discussed later as I show the further development of the federal incorporation movement.

36. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, REPORT TO ACCOMPANY H.J. RES. NO. 138, REPORT NO. 1501, Part 1, 56th Cong., 1st Sess., May 15, 1900.

37. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, VIEWS OF THE MINORITY, REPORT NO. 1501, Part 2, 56th Cong., 1st Sess., May 21, 1900, p. 7.

38. Morris notes that Lodge understood Roosevelt to use the word sovereign “as a personal pronoun”; MORRIS, THEODORE REX, p. 462. Johnson, Theodore Roosevelt and the Bureau of Corporations. Roosevelt’s insistence upon federal regulatory control increased as Taft followed a policy of Sherman Act litigation, a policy of which Roosevelt was highly critical. Theodore Roosevelt, The Trusts, the People, and the Square Deal.

39. TR to Hermann Henry Kohlsaat, Aug. 7, 1899; TR to Henry Cabot Lodge, Aug. 10, 1899; TR to Thomas C. Platt, Aug. 21, 1899; TR to Bellamy Storer, Sept. 11, 1899; all in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 2, at pp. 1045, 1047, 1060, 1068.

40. TR to Lodge, Apr. 9, 1900, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 2, pp. 1252-54; MORRIS, THE RISE OF THEODORE ROOSEVELT, pp. 695-98, 700-702, 717-19.

41. TR to Platt, May 8, 1899; TR to Henry John Wright, Apr. 5, 1900; TR to Bishop, Apr. 11, 1900; TR to John Proctor Clark, Apr. 13, 1900; TR to Samuel Hill, May 8, 1900; all in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 2, pp. 1004, 1247, 1256, 1259, 1292; GOSNELL, Boss PLATT AND His NEW YORK MACHINE, pp. 346-47, 355-56; Trying to Shelve Roosevelt, WASHINGTON POST, Apr. 4, 1900, p. 6.

42. TR to Edward Oliver Wolcott, Sept. 15, 1900, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 2, p. 1397; Roosevelt, Message of the President of the United States Communicated to the Two Houses of Congress at the Beginning of the Second Session of the Fifty-Seventh Congress, ROOSEVELT, PRESIDENTIAL ADDRESSES AND STATE PAPERS, vol. 2, pp. 606, 611; TR to Lodge, Apr. 9, 1900; TR to Lodge, June 9, 1900, in ROOSEVELT, SELECTIONS FROM THE CORRESPONDENCE OF THEODORE ROOSEVELT AND HENRY CABOT LODGE, vol. 1, pp. 455, 463-64. Although Lodge was one of Roosevelt’s closest friends, my reading of the Roosevelt manuscripts and published correspondence shows that Roosevelt infrequently corresponded with Lodge about the trust issue in these years. TR to Bradley Tyler Johnson, May 10, 1899; TR to Lodge, Feb. 3, 1900; TR to Henry John Wright, Apr. 5, 1900; TR to Joseph Bucklin Bishop, Apr. 11, 1900; TR to John Proctor Clarke, Apr. 13, 1900; TR to Kohlsaat, May 26, 1900; TR to Anna Roosevelt Cowles, June 25, 1900; TR to Lyman Pierson Powell, Feb. 12, 1899; TR to Henry Lincoln, Mar. 15, 1900; TR to William Tudor, Apr. 25, 1900; TR to Samuel Hill, May 8, 1900; TR to Francis Vinton Greene, June 12, 1900, all in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 2, pp. 1009, 1166, 1247, 1256, 1259, 1313, 1339, 1181, 1225, 1271, 1292, 1332.316

43. TR to Elihu Root, Dec. 7, 1899; TR to Platt, Dec. 19, 1899, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 2, pp. 1105, 1114.

44. Roosevelt, Message of the Governor of New York to the Legislature, January 3, 1900, in ROOSEVELT, PRESIDENTIAL ADDRESSES AND STATE PAPERS, part 2, pp. 770, 785-87.

45. Roosevelt, Message of the President of the United States, Communicated to the Two Houses of Congress, at the Beginning of the First Session of the Fifty-Seventh Congress, in ROOSEVELT, PRESIDENTIAL ADDRESSES AND STATE PAPERS, part 2, pp. 529, 541; Roosevelt, At the Charleston Exposition, Wednesday, April 9, 1902, in ROOSEVELT, PRESIDENTIAL ADDRESSES AND STATE PAPERS, part 1, p. 26. Roosevelt, Just Taxation and State Regulation of Corporations, id., pp. 18-25.

46. Speech delivered at Cincinnati, Ohio, Sept. 20, 1902; and Speech delivered at Providence, Rhode Island, Aug. 23, 1902, both in the Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 5A, Reel 418.

47. Kornhauser, Corporate Regulation and the Origins of the Corporate Income Tax, pp. 73-74; Johnson, Theodore Roosevelt and the Bureau of Corporations, pp. 572-73; Fall of Mr. Littlefιeld, NEWYORK TIMES, Feb. 15, 1903, p. 8; Antitrust Bill Favored, NEW YORK TIMES, Jan. 10, 1903, p. 8; Trust Bill Not Ready, WASHINGTON POST, Jan. 16, 1903, p. 4; Bill Aimed at Trusts, WASHINGTON POST, Jan. 23, 1903, p. 4.

Knox’s speech became the touchstone of the administration’s antitrust policy. The Times referred to it as “being accepted on all sides as a classic on the subject of trust legislation”; Senator Hoar on Trusts, NEW YORK TIMES, Jan. 7, 1903, p. 2.

SIX: MUCH ADO ABOUT NOTHING

1. One interesting aspect of the federal incorporation movement is that, while the bills generally were meant to supplant state regulation, none of them included provisions for dealing with the creation and structure of the corporation nor the allocation of responsibilities between directors and shareholders that traditionally are the essence of state corporate law. Perhaps the omissions are unsurprising in light of the underlying aims of federal incorporation and the predominance of federal licensing bills over federal incorporation bills, but a serious attempt at establishing federal corporations would have had to come to grips with these issues.

2. H.R. 5170, 61st Cong., 1st Sess., Mar. 26, 1909; H.R. 16360, 61st Cong., 2d Sess., Jan. 4, 1910.317

3. As with the legislative census in the previous chapter, the data presented here is taken from an examination of the Congressional Record for this entire period, as well as a review of the Bureau of Corporation’s archives. Banks and insurance companies were already subject to significant state regulation.

4. H.J. Resolution 94, 58th Cong., 2d Sess., Jan. 28, 1904 (proposing constitutional amendment to prohibit states from incorporating interstate businesses other than banks and insurance companies and giving Congress power to incorporate all corporations doing business in interstate commerce); H.R. 15792, 58th Cong., 3d Sess., Dec. 6, 1904 (prohibiting corporate activity designed to destroy competition); H.R. 473, 59th Cong., 1st Sess., Dec. 4, 1905 (requiring federal incorporation and preventing overcapitalization for businesses engaged in food and fuel supplies. Legislation on this subject was also introduced in 1906, H.R. 13095, 59th Cong., 1st Sess., Jan. 25, 1906); H.R. 9740, 59th Cong., 1st Sess., Dec. 20, 1905 (to prevent and punish overcapitalization); Senate Resolution (unnumbered) introduced by Senator Francis Newlands on Dec. 6, 1905, 59th Cong., 1st Sess. (to require ICC to propose to Congress a national incorporation act for railroads); S.R. 86, Jan. 4, 1905, 58th Cong., 3d Sess. (joint resolution to establish a fourteen-member commission for comprehensive railroad regulation, including regulation of capitalization). The archival copy of this resolution has attached to it an explanatory memo by J. W. Mitchell of the Bureau of Corporations concluding: “It is therefore fair to suspect that the real purpose of the resolution is to prevent action upon the subject-matter by the present Congress.”); S. 232, 62d Cong., 1st Sess., Apr. 6, 1911. All legislation described in this section can be found in Bureau of Corporations Archives, National Archives Research Administration, Records Group 122, Stack Area 570, Row 7, Compartment 18, Shelf 2, Box 297, unless otherwise indicated in these notes.

5. The Elkins Act of 1903, Hepburn Act of 1906 and Mann-Elkins Act of 1910, while related to corporate issues, were specialized railroad legislation and oriented toward the particular problems of that industry.

6. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, REPORT NO. 3375, 57th Cong., 2d Sess., Jan. 26, 1903, p. 3 (quoting Philander Knox, Pittsburgh Speech), p. 2 (Roosevelt), p. 4 (Industrial Commission), pp. 5, 6 (Dill).

7. President Not in Speaker Fight, CHICAGO DAILY TRIBUNE, NOV. 10, 1902, p. 3; Toasted Uncle Joe, WASHINGTON POST, Dec. 18, 1902, p. 1. Morris suggests that Roosevelt thought Littlefield’s bill was too “draconian,” and while he stated he would “‘go the whole distance,’“ he “doubted the distance would be very long, legislatively speaking”; MORRIS, THEODORE REX, p. 196.

8. H.R. 17, 57th Cong., 1st Sess., Dec. 2, 1901.

9. H.R. 17, 57th Cong., 2d Sess., Jan. 26, 1903. Despite the Democrats’ skepticism, part of the ultimately enacted legislation included an anti-rebate provision in the form of the Elkins Act.

10. Anti-Trust Bill Favored, NEW YORK TIMES, Jan. 10, 1903, p. 8; Trust Bill Not Ready, NEW YORK TIMES, Jan. 16, 1903, p. 4; Bill Aimed at Trusts, WASHINGTON POST, Jan. 23, 1903, p. 4; Agreed on a Trust Bill, WASHINGTON POST, Jan. 24, 1903, p. 4; Democrats’ Anti-Trust View, WASHINGTON POST, Jan. 30, 1903, p. 4; UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, COMMITTEE ON THE JUDICIARY, REPORT TO ACCOMPANY H.R. 17: VIEWS OF THE MINORITY, HOUSE REPORT NO. 3375, Part 2, 57th Cong., 2d Sess., Jan. 29, 1903.318

11. Approximately 25 percent of the members of each party did not vote on the bill, and another four Republicans and two Democrats abstained.

12. Some scholars argue as a general proposition that Americans were afraid of large aggregations of capital: ROE, STRONG MANAGERS, WEAK OWNERS. Williams quoted in CONGRESSIONAL RECORD, 57th Cong., 2d Sess., p. 1824 (Feb. 6, 1903).

13. Kitchin in id. at p. 1829 (emphasis added).

14. One congressman did point out that the Republican platform of 1888 had been antitrust and that the Republican Congress passed the Sherman Act. This led to an argument over the fact that the Democrats had appended a free-silver measure to the Sherman Act in an effort to derail it because the Republican platform of 1888, while antitrust, was also anti-silver. Id. at p. 1765.

15. Id. at pp. 1757, 1756.

16. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, COMMITTEE ON THE JUDICIARY, REPORT TO ACCOMPANY H.R. 17, REPORT NO. 3375, 57th Cong., 2d Sess., Jan. 26, 1903, pp. 19, 20.

17. Address of President Roosevelt at Pittsburgh, July 4, 1902, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 5A, Reel 424; Mr. Roosevelt Eager for Trust Legislation, NEW YORK TIMES, July 6, 1902, p. 1.

18. Roosevelt, Speech delivered at Providence, Rhode Island, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 5A, Reel 418. Roosevelt, Speech delivered at Cincinnati, Ohio, Sept. 20, 1902, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 5A, Reel 418 (typed, handrevised copy); see same speech as finalized in ROOSEVELT, THE ROOSEVELT POLICY, vol. 1, p. 75.

19. SPROAT, THE BEST MEN; TR to Lyman Abbott, Sept. 5, 1903, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, pp. 59c↔92. Morris nicely develops a picture of what he refers to as Roosevelt’s “autocratic tendencies”; MORRIS, THEODORE REX, p. 330.

20. The strike was, in fairness, a major episode in labor’s struggle for justice. Morris provides an excellent description; MORRIS, THEODORE REX, pp. 150-61.

21. A significant conflict in assessing Roosevelt’s relationship with Wall Street exists. On the one hand, as I will discuss below, there is correspondence indicating Roosevelt’s belief that J. P. Morgan was a particularly strong enemy during the coal strike. On the other hand, Morgan worked closely and, in light of the pendency of the Northern Securities suit, evidently quite cordially, with Roosevelt to settle the Strike; PRINGLE, THEODORE ROOSEVELT, p. 264; MORRIS, THEODORE REX, pp. 164-68; SτROUSE, MORGAN, pp. 448-51. My reading of the record leads me to conclude that Roosevelt was attempting to ingratiate himself with an angry Wall Street before the midterm congressional elections of 1902, in addition to satisfying his need to be liked and his natural affinity for one who was not only a member of his class but also had worked in several capacities with Roosevelt’s father. As I have discussed, Roosevelt’s editing of his trust speeches during this period shows a clear attempt to avoid inflammatory or overgeneralized condemnations of trusts, corporations and businessmen.319

Lincoln was Roosevelt’s hero; TR to George Otto Trevelyan, Mar. 9, 1905, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 4, p. 1132. His letters are replete not only with references to Lincoln but also with analogies drawn between Lincoln’s struggles during the Civil War and his own fight against the trusts; TR to Lyman Abbott, Sept. 5, 1903, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, pp. 590-92.

22. Despite his cordial relationship with Morgan in the fall of 1902, Roosevelt’s letters, especially in late 1903, are full of denunciations of the Wall Street interests for their attacks on him because of his role in the anthracite coal strike. See e.g., TR to Richard Watson Gilder, Nov. 4, 1903; TR to Lyman Abbott, Nov. 5, 1903, both in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, pp. 645, 647-48; KNIGHT, PHILANDER CHASE KNOX; TR to J. B. Bishop, Feb. 17, 1903, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 2, Reel 330. There is a large amount of correspondence to and from Roosevelt regarding the anthracite coal strike in this manuscript collection, Series 1, Reel 28, and Series 2, Reel 329. Indeed, most of Reel 329, going from early summer to late autumn of 1902, is taken up with Roosevelt’s correspondence on the coal strike. Letters to some of his most intimate correspondents that illustrate Roosevelt’s attitude toward each side and his sense of accomplishment in its resolution include: TR to Oswald Villard, Oct. 2, 1902; TR to Marcus A. Hanna, Oct. 3, 1902; TR to Grover Cleveland, Oct. 5, 1902; TR to Robert Bacon, Oct. 5, 1902; TR to Jacob Riis, Oct. 8, 1902; TR to Bacon, Oct. 7, 1902; TR to W. S. Cowles, Oct. 16, 1902; TR to Henry Cabot Lodge, Oct. 17, 1902; TR to William Allen White, Oct. 6, 1902; TR to Robert Bacon, Oct. 7, 1902, all located in Series 2, Reel 329 of the Roosevelt manuscripts. Pringle argues that Morgan, Root, Schwab and Rockefeller, among other conservatives, backed Roosevelt in the strike because of their fear that a mishandled strike could lead to Republican defeat in the 1902 midterm elections; PRINGLE, THEODORE ROOSEVELT, p. 264.

23. Mr. Littlefield Left Off President’s List, NEW YORK TIMES, Aug. 21, 1902, p. 1; President Starts on Trip, NEW YORK TIMES, July 4, 1902, p. 3. The Boston Daily Globe suggested that Roosevelt’s cancellation was a result of limited time and that his only speech in Maine would be in Bangor at the invitation of Maine’s Senator Hale.

It is interesting to note that Bryan was speaking in Rockland that summer. Know County Democrats Happy, BOSTON DAILY GLOBE, July 18, 1902, p. 12. The incident was the cause of “much gossip.” State’s Guest, Boston, Aug. 21, 1902, p. 7.

24. Morris reports that during this first summer as president, Roosevelt remained at Sagamore Hill and engaged in as little official business as possible; MORRIS, THEODORE REX, pp. 122-29.

Given Roosevelt’s view of the power of the presidency, it certainly seems as though the executive branch was preparing trust legislation; PRINGLE, THEODORE ROOSEVELT, p. 259 (noting Roosevelt’s belief that the legislature should carry out the wishes of the executive); MOWRY, THE ERA OF THEODORE ROOSEVELT, p. 130 (observing that Roosevelt initiated the Northern Securities case and dealt with the coal strike with little or no consultation with Congress, thus antagonizing the conservatives). TR to Benjamin Barker Odell, Aug. 19, 1902, and TR to Winthrop Murray Crane, Aug. 19, 1902, both in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, pp. 316-17.320

25. Senator Hoar on Trusts, NEW YORK TIMES, Jan. 7, 1903, p. 2.

26. A Few Whys, WASHINGTON POST, NOV. 1, 1902, p. 6; Raymond, Hoar Criticised [sic] for Trust Bill, CHICAGO DAILY TRIBUNE, Jan. 4, 1903, p. 1; Jos Ohl, G.O.P. Badly Split by Trust Problem, ATLANTA CONSTITUTION, Jan. 4, 1903, p. 3; President on Trusts, WASHINGTON POST, Feb. 2, 1903, p. 3.

Morris reports that Roosevelt only finally abandoned the Littlefield bill following its passage on February 7; MORRIS, THEODORE REX, p. 206. My research suggests that he had done so, albeit without informing Littlefield, well before that date.

27. Bitter Fight Ahead for the Speakership, NEW YORK TIMES, NOV. 7, 1902, p. 5; Fall of Mr. Littlefield, NEW YORK TIMES, Feb. 15, 1903, p. 8; Affairs in America, CURRENT LITERATURE, vol. 34, no. 4 (Apr. 1903), p. 392; Roosevelt Is Not Pleased, ATLANTA CONSTITUTION, Jan. 24, 1903, p. 9. Roosevelt actually pushed the Pittsburgh Chamber of Commerce to invite Knox and to move up their meeting one month earlier (giving them one week’s notice) so that Knox could attend and deliver “a speech which I regard as the most important any member of the administration is to deliver”; TR to W. H. Keach, Oct. 7, 1902, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 2, Reel 329.

28. Knox had signaled the administration’s abandonment of the Littlefield measure no later than early January 1903; Johnson, Theodore Roosevelt and the Bureau of Corporations, p. 574. Nonetheless, there was wide public perception that the Littlefield bill had been moving toward passage by the House at least as late as December; Action on Trusts, WASHINGTON POST, Dec. 6, 1902, p. 1.

29. TR to Lawrence Fraser Abbott, Feb. 3, 1903, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 2, Reel 330.

30. TR to Dr. W. S. Rainsford, Dec. 27, 1902, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 2, Reel 330.

31. STROUSE, MORGAN, p. 440; Wm. Laffan to TR, Oct. 7, 1902; J. B. Bishop to TR, Oct. 25, 1902, both in Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 1, Reel 30. The description of Bishop is Morris’s; MORRIS, THEODORE REX, p. 526.

32. J. C. Shaffer to TR, Jan. 17, 1903; J. W. Jenks to TR, Feb. 2, 1903, both in Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 1, Reel 32.

33. Proceedings in Congress, NEW YORK TIMES, Feb. 4, 1903, p. 4; Outstrips the House, WASHINGTON POST, Feb. 4, 1903, p. 4; Still After Trusts, Feb. 5, 1903, p. 4.

34. Trust Bills in House, WASHINGTON POST, Feb. 6, 1903, p. 4; Friction over Trust Bills, NEW YORK TIMES, Feb. 7, 1903, p. 3; Agree on Bill for Department of Commerce, NEW YORK TIMES, Feb. 8, 1903, p. 13.

35. Turned Down by Senate, WASHINGTON POST, Feb. 28, 1903, p. 4; Wider in Its Scope, WASHINGTON POST, Feb. 17, 1903, p. 4; Anti-Rebate Bill Passed, NEW YORK TIMES, Feb. 14, 1903, p. 8; The Status of Anti-Monopoly Legislation, THE WATCHMAN, vol. 85, no. 9 (Feb. 26, 1903), p. 5; Not So Bad, Perhaps, NEW YORK TIMES, Feb. 28, 1903, p. 8; Trust and the Lottery Decision, THE INDEPENDENT, vol. 55, no. 2831 (Mar. 5, 1903), p. 574. Some, like the avid trust-booster George Gunton, were disgusted by the Republicans and saw the Bureau of Corporations as giving the federal government unprecedented “inquisitorial power”; The New Anti-Trust Law, GUN-TON’S MAGAZINE (Mar. 1903), p. 189.321

36. In fact as late as Feb. 3, TR continued to back the anti-rebate provisions of the Littlefield bill, which he had earlier noted were similar to those drafted by Knox; TR to Lawrence Abbott, Feb. 3, 1903, Theodore Roosevelt Papers, Library of Congress, Manuscript Division, Series 2, Reel 33. Herbert Croly, Hanna’s highly sympathetic biographer, underscores the importance of Hanna’s role in the Department of Commerce debate and attributes it to his desire that “government might be equipped to serve the industry of the country.” In light of Croly’s own sympathies it is at least reasonable, if not most plausible, to understand him to be noting Hanna’s support for, rather than support for regulation of, industry; CROLY, MARCUS ALONZO HANNA, pp. 373-74. Croly published THE PROMISE OF AMERICAN LIFE only three years before the Hanna biography.

37. OLAND, THE LIFE OF KNUTE NELSON, p. 272. Morris also suggests that it was this substantial executive power that led Roosevelt to abandon Littlefield for Nelson; MORRIS, THEODORE REX, p. 206.

38. President Threatens an Extra Session, NEW YORK TIMES, Feb. 8, 1903, p. 1.

39. President Threatens an Extra Session, NEW YORK TIMES, Feb. 8, 1903, p. 1; Warned of Trusts, WASHINGTON POST, Feb. 9, 1903, p. 1; The President and the Standard Oil Story, NEW YORK TIMES, Feb. 10, 1903, p. 1; Anti-Trust Effort Strongly Resisted, Los ANGELES TIMES, Feb. 8, 1903, p. 1; Treaties and Trust Laws, THE INDEPENDENT, vol. 55, no. 2829, Feb. 19, 1903, p. 410; The New Anti-Trust Law, GUNTON’S MAGAZINE (Mar. 1903), p. 189; B. O. Flower, The Corruption of Government by the Corporations, THE ARENA, vol. 30, no. 1 (July 1903), p. 55; The New Publicity Law, OUTLOOK, vol. 73, no. 8, Feb. 21, 1903, p. 409. Roosevelt’s story is completely discredited in BUSBEY, UNCLE JOE CANNON, pp. 221-23. Busbey identifies the senators receiving telegrams as more than the six noted by Roosevelt, and were Allison, Aldrich, Hale, Spooner, Kean, Platt, Depew, Lodge, Elkins and Nelson, few of whom would naturally have been inclined to favor trust legislation in the first place. One of Rockefeller’s early biographers, John T. Flynn, notes that Roosevelt admitted he had released the information to ensure passage of the legislation. Flynn does note that “Standard Oil was in arms” over the legislation but neither affirms nor denies the existence of the telegrams. In light of the significant inaccuracies in Flynn’s account of the legislation, the question is hardly resolved. FLYNN, GOD’S GOLD, p. 381. NEVINS, JOHN D. ROCKEFELLER, vol. 2, pp. 516-17. Morris does not address the issue; MORRIS, THEODORE REX, p. 206. The interesting bibliographic history of Nevins’s biography and his attitude toward Rockefeller is given in COLLIER & HOROWITZ, THE ROCKEFELLERS, pp. 627-33.

40. Fall of Mr. Littlefield, NEW YORK TIMES, Feb. 15, 1903, p. 8; Accept Trust Amendment, NEW YORK TIMES, Feb. 11, 1903, p. 8; Elkins Bill to Be Rushed, NEW YORK TIMES, Feb. 12, 1903, p. 3; The Interstate Penalty Not in the Trust Laws, THE INDEPENDENT, vol. 55, no. 2829, Feb. 19, 1903, p. 456; Proceedings in Congress, NEW YORK TIMES, Feb. 18, 1903, p. 8; Trust Bill Is Passed, WASHINGTON POST, Feb. 8, 1903, p. 5.322

41. Fall of Mr. Littlefield, NEW YORK TIMES, Feb. 15, 1903, p. 8; Anti-Rebate Bill Passed, NEW YORK TIMES, Feb. 14, 1903, p. 8.

42. Hans Thorelli, in his account of the era, suggested three grounds for Roosevelt’s volte face, although admittedly without extensive research: Roosevelt might not have actually approved of Knox’s work with Littlefield; Roosevelt simply changed bills when passage of the Littlefield bill seemed improbable; and the combination of the Nelson amendment and the Elkins bill was a better, more administrable, and more “elegant” solution than the Littlefield bill.

None of this is plausible. First, the evidence is indisputable that Roosevelt was aware of Knox’s work, encouraged it and described it as the administration position well after the Pittsburgh address. One study claims that Roosevelt and Knox both supported the Littlefield bill until the end of January, with Roosevelt repeating his approval after a late rumor spread that he was abandoning it. This evidently had the desired effect of creating anxiety in the Senate leadership and perhaps softening it up for the Nelson amendment, but in any event it seems clear that Roosevelt still expressed some commitment to Littlefield in the rebate provisions. Moreover, Roosevelt did not simply change horses. He shot the one he rode in on. His late animosity toward the Littlefield bill and Littlefield himself suggests that his turn had deeper causes than a simple shift in policy. Political survival panic is the most likely explanation. Finally, it is hard to argue that the Elkins and Nelson amendments were more elegant than the Littlefield bill except to the extent that their simplicity reflected a lack of substance. The Nelson amendment also gave Roosevelt virtually all the political control there was to be had over corporate America. Thorelli was correct that Roosevelt’s actions were political. But they were political to a much greater purpose than the passage of antitrust legislation. They were political for the purpose of increasing Roosevelt’s power. After the fact, Roosevelt would claim great pride in establishing the Bureau of Corporations, referring to it as an act of “constructive statesmanship” even as he acknowledged to his close friends that the measure was only “tentative” and a first step.

THORELLI, THE FEDERAL ANTITRUST POLICY, p. 555; Johnson, Theodore Roosevelt and the Bureau of Corporations; TR to J. H. Woodard, Oct. 19, 1902, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, p. 356; TR to Lawrence Fraser Abbott, Feb. 3, 1902, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, p. 416. President McKinley’s Policy, speech delivered at the Union League, Philadelphia, Pa., Nov. 22, 1902, in THE ROOSEVELT POLICY, vol. 1, p. 107; MERRILL & MERRILL, THE REPUBLICAN COMMAND, p. 142; TR to Nicholas Murray Butler, Aug. 29, 1903, TR to Lyman Abbott, Sept. 5, 1903, TR to Lyman Abbott, Oct. 29, 1903, TR to Carl Schurz, Dec. 24, 1903, all in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 3, pp. 579-80, 590-92, 638-39, 679-80.

43. ROOSEVELT, AUTOBIOGRAPHY, pp. 197-98. See also CORWIN, THE PRESIDENT, pp. 154-56 (describing Roosevelt’s implementation of his “stewardship theory” during the anthracite coal strike); GOULD, THE MODERN AMERICAN PRESIDENCY, pp. 22-23 (on stewardship theory); GRAUBARD, COMMAND OF OFFICE, pp. 7-8 (noting Roosevelt’s principal use of stewardship theory in foreign affairs); HARBAUGH, POWER AND RESPONSIBILITY, pp. 338-39; PRINGLE, THEODORE ROOSEVELT, pp. 254-55.323

44. Garfield’s appointment was almost accidental. His father’s tragic political legacy allowed him unusual access in Washington, and Roosevelt had appointed him to fill TR’s own old job on the Civil Service Commission for which Mrs. Roosevelt apparently suggested him; THOMPSON, JAMES R. GARFIELD, p. 73. When the Bureau was created, Roosevelt chose Garfield evidently because he “wanted an efficient administrator who would not show dangerous signs of independence,” because Roosevelt intended to run the Bureau himself. Id., p. 83. See also LEINWAND, A HISTORY OF THE UNITED STATES FEDERAL BUREAU OF CORPORATIONS, pp. 83-84.

45. Swift and Company v. United States, 196 U.S. 375 (1905); Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911); UNITED STATES DEPARTMENT OF COMMERCE AND LABOR, REPORT OF THE COMMISSIONER OF CORPORATIONS.

46. Federal Franchises Is President’s Plan, NEW YORK TIMES, Dec. 22, 1904, p. 1.

47. At the White House, PHILADELPHIA PUBLIC LEDGER, Dec. 25, 1904, found in Bureau of Corporations Archives, National Archives Research Administration, Records Group 122, Numerical File 5451-22-2. The newspaper accounts referred to in the following discussion can, for the most part, be found in this file. Many lack page numbers as shown by citations in the following notes.

48. It is arguably difficult to generalize too much from a sampling of newspapers, especially when many of the articles appear in files kept by the Bureau of Corporations and, to that end, I have expanded the newspaper search beyond that file. The file is, however, substantial, as evidenced by the fact that even a preliminary reading of its contents took three full days, and that it covers newspapers from multiple states, large- and medium-sized cities and small towns, so it may be taken as reasonably comprehensive. In the end, all that can be generalized is that the terms of the debate described in the text were the terms engaged in by newspaper editors.

49. The San Francisco Chronicle’s market report blamed some degree of market gloom on the Garfield report, but hardly serious panic; Financial News of the World, SAN FRANCISCO CHRONICLE, Dec. 23, 1904, p. 4.

50. Moving on the Trusts, COLLIER’S WEEKLY, Jan. 14, 1905; Standard Urged Control in 1899, NEW YORK WORLD, Dec. 24, 1904. Dill’s attitudes were frequently mentioned: National Incorporations Long Urged by Magnates, NEW YORK WORLD, Dec. 24, 1904; Federal License Not the Remedy in Samuel Untermyer’s Opinion, NEW YORK HERALD, Dec. 22, 1904.

51. Garfιeld’s Plan Like OílTrust’s, CINCINNATI COMMERCIAL TRIBUNE, Dec. 22, 1904. This comment was repeated, verbatim and without attribution, in The New York Times on Dec. 27 of that same year. MANSFIELD (OHIO) SHIELD, Dec. 23, 1904.

52. First—A Corrupt-Practices Act, NEW YORK WORLD, Dec. 26, 1904.

53. For Federal Franchises, WHEELING (WEST VIRGINIA) REGISTER, Dec. 23, 1904.

54. Federal License to Corporations, CHICAGO DAILY TRIBUNE, Dec. 22, 1904, p. 4; Raymond, Roosevelt Backs Garfield Plan, CHICAGO DAILY TRIBUNE, Dec. 23, 1904, p. 1; Uncle Sam’s “Big Stick” for Interstate Corporations, BALTIMORE SUN, Dec. 23, 1904, p. 4; Secretary Garfield’s Recommendations, RICHMOND DISPATCH, Dec. 24, 1904; Control of Interstate Commerce, SAN FRANCISCO CHRONICLE, Dec. 23, 1904, p. 6; Mr. Garfield’s Suggestion, Los ANGELES TIMES, Dec. 23. 1904, p. 4.324

55. STROUSE, MORGAN, pp. 356-57; To Abolish the States, NEW YORK TIMES, Dec. 22, 1904; Distinguished Rivals, NEW YORK TIMES, Jan. 12, 1905; A Trust Gibraltar, NEW YORK TIMES, Dec. 28, 1904; The New Science of Government, NEW YORK WORLD, Dec. 28, 1904; The Roosevelt-Garfιeld Scheme, NEW YORK DAILY NEWS, Dec. 27, 1904; Revolutionary Schemes for Regulating Corporations, NEW YORK COMMERCIAL BULLETIN, Jan. 7,1905.

56. The Issue of Imperialism in a New Shape, WALL STREET JOURNAL, Dec. 29, 1904, p. 1; Garfιeld’s Report, WALL STREET JOURNAL, Dec. 22, 1904, p. 1. The Journal strongly supported the plan’s call for increased corporate publicity and federal regulation to make it happen. Also supportive of the Garfield plan were the New York Tribune, The Nation, Collier’s Weekly and The Financier, New York, among others. The need for some degree of regulation was widely acknowledged. The Fight for Publicity, WALL STREET JOURNAL, Dec. 24, 1904; Mr. Havemeyer and Publicity, WALL STREET JOURNAL, Jan. 12, 1905; Federal Control of the Interstate Trusts?, NEW YORK HERALD, Dec. 22, 1904; The Fathers, NEW YORK TRIBUNE, Dec. 27, 1904; The Conversion of Gríggs, THE NATION, Jan. 1, 1905; Cure and Prevention, COLLIER’S WEEKLY, Jan. 28, 1905; Federal Control of Corporations, THE FINANCIER, NEW YORK, Jan. 2, 1905.

57. Federal incorporation proposals resurfaced from time to time throughout the twentieth century. All of them failed.

58. KNOX, THE COMMERCE CLAUSE OF THE CONSTITUTION AND THE TRUSTS, p. 4.

59. UNITED STATES DEPARTMENT OF COMMERCE AND LABOR, REPORT OF THE COMMISSIONER OF CORPORATIONS, pp. 16, 22, 35.

60. UNITED STATES DEPARTMENT OF COMMERCE AND LABOR, REPORT OF THE COMMISSIONER OF CORPORATIONS, pp. 35-36.

SEVEN: PANIC AND PROGRESS

1. EDWARDS, THE ROOSEVELT PANIC OF 1907; Panic Caused by Imitators of Roosevelt, ATLANTA CONSTITUTION, Nov. 24, 1907, p. Cl; SOBEL, THE BlG BOARD, p. 188.

2. Mississippi congressman John Sharp Williams was particularly concerned with the Treasury’s permission to allow national banks to accept corporate securities as security for tax revenues not yet deposited with the Treasury; Williams, Federal Usurpations, p. 196; Savings Banks Conditions, NEW YORK TIMES, Jan. 7, 1901, p. AF14; State Trust Companies, NEW YORK TIMES, Jan. 19, 1901, p. 14; Trust Companies’ Reports, NEW YORK TIMES, Aug. 13, 1901, p. 9; Statement of Trust Companies in New York, NEW YORK TIMES, Aug. 26, 1903, p. 27; Savings Banks Had to Meet Many Exceptional Conditions, NEW YORK TIMES, Jan. 3, 1904, p. AFR10; What the Year’s Bond Market Tells of Past and Future, NEW YORK TIMES, Jan. 3, 1904, p. AFR30; Financial Markets, NEW YORK TIMES, Aug. 4, 1907, p. C6.

3. The basic story of the Panic of 1907 is too well known to justify resorting entirely to primary sources. The chronology of the story that is presented in the text that follows is principally drawn from KOLKO, THE TRIUMPH OF CONSERVATISM, pp. 153-58; GRANT, MONEY OF THE MIND, pp. 113-16; MARKHAM, A FINANCIAL HISTORY OF THE UNITED STATES, vol. 3, pp. 29-36; FRIDSON, IT WAS A VERY GOOD YEAR, ch. 1; SOBEL, THE BIG BOARD, pp. 188-92; and STROUSE, MORGAN, pp. 573-96.325

4. Strouse, the exception, accepts Barney’s suicide as the correct story; SτROUSE, MORGAN, p. 588.

5. The Tennessee Coal & Iron deal was not a favorite of Elbert Gary, Henry Frick, or George Perkins, despite popular accounts accusing Morgan of manipulating the crisis to Steel’s (and his) benefit; SτROUSE, MORGAN, pp. 584-86. The Taft administration sued U.S. Steel under the Sherman Act, in part because of its acquisition of Tennessee Coal; United States v. United States Steel Corporation, 251 U.S. 417 (1920). Roosevelt, in an editorial in the Outlook, attacked the suit and Taft’s approach to trust regulation, while at the same time defending his approval of the Tennessee Coal acquisition; Roosevelt, The Trusts, the People, and the Square Deal, OUTLOOK, vol. 99 (Nov. 18, 1911), pp. 649-56.

6. TR to Charles Joseph Bonaparte, Jan. 2, 1908, Roosevelt, Special Message of the President of the United States to Congress, Jan. 31, 1908, both in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 6, pp. 883, 890, 1572, 1590.

7. The letters can be found in the Bureau of Corporations Archives, National Archives Research Administration, Records Group 122, File No. 4085.

8. PROCEEDINGS OF THE NATIONAL CONFERENCE ON TRUSTS AND COMBINATIONS UNDER THE AUSPICES OF THE NATIONAL CIVIC FEDERATION; JENSEN, THE NATIONAL CIVIC FEDERATION, pp. 273-77; SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, p. 220.

9. Roosevelt himself told Low in Oct. 1907 that he did not see how a Sherman Act amendment would be useful in the absence of federal supervision notifying businesses whether their activities were lawful; TR to Seth Low, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 5, pp. 824-25. As work on the bill progressed, Roosevelt increasingly strongly asserted his desire to impose executive control over the regulation of trusts; TR to Jonathan Bourne, Jr., July 8, 1908, TR to Seth Low, Nov. 21, 1908, TR to Seth Low, Nov. 24, 1908, all in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 6, pp. 1114-15,1374,1379; UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, HEARINGS ON HOUSE BILL 19745, p. 10.

10. Low identified “the men who have been in conference more or less on the subject” in his testimony before the judiciary subcommittee holding the Hepburn hearings; UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, HEARINGS ON HOUSE BILL 19745, p. 149 (testimony of Seth Low). To understand Jenks’s view it is only necessary to read his questioning of witnesses for the U.S. Industrial Commission, his speech at the Chicago Civic Federation’s National Conference on Trusts in 1899, his questioning of witnesses for the Bureau of Corporations, and his book, THE TRUST PROBLEM; UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, HEARINGS ON HOUSE BILL 19745, p. 79 (testimony of Jeremiah W. Jenks); JENSEN, THE NATIONAL CIVIC FEDERATION, p. 279. The story of the Hepburn bill’s drafting and Teddy Roosevelt’s involvement in it is well told in SκLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, pp. 228-53. See also KOLKO, THE TRIUMPH OF CONSERVATISM, pp. 133-38.326

11. JENSEN, THE NATIONAL CIVIC FEDERATION; SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, pp. 205-7, 228-53.

12. H.R. 19745, 60th Cong., 1st Sess., Mar. 23, 1908.

13. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, HEARINGS ON HOUSE BILL 19745, pp. 13-14 (testimony of Seth Low).

14. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, HEARINGS ON HOUSE BILL 19745, pp. 91-92 (testimony of Jeremiah W. Jenks).

15. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, HEARINGS ON HOUSE BILL 19745, pp. 584, 606-7 (testimony of Jeremiah W. Jenks).

16. TR to Lyman Abbott, Apr. 23, 1906, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 5, pp. 217-18; TR to Charles Bonaparte, Jan. 2, 1908, TR to George Cabot Lee, Jr., Jan. 13, 1908, Theodore Roosevelt, Special Message of the President of the United States to Congress, Jan. 31, 1908, all in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 6, pp. 883, 886, 906, 1584.

17. The story I am telling is of the development of federal securities regulation. State regulation of securities began in 1911 and, although it intersected with several federal bills introduced after the war, followed a largely different course of development and had little to do with the increasing dominance of finance over industry. Interested readers may refer to Loss & COWETT, BLUE SKY LAW, and HOLT, POLICING THE MARGINS, especially ch. 4 (on the origins of state blue sky laws).

18. STATE OF NEW YORK, REPORT OF COMMITTEE ON SPECULATION IN SECURITIES AND COMMODITIES, June 7, 1909; LOGSDON, HORACE WHITE, p. 392, n. 17; COWING, POPULISTS, PLUNGERS, AND PROGRESSIVES, pp. 38-42. See also White, The Hughes Investigation, pp. 528-40.

19. LoGSDON, HORACE WHITE; VILLARD, FIGHTING YEARS, pp. 125-26; WRES-ZIN, OSWALD GARRISON VILLARD, pp. 22, 25; White, The Stock Exchange and the Money Market, p. 93.

20. DICTIONARY OF AMERICAN BIOGRAPHY, vols. 9 and 10; COWING, POPULISTS, PLUNGERS, AND PROGRESSIVES, p. 39. David Leventritt to Willard V. King, Aug. 1, 1909, Horace White Papers, New York Historical Society.

21. STATE OF NEW YORK, REPORT OF COMMITTEE ON SPECULATION IN SECURITIES AND COMMODITIES, June 7, 1909, p. 5; White, The Hughes Investigation, p. 528.

22. Wash sales occur where a client places both buy and sell orders for the same amount of the same security with a single broker. Matched orders occur where one broker sells stock to another on behalf of the same client. Both types of transaction are designed to create the appearance of market activity in a stock.

23. STATE OF NEW YORK, REPORT OF COMMITTEE ON SPECULATION IN SECURITIES AND COMMODITIES, June 7, 1909, p. 9.

24. TAFT, THE COLLECTED WORKS, vol. 1, pp. 66, 70-71. Taft took a more sanguine view of the panic, for which the Roosevelt administration received its share of blame, than most. While he acknowledged the role of speculation and the irresponsibility of the trust companies, his principal explanation of the panic was an exhaustion of world capital in the context of an inflexible currency system; Taft, The Panic of 1907, Boston, Mass., Dec. 30, 1907, in TAFT, THE COLLECTED WORKS, vol. 1, pp. 230-32.327

25. Taft, Recent Criticism of the Federal Judiciary Delivered Before the American Bar Association, Detroit, Michigan, Aug. 28, 1895, in TAFT, THE COLLECTED WORKS, vol. 1, pp. 294, 300-301.

26. ANDERSON, WILLIAM HOWARD TAFT, pp. 51-52; Taft, A Republican Congress and Administration, and Their Work from 1904 to 1906, Boise City, Idaho, Nov. 3, 1906, in TAFT, THE COLLECTED WORKS, vol. 1, pp. 167, 168-69; Taft, Mr. Bryan’s Claim to the Roosevelt Policies, Sandusky, Ohio, Sept. 8, 1908, in TAFT, THE COLLECTED WORKS, vol. 2, pp. 42, 43.

27. Taft, The Legislative Policies of the Present Administration, Columbus, Ohio, Aug. 19, 1907, in TAFT, THE COLLECTED WORKS, vol. 1, pp. 190, 200-201; Taft, The Panic of 1907, Boston, Mass., Dec. 30, 1907, in id., vol. 1, p. 238; Taft, Mr. Bryan’s Claim to the Roosevelt Policies, Sandusky, Ohio, Sept. 8, 1908, in id., vol. 2, pp. 42, 50.

28. Taft’s administration brought ninety antitrust lawsuits during his four-year term, in contrast to fifty-four brought by Roosevelt during his more than seven years in office; BURTON, WILLIAM HOWARD TAFT, p. 74; Taft, Interstate Commerce and Anti-Trust Laws and Federal Incorporation, Washington, D.C., Jan. 7, 1910, in TAFT, THE COLLECTED WORKS, vol. 3, pp. 408, 422-23; Taft, Annual Message: Part I, The White House, Dec. 5, 1911, in TAFT, THE COLLECTED WORKS, vol. 4, pp. 159, 170; Taft’s Bill for Federal Rule of the Trusts, NEW YORK TIMES, Jan. 13, 1910, p. 1; H.R. 20142, 61st Cong., 2d Sess., Feb. 7, 1910.

29. Taft, The Tariff, Income, and Corporation Taxes, Portland, Oregon, Oct. 2, 1909, in TAFT, THE COLLECTED WORKS, vol. 3, pp. 237, 245; Taft, Corporation and Income Taxes, Denver, Colorado, Sept. 21, 1909, in TAFT, THE COLLECTED WORKS, vol. 3, pp. 194, 201.

30. BURTON, WILLIAM HOWARD TAFT, p. 57.

31. UNITED STATES CONGRESS, SENATE REPORT NO. 1242, Views of Mr. Tillman, 59th Cong., 1st Sess., Mar. 15, 1906, pp. 7-9.

32. TR to the Interstate Commerce Commission, Mar. 15, 1907, in THE LETTERS OF THEODORE ROOSEVELT (Morison, ed.), vol. 5, pp. 622-23.

33. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, REPORT OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE TO ACCOMPANY H.R. 17536, 61st Cong., 2d Sess., REPORT NO. 923, VIEWS OF THE MINORITY, p. 160; CONGRESSIONAL RECORD, 61st Cong., 2d Sess., vol. 45, p. 4724 (Apr. 14, 1910) (remarks of Mr. Adamson).

34. CONGRESSIONAL RECORD, 61st Cong., 2d Sess., vol. 45, p. 4719 (Apr. 14, 1910) (remarks of Mr. Mann).

35. CONGRESSIONAL RECORD, 61st Cong., 2d Sess., vol. 45, p. 3384 (Mar. 18, 1910) (remarks of Mr. Cummins).

36. REPORT OF THE RAILROAD SECURITIES COMMISSION TO THE PRESIDENT, 62d Cong., 2d Sess., Dec. 11, 1911.

37. Taylor, Hadley’s “Economics,” p. 468; MORRIS HADLEY, ARTHUR TWINING HADLEY, pp. 79-80 (quoting Max Lerner in the Encylopedia of Social Sciences). Taft’s move away from Roosevelt’s ideal of centralized federal regulation is chronicled in SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, pp. 285-309, 364-82.328

38. MORRIS HADLEY, ARTHUR TWINING HADLEY, pp. 182-83, 60.

39. MORRIS HADLEY, ARTHUR TWINING HADLEY, p. 60; ARTHUR T. HADLEY, RAILROAD TRANSPORTATION, p. 49.

40. MORRIS HADLEY, ARTHUR TWINING HADLEY, pp. 188-91.

41. REPORT OF THE RAILROAD SECURITIES COMMISSION TO THE PRESIDENT, 62d Cong., 2d Sess., Dec. 11, 1911.

EIGHT: THE SPECULATION ECONOMY

1. SOBEL, THE BIG BOARD, p. 159.

2. NOYES, THE MARKET PLACE, pp. 194-95.

3. Topics in Wall Street, Heavy Fall in Pressed Steel Car, NEW YORK TIMES, Feb. 19, 1909, p. 13; Market Movement, NEW YORK TIMES, July 10, 1902, p. 10; Price of Staples, NEW YORK TIMES, Oct. 10,1903, p. 12; The Financial Markets, NEW YORK TIMES, Dec. 2, 1903, p. 12; Trading More Active, WASHINGTON POST, Dec. 2, 1903, p. 16, all address market reactions to skipped dividends.

4. Tsuk Mitchell, Shareholders as Proxies, details and analyzes various attempts to reform shareholder voting and concludes that the influence of shareholders as investors through the market has been their only significant power from the rise of the giant modern corporation.

5. For an excellent account of the roots of federal securities regulation from the Panic of 1907 on, see Thel, The Original Conception of Section 10(b) of the Securities Exchange Act.

6. Investment and Speculation, WALL STREET JOURNAL, Jan. 30, 1906, p. 1; John Moody, The Art of Wall Street Investing, WASHINGTON POST, Sept. 30, 1906, p. TP3, Oct. 7, 1906, p. F2, Nov. 4, 1906, p. R4.

7. Small Investors Careful, reprinted from THE NATIONAL BANKER in THE WASHINGTON POST, Mar. 17,1907, p. 14; More Money in Sight, WASHINGTON POST, Apr. 1,1907, p. 10; A Market View, WALL STREET JOURNAL, NOV. 4,1907, p. 7; Investment Buying in Stocks Heavy, NEW YORK TIMES, NOV. 16,1907, p. 13; If A Ban Should Be Put on Speculation, NEW YORK TIMES, Mar. 1, 1908, p. SM1; Two Million Partners Own the Corporations, NEW YORK TIMES, Oct. 4, 1908, p. SM1; The Financial Situation, NEW YORK TIMES, NOV. 16,1908, p. 10; Who Own the Corporations, NEW YORK TIMES, Oct. 4, 1908, p. 8; Owners of Corporations, WASHINGTON POST, Jan. 10, 1909, p. S3; Kansas Farmers Have Lots of Money They Want to Invest, WASHINGTON POST, Jan. 2, 1907, p. E12.

8. Alexander D. Noyes in the April Atlantic Monthly, quoted in Advice for Investors, WASHINGTON POST, Apr. 7, 1906, p. 10; Wm. E. Lewis, When Bonds Are Good, WASHINGTON POST, July 15, 1906, p. EA3.

9. NOYES, FORTY YEARS OF AMERICAN FINANCE, pp. 314-31; SOBEL, THE BIG BOARD, pp. 190-97.329

10Foreign Investments of Nations, WALL STREET JOURNAL, JULY 24, 1909, p. 6; French Not Speculators, NEW YORK TIMES, July 25, 1909, p. 6.

11. What Is Speculation in Stocks?, WALL STREET JOURNAL, Oct. 16, 1909, p. 6; People with Very Large Savings, WALL STREET JOURNAL, Oct. 23, 1909, p. 6; Value of Legitimate Promotions, WALL STREET JOURNAL, Dec. 18, 1909, p. 6; Security Markets and Saving Power, WALL STREET JOURNAL, Aug. 24, 1910, p. 1; A View of the Bond Market, WALL STREET JOURNAL, Oct. 4, 1909, p. 5; The Price of Stocks, CURRENT LITERATURE, vol. 49, no. 6 (Dec. 1910), p. 0_025; Untitled, THE (FAIRBANKS) ALASKA CITIZEN, May 15, 1911, p. 10; Meade, Shall I Buy Stocks or Bonds?, LlPPINCOTT’s MONTHLY MAGAZINE, vol. 88, no. 527 (Nov. 1911), p. 763; Finance and Investment, CURRENT LITERATURE, vol. 53, no. 6 (Dec. 1912), p. 34; The Investor in Perplexity, CURRENT OPINION, vol. 54, no. 1 (Jan. 1913), p. 84; Edward M. Reeves, To the Investing Public, CURRENT OPINION, vol. 55, no. 4 (Oct. 1913), p. 298.

12. NOYES, FORTY YEARS OF AMERICAN FINANCE, p. 249.

13. A Market View, WALL STREET JOURNAL, May 8, 1911, p. 3; The Bond Market, WALL STREET JOURNAL, Sept. 29, 1911, p. 5; Preston C. Adams, “Big Business” Boom Predicts Season of General Prosperity, INDIANAPOLIS STAR, July 30, 1911, p. 35; Morgan on Side of Bear Market, SYRACUSE HERALD, Aug. 20, 1911, p. 14; The Bond Market, WALL STREET JOURNAL, Jan. 22, 1912, p. 5; Investment Spirit Abroad, WALL STREET JOURNAL, Jan. 23, 1912, p. 3; “Holland” Tells of Investments by Nation’s Small Capitalists, WASHINGTON POST, July 9, 1912, p. 10; Holland’s Letter, WALL STREET JOURNAL, Aug. 30, 1912, p. 1; “Holland” Discusses Puzzling Conditions in Securities Market, WASHINGTON POST, Dec. 23, 1912, p. 9; Attitude of Investors, INDIANAPOLIS STAR, Mar. 29, 1913, p. 8; Richard Spillane, Wall Street Has Fallen upon Evil Days, SYRACUSE HERALD, Dec. 14, 1913, p. 30; “Holland” Sees Nation’s Railroads Passing into Hands of the People, WASHINGTON POST, Mar. 12, 1913, p. 10; A STATEMENT IN REGARD TO THE AMERICAN SUGAR REFINING COMPANY, Report file no. 144, Historic Corporate Report Collection, Baker Library, Harvard University; Steel Trust Statistics, National Civic Federation Archives; Navin & Sears, The Rise of a Market for Industrial Securities.

14. The Army of Small Investors, Los ANGELES TIMES, Apr. 12, 1914, p. V.18; Public Buying, BOSTON DAILY GLOBE, Feb. 8, 1914, p. 54; Snider, Security Issues in the United States.

15. Seligman was also the editor who accepted Wilson’s famous article on administration, over Wilson’s modest objections of inadequacy, for the Political Science Quarterly.

Information described as being found in the National Civic Federation Archives is contained in those archives, Reel 179, located at the main branch of the New York Public Library.

16. Seventy-Two Roads Owned by 461,445 Shareholders, WALL STREET JOURNAL, Feb. 28, 1913, p. 1.

17. Million and a Quarter Owners in 327 Companies, WALL STREET JOURNAL, Apr. 4, 1913, p. 1.

18. Investment, THE STREET, Sept. 3, 1919, p. 22; Memorandum, Distribution of Ownership, June 14, 1915, National Civic Federation Archives. Ralph Easley (presumed) to Albert W. Atwood, June 11, 1914, provides an analysis of the decline in large shareholdings and concomitant increase in small shareholders, National Civic Federation Archives.330

19. Hoffman, Fifty Years of American Life Insurance Progress, p. 684, notes almost 30 million policies in effect in 1910, although both the NCF’s number and his number appear intuitively high for populations of 100.5 million in 1915 and 92.5 million in 1910. But when one accounts for the fact that life insurance was, at the time, one of the most important savings programs for most people, perhaps the numbers do not seem to be as extraordinary; Elmer E. Rittenhouse, Thrift from the Life Insurance Viewpoint, SCIENTIFIC MONTHLY, vol. 4, no. 4 (Apr. 1917), pp. 301-6. Keller notes that almost $15 billion in life insurance was in force in America in 1910, further supporting the magnitude of policyholdings. He also mentions that by 1904, insurance companies owned 10 percent of all American railroad securities; KELLER, THE LIFE INSURANCE ENTERPRISE, pp. 286, 131.

20. HEUBNER, AMRHEIN & KLINE, THE STOCK MARKET, p. 5; Baskin, The Development of Corporate Financial Markets in Britain and the United States, pp. 199, 230; Memorandum dated June 14, 1915, National Civic Federation Archives, New York Public Library; Evans Clark, 15,000,000 Americans Hold Corporation Stock, NEW YORK TIMES, NOV. 22, 1925, p. XX5. Heubner wrote in the present tense in 1934 but the footnote to his estimate of 15 million American stockholders cites William Van Antwerp’s testimony before the Senate Committee on Banking and Currency on the Owen bill, which took place in 1914; HEUBNER, AMRHEIN & KLINE, THE STOCK MARKET, p. 5, n. 3.

21. Hurdman, Capital Stock of No Par Value, pp. 254-55; Smaller Municipal Bonds, WALL STREET JOURNAL, Feb. 17, 1913; The Birth and Rapid Growth of the Baby Bond, CURRENT LITERATURE, vol. 53, no. 3 (Sept. 1912), p. 296; C. M. Keys, The Buyer of Little Bonds, SYRACUSE HERALD, July 6, 1912, p. 2; Investments, LlPPINCOTT⅛ MONTHLY MAGAZINE, vol. 89, no. 529 (Jan. 1912), p. 190; CAROSSO, INVESTMENT BANKING IN AMERICA, pp. 103-4 (on growth of installment plans).

22. Baskin, The Development of Corporate Financial Markets in Britain and the United States, p. 222.

23. GRAHAM & DODD, SECURITY ANALYSIS, p. 303. Graham and Dodd noted of prewar investors that their portfolios tended to be weighted heavily toward bonds and preferred stock with common stock forming small proportions. This observation is perfectly consistent with my argument that common stockholding dramatically increased in the prewar period.

24. GRAHAM & DODD, SECURITY ANALYSIS, pp. 305-6.

25. CHAMBERLAIN & HAY, INVESTMENT AND SPECULATION, pp. 3, 4.

26. CHAMBERLAIN & HAY, INVESTMENT AND SPECULATION, p. 57.

27. Robert L. Smitely, The Economics of Speculation, THE STREET, Aug. 13, 1919, pp. 6, 7.

NINE: THE END OF REFORM

1. Davis, The Transformation of the Federal Trade Commission, p. 438; STATUTES AT LARGE OF THE UNITED STATES OF AMERICA FROM MARCH, 1913 TO MARCH, 1915, vol. 38, ch. 311 (Sept. 26, 1914).331

2. Perhaps the most subtle explanation of Wilson’s political and business thought is Sklar’s; SKLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, esp. ch. 6. While I accept the core of Sklar’s explanation, I disagree with some of his analysis as I explain in the text.

3. Abrams, Woodrow Wilson and the Southern Congressmen; Grantham, Southern Congressional Leaders and the New Freedom; Scott, A Progressive Wind from the South.

4. To be fair, when women’s suffrage came to a vote in New Jersey during his presidency, Wilson cast his vote in favor of the measure. WHITE, AUTOBIOGRAPHY; Clements, The Papers of Woodrow Wilson, p. 482; On Women Suffrage, Address to the Ladies Representing Woman Suffrage at the White House, Oct. 3, 1918, in Wilson, WAR AND PEACE, vol. 1, p. 272; WILSON, THE STATE, p. 663; Wilson, The New Meaning of Government, pp. 193-95.

5. See generally LINK, WILSON: THE NEW FREEDOM.

6. WILSON, THE STATE, pp. 659, 661.

7. WlLSON, THE STATE, pp. 650-53; Wilson, The Study of Administration, p. 209; Wilson, Jackson Day Dinner Address, Jan. 8, 1912, in WlLSON, COLLEGE AND STATE, vol. 2, pp. 344, 348; Wilson, Living Principles of Democracy, originally published in Harper’s Weekly, April 9, 1910, in WlLSON, COLLEGE AND STATE, vol. 2, pp. 197-98; Wilson, Speech of Acceptance, Aug. 7, 1912, in id., vol. 2, pp. 452, 464; SκLAR, THE CORPORATE RECONSTRUCTION OF AMERICAN CAPITALISM, pp. 383-430, 402.

8. WlLSON, THE STATE, pp. 655, 667; Wilson, First Inaugural Address as President of the United States, Mar. 4, 1913, in WlLSON, THE NEW DEMOCRACY, vol. 1, pp. 1, 5.

9. Wilson, The Lawyer and the Community, Aug. 31, 1910, in WlLSON, COLLEGE AND STATE, vol. 2, pp. 254-55, 258; Wilson, Jackson Day Dinner Address, Jan. 8, 1912, in id., vol. 2, pp. 344, 347; Wilson, Richmond Address, Feb. 1, 1912, in id., vol. 2, pp. 367, 376; Wilson, The Tariff and the Trusts, Feb. 24, 1912, in id., vol. 2, pp. 405, 411.

10. Wilson, Law or Personal Power, Apr. 13, 1908, in WlLSON, COLLEGE AND STATE, vol. 2, pp. 24, 30.

11. Wilson, The Lawyer and the Community, Aug. 31, 1910, in WlLSON, COLLEGE AND STATE, vol. 2, p. 255; Wilson, Issues of Freedom, May 5, 1911, in id., vol. 2, pp. 283, 285; Wilson, The Tariff and the Trusts, Feb. 24, 1912, in id., vol. 2, p. 405.

12. Wilson, What Jefferson Would Do, Apr. 13, 1912, in WlLSON, COLLEGE AND STATE, vol. 2, pp. 424, 428.

13. WlLSON, THE STATE; Wilson, The States and the Federal Government, in WILSON, COLLEGE AND STATE, vol. 2, pp. 32-53; Wilson, Leadeńess Government.

14. Wilson, Law or Personal Power, Apr. 13, 1908, in WlLSON, COLLEGE AND STATE, vol. 2, p. 29; Wilson, The Ministry and the Individual, Nov. 11, 1909, in id., vol. 2, pp. 178, 181; Wilson, Living Principles of Democracy, originally published in Harper’s Weekly, April 9, 1910, in WlLSON, COLLEGE AND STATE, vol. 2, p. 196; Wilson, The Lawyer and the Community, Aug. 31, 1910, in id., vol. 2, p. 245; Wilson, The Tariff and the Trusts, Feb. 24, 1912, in id., vol. 2, p. 413.332

15. WILSON, THE NEW FREEDOM, p. 22.

16. Money Trust Inquiry, WASHINGTON POST, July 28, 1911, p. 4.

17. LINK, WOODROW WILSON AND THE PROGRESSIVE ERA, pp. 44-53; NOYES, THE WAR PERIOD OF AMERICAN FINANCE, p. 44. As I have noted earlier, a number of securities bills had been introduced in Congress, but the Owen bill was the first to benefit from serious hearings and public attention.

18. CAROSSO, INVESTMENT BANKING IN AMERICA, p. 137.

19. The parallel is not perfect. Wilson retired and died after his defeat; Untermyer went on to fight many other battles.

20. Woodrow Wilson to Samuel Untermyer, Oct. 5, 1913; WW to SU, Jan. 27, 1914; WW to SU, Feb. 4, 1914; WW to SU, Aug. 15, 1914; WW to SU, Oct. 10, 1916; SU to WW, Oct. 14, 1916, all in the Woodrow Wilson Papers, Library of Congress. Wilson’s initial coolness toward Untermyer appears to have been, at least in part, based on his recollection of the fraud Untermyer was found to have perpetrated in the well-publicized New Jersey Columbia Straw Paper case (discussed in Chapter Two), which was decided when Wilson was president of Princeton. Remarks of Simeon Fess, CONGRESSIONAL RECORD, 63d Cong., 2d sess., vol. 51, p. 9701 (June 2, 1914).

21. Untermyer Dead in His 82d Year; Long Had Been Ill, NEW YORK TIMES, Mar. 17, 1940, p. 1.

22. Id.; Editorial, Samuel Untermyer, NEW YORK TIMES, Mar. 18, 1940, p. 16; Governor Attends Untermγer Rites, NEW YORK TIMES, Mar. 23, 1940, p. 13; Coleman T. Mobley, Firm Archives Reveal Rich History, LEGAL TIMES, May 26, 1986, p. 26; Shannon Star, Couple Learn History as They Rescue Home, THE (RIVERSIDE, CALIF.) PRESS ENTERPRISE, May 11, 2002, p. B3; BROESAMLE, WILLIAM GIBBS MCADOO, pp. 104-6.

23. SU to WW, July 3, 1912; SU to WW, July 31, 1912; SU to WW, Oct. 3, 1913, all in the Woodrow Wilson Papers, Library of Congress.

24. From the Diary of Colonel House, Apr. 18, 1913, in WlLSON, THE PAPERS OF WOODROW WILSON (Link, ed.), vol. 27, p. 334; From the Diary of Colonel House, May 19, 1913, in id., vol. 27, p. 457; From the Diary of Colonel House, Nov. 29, 1913, in id., vol. 28, p. 597; SU to William Gibbs McAdoo, Dec. 18, 1913, in the William Gibbs McAdoo Papers, Library of Congress; Telegram from Untermyer to McAdoo, Jan. 14, 1914, in the William Gibbs McAdoo Papers, Library of Congress. Carter Glass also suggested that a reason for Wilson’s initial distaste for, and reluctance to appoint Untermyer to an official position, was his recollection of the latter’s role in the Columbia Straw Paper fraud in which Untermyer was singled out by the New Jersey court as the mastermind (See v. Heppenheimer, discussed in Chapter Two), and there is support for this view in the fact that Untermyer continued to be publicly criticized for the deal almost twenty years later. See Glass’s remarkable and rather vicious memo responding to Untermyer’s review of Glass’s book [undated, presumed 1928], found in the Woodrow Wilson Papers, Series 2, Library of Congress. I cannot explain why a document clearly written years after Wilson’s death is held in his collected papers.333

25. Glass memo, id.

26. Robert L. Henry (RLH) to SU, Jan. 23, 1912, in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

27. Washington Notes, J. POLIT. ECONOMY, vol. 20, no. 3 (Mar. 1912), pp. 276-83.

28. H.R. 405, 62d Cong., 2d Sess., Feb. 3, 1912; H.R. 429, 62d Cong., 2d Sess., Feb. 24, 1912; H.R. 504, 62d Cong., 2d Sess., Apr. 22, 1912.

29. H.R. 504, 62d Cong., 2d Sess., Apr. 22, 1912.

30. Curbing the “Money Trust,” NEW YORK TIMES, Dec. 28, 1911, p. 3; Wilson Is Neutral on Exchange Bills, NEW YORK TIMES, Jan. 24, 1914, p. 11.

31. Lawson is quoted in SCHLESINGER & BURNS, EDS., CONGRESS INVESTIGATES, vol. 3, p. 2253. RLH to SU, Apr. 9, 1912; SU to RLH, Apr. 10, 1912; SU to RLH, Mar. 15, 1912; SU to James F. Byrnes, Apr. 17, 1912; SU to A. P. Pujo (APP), Apr. 19, 1912; SU to APP, Apr. 20, 1912; RLH to SU, Apr. 25, 1912; all in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

32. RLH to SU, Dec. 23, 1911; SU to RLH, Dec. 26, 1911; Subpoena of SU to appear before House Rules Committee from RLH, Jan. 20, 1912; RLH to SU, Jan. 26, 1912; SU to RLH, Jan. 27, 1912; RLH to SU, Jan. 30, 1912; Telegram, RLH to SU, Feb. 3, 1912; SU to RLH, Apr. 20, 1912; all in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

33. SU to RLH, Apr. 15, 1912; SU to APP, Apr. 20, 1912. UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 10-12. Alfred Owen Crozier (AOC) to SU, June 10, 1912; SU to AOC, Oct. 1, 1912; AOC to SU, Oct. 16, 1912; SU to AOC, Oct 18, 1912; all Untermyer correspondence found in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

34. SU to RLH, Apr. 30, 1912; RLH to SU, May 18, 1912; SU to RLH, May 28, 1912; SU to APP, May 30, 1912; RLH to SU, June 1, 1912; SU to RLH, June 3, 1912; APP to SU, Aug. 29, 1912; SU to RLH, Nov. 12, 1912; RLH to SU, Dec. 3, 1912; SU to William Jennings Bryan (WJB), July 18, 1912; SU to WJB, Dec. 3, 1912 and Nov. 21, 1912; WJB to SU, Nov. [illegible], 1912; all in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

35. SU to APP, Oct. 11, 1912; SU to APP, Dec. 4, 1912; SU to George Wickersham, Dec. 16, 1912; SU to APP, Dec. 24, 1912; all in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

36. SU to RLH, Jan. 23, 1912; SU to William G. Brown, Oct. 4, 1912; SU to the Editor of the New York Sun, Nov. 10, 1912; SU to WJB, Nov. 21, 1912; SU to APP, Nov. 18, 1912; SU to Andrew Freedman, Nov. 26, 1912; SU to William Randolph Hearst, Dec. 1, 1912; SU to Rollo Ogden, Dec. 17, 1912; SU to the New York Tribune, Feb. 11, 1913; SU to William Garver, Feb. 15, 1913; SU to APP, Feb. 17, 1913; SU to C. W. Van Ham, May 17, 1912; SU to C. W. Thompson (CWT), June 3, 1912; SU to CWT, May 31, 1912; CWT to SU, June 1, 1912; SU to CWT, June 3, 1912; all in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives.

37. SU to RLH, Jan. 16, 1912; SU to RLH, June 12, 1912; SU to RLH, June 28, 1912; SU to Herman Sielcken, June 3, 1912; SU to A. H. Wiggin, Oct. 28, 1912; SU to Francis Lynde Stetson (FLS), Oct. 28, 1912; SU to FLS, Oct. 29, 1912; FLS to SU, Nov. 2, 1912; SU to FLS, Nov. 2, 1912; FLS to SU, Nov. 4, 1912; SU to FLS, Nov. 4, 1912; SU to FLS, Nov. 16, 1912; SU to FLS, Nov. 19, 1912; SU to Bernard Baruch, Oct. 28, 1912; all in the Samuel Untermyer Papers, Jacob Rader Marcus Center of the American Jewish Archives. UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, p. 7.334

38. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, MONEY TRUST INVESTIGATION, pp. 15-17.

39. It is worth noting that futures contracts and speculative activity as gambling had been a serious concern in the United States from at least the end of the eighteenth century, and persisted as a concern, particularly with respect to agricultural commodities, throughout the Progressive Era; BANNER, ANGLO-AMERICAN SECURITIES REGULATION, ch. 5; COWING, POPULISTS, PLUNGERS, AND PROGRESSIVES.

40. Responsible brokers, including those associated with the Association of Partners of Brokerage Firms, were increasingly concerned that public distrust of them was growing. They attributed part of the suspicion to public agitation stirred up by the Pujo hearings, but they also accepted responsibility themselves for misconduct within the industry. The Brokers’ Aim, NEW YORK TIMES, Jan. 11, 1914, p. XX7. The vesting of jurisdiction in the Postmaster General was done to avoid questions over the federal government’s authority to regulate the exchanges under the interstate commerce clause.

41. UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 26, 35, 59-63, 68, 88.

42. Owen Stock Exchange Bill Is Charged with Dynamite, WALL STREET JOURNAL, Jan. 20, 1914, p. 8; Abusing the Commerce Clause, WALL STREET JOURNAL, Jan. 24, 1914, p. 1; Coolidge on Owen Bill, WALL STREET JOURNAL, Jan. 28, 1914, p. 8; The New Wall Street, THE INDEPENDENT, Feb. 2, 1914, p. 147; Owen Bill to Reorganize Exchanges up for Hearing, WALL STREET JOURNAL, Feb. 5, 1914, p. 2; Owen Says He Will Press His Bill for Passage, WALL STREET JOURNAL, Feb. 7, 1914, p. 7; The Owen Bill, WASHINGTON POST, Feb. 5, 1914, p. 6; Restricting Speculation, WASHINGTON POST, Feb. 7, 1914, p. 6; News Notes from Senate and House, WASHINGTON POST, July 30, 1914, p. 5; Mr. Untermyer Replies, NEW YORK TIMES, Oct. 22, 1914, p. 13. CONGRESSIONAL RECORD, 63d Cong., 2d Sess., vol. 51, pp. 11075, 1116-72 (June 25 and 26, 1914). The report appears to have been destroyed. No copy exists in any of the likely locations in Washington, nor in the papers of the principals that I was able to examine.

43. CONGRESSIONAL RECORD, 64th Cong., 1st Sess., vol. 53, p. 229 (Dec. 13, 1915); UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 14-17, 26, 35, 39, 43, 59-68.

44. Statement of Samuel Untermyer, UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 45-46; Atwood et al., Speculation on the Stock Exchanges—Discussion, remarks of William C. Van Antwerp, p. 100. The discussion was held following Untermyer’s delivery of a lengthy address on the subject. Untermyer, Speculation on the Stock Exchanges and Public Regulation of the Exchanges.335

The history of the New York Stock Exchange bill is told in STATE OF NEW YORK, PROCEEDINGS OF THE JUDICIARY COMMITTEE OF THE SENATE IN THE MATTER OF THE INVESTIGATION DEMANDED BY SENATOR STEPHEN J. STILWELL. The Massachusetts legislature also considered and defeated a bill to require exchanges within that state to incorporate by special incorporation; THE COMMONWEALTH OF MASSACHUSETTS, AN ACT TO REQUIRE THE INCORPORATION OF STOCK EXCHANGES, House no. 71, Jan. 1, 1913.

45. Statement of Samuel Untermyer, Statement of William C. van Antwerp, Statement of Hjalmar H. Boyesen, Statement of Horace White, Statement of John G. Milburn, UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 60-63, 143, 150 239-40, 278-79, 294, 347-59, 392-93, 403-4, 406.

46. In 1913 New York passed laws prohibiting wash sales, false statements in connection with the sale of securities, quotations of fictitious transactions, discrimination against non-exchange members, hypothecation of customers’ securities, and brokers’ trading against their customers; LAWS OF NEW YORK, 1913, chs. 253 (Apr. 10, 1913), 475 (May 9, 1913), 477 (May 9, 1913), 500 (May 14, 1913), 592 (May 17, 1913), and 593 (May 17, 1913). Article 36, sec. 390, of the Penal Law was aimed at “bucket shops” and prohibited similar fraudulent practices; LAWS OF NEW YORK, 1913, ch. 236 (Apr. 9, 1913). New York’s Stock Corporation Law was similar to that of New Jersey in most relevant respects and had also been amended to permit the issuance of no-par stock. ANNOTATED CONSOLIDATED LAWS OF THE STATE OF NEW YORK, AS AMENDED TO JANUARY 1, 1910, vol. 5, ch. 59; SUPPLEMENT TO ANNOTATED CONSOLIDATED LAWS OF THE STATE OF NEW YORK, vol. 2, ch. 351.

47. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, MONEY TRUST INVESTIGATION, p. 116.

48. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, MONEY TRUST INVESTIGATION, p. 115; CONSTITUTION OF THE NEW YORK STOCK EXCHANGE (1918), pp. 99-100.

49. BRIEF SUBMITTED ON BEHALF OF THE NEW YORK STOCK EXCHANGE TO THE SENATE COMMITTEE ON BANKING AND CURRENCY, Mar. 5, 1914, p. 55, and REPLY BRIEF SUBMITTED ON BEHALF OF THE NEW YORK STOCK EXCHANGE TO THE SENATE COMMITTEE ON BANKING AND CURRENCY, Mar. 30,1914; BLISS, THE NEW YORK CODE OF CIVIL PROCEDURE, vol. 3, secs. 1919, 1921, 1922; LEGG, THE LAW OF COMMERCIAL EXCHANGES, sec. 8; Dos PASSOS, A TREATISE ON THE LAW OF STOCK-BROKERS AND STOCK-EXCHANGES, vol. 1, pp. 40-46.

50. UNITED STATES CONGRESS, SENATE, HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY ON S. 3895, pp. 239, 347, 357-59, 431. When the New York Stock Exchange transformed from a not-for-profit corporation to a business corporation in 2005, members did indeed exchange their seats for a combination of cash and stock in the new entity; Higgins v. New York Stock Exchange, Inc., 2005 N.Y. Misc. LEXIS 1869 (N.Y. Sup. Ct. 2005) (slip opinion), pp. 344-45.336

51. Louis D. Brandeis and Samuel Gompers, The Incorporation of Trade Unions: “No, Thank You!” Saγs Gompers, GREEN BAG 2D, vol. 1 (Spring 1998), p. 308.

52. UNITED STATES CONGRESS, HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, MONEY TRUST INVESTIGATION, pp. 114-15.

53. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 15-20.

54. May Modify Legislation, NEW YORK TIMES, Jan. 3, 1914, p. 2; Split New Haven Without a Suit, Jan. 11, 1914, p. 1; Exchange Men See Flaws in Owen Bill, NEW YORK TIMES, Jan. 30, 1914, p. 14; Looking into the Future, BOSTON DAILY GLOBE, Jan. 1, 1914, p. 8; What the Brokers Think About the Stock Market, BOSTON DAILY GLOBE, Jan. 4, 1914, p. 38; Better Times, BOSTON DAILY GLOBE, Feb. 1, 1914, p. 54; Regulation of the Caπiers, CHICAGO DAILY TRIBUNE, Jan. 4, 1914.

55. Financial Markets, NEW YORK TIMES, Jan. 3, 1914, p. 14; May Modify Legislation, NEW YORK TIMES, Jan. 3, 1914, p. 2; Morgan Firm out of Thirty Boards, NEW YORK TIMES, Jan. 3, 1914, p. 1; Morgan Move May Set Pace, CHICAGO DAILY TRIBUNE, Jan. 3, 1914, p. 2; J. P. Morgan & Co. Members Retire from Directorates, WALL STREET JOURNAL, Jan. 3, 1914, p. 1; Morgan Action Causes Surprise, ATLANTA CONSTITUTION, Jan. 4, 1914, p. 3.

56. Friendliness the Keynote, Los ANGELES TIMES, Jan. 21, 1914, p. 13; Sweetens the Pill, Los ANGELES TIMES, Jan. 21, 1914, p. 11; Financial Markets, NEW YORK TIMES, Jan. 22, 1914, p. 14.

57. Blocks Legislation on Stock Exchanges, NEW YORK TIMES, Jan. 23, 1914, p. 3; Wilson’s Bills Made Public, Los ANGELES TIMES, Jan. 23, 1914, p. 13; Wilson Will Aid Legislation on Stock Exchanges, WISCONSIN STATE JOURNAL, Jan. 1914.

58. Quote from Democrats in Panic Speed Legislation, Los ANGELES TIMES, Feb. 16, 1914, p. 11; The Financial Situation in America and Europe, NEW YORK TIMES, Feb. 2, 1914, p. 10.

59. Bond Firms Object to State Control, NEW YORK TIMES, Mar. 17, 1914, p. 14; Taft Opposes Trust Law, NEW YORK TIMES, Mar. 21, 1914, p. 3; “Big Business Waiting,” NEW YORK TIMES, Mar. 24, 1914, p. 8; Stock Market, BOSTON DAILY GLOBE, Mar. 16, 1914, p. 11.

60. The General Trend of Trade, NEW YORK TIMES, Apr. 19, 1914, p. XX12; Delay Opposed by Wilson, CHICAGO DAILY TRIBUNE, Apr. 14, 1914, p. 7; Must Hurry Up “Trust” Laws, Los ANGELES TIMES, Apr. 14, 1914, p. 13; What the Brokers Think About the Stock Market, BOSTON DAILY GLOBE, Apr. 19, 1914, p. 46; Market Oversold, BOSTON DAILY GLOBE, Apr. 19, 1914, p. 46; Watered Stock Is Proscribed, Los ANGELES TIMES, Apr. 18, 1914, p. 13; Oppose Securities Bill, BOSTON DAILY GLOBE, June 4, 1914, p. 15; Senate Trust Bill Soon, NEW YORK TIMES, Apr. 30, 1914, p. 14; Drastic Regulation for Corporations, ATLANTA CONSTITUTION, Apr. 30, 1914, p. 16; Wield Club over Trusts, Los ANGELES TIMES, Apr. 30, 1914, p. 15.

61. Favors Jail Clause in Railroad Bill, NEW YORK TIMES, May 17, 1914, p. 10; ‘Change Men Favor the Rayburn Bill, NEW YORK TIMES, May 17, 1914, p. XX11; For Federal Control of Railroad Bond Issues, ATLANTA CONSTITUTION, May 17, 1914, p. 11; The Investor’s Guide, CHICAGO DAILY TRIBUNE, May 31, 1914, p. A5; Remarks of Representatives McKenzie and Raγburn, CONGRESSIONAL RECORD, 63d Cong., 2d Sess., vol. 51, p. 9687 (June 2, 1914); Need Shown for Advice on Stocks, CHICAGO DAILY TRIBUNE, May 31, 1914, p. A5.337

62. Some Psychological Inexactitudes, WALL STREET JOURNAL, June 3, 1914, p. 1; Wilson’s Psychology, Los ANGELES TIMES, June 13, 1914, p. II4.

63. President Insists on Trust Program, BOSTON DAILY GLOBE, June 16, 1914, p. 1; Wilson in Council Pushes Trust Plan, NEW YORK TIMES, June 16, 1914, p. 1; Wilson Explains Motive, NEW YORK TIMES, June 19, 1914, p. 2; Letters to Wilson Call Business Good, NEW YORK TIMES, June 21, 1914, p. 1; Vanderlip Urges Congress to Wait, NEW YORK TIMES, June 23, 1914, p. 7.

64. Wilson, The Uneasiness in Business, June 25, 1914, in WlLSON, THE NEW DEMOCRACY, vol. 2, p. 135; Receivers Take H. B. Claflin Co.; Allies Sound, NEW YORK TIMES, June 26, 1914, p. 1; Claflin Firm Fails for $35,000,000, ATLANTA CONSTITUTION, June 26, 1914, p. 3.

65. WILSON, The Uneasiness in Business, THE NEW DEMOCRACY, vol. 2, pp. 136, 137, 135, 137; Stock Market, BOSTON DAILY GLOBE, June 26, 1914, p. 14; Big Business Boom for United States Pledged by Wilson, ATLANTA CONSTITUTION, June 26, 1914, p. 1; Wilson Says Boom Is Near for Business, CHICAGO DAILY TRIBUNE, June 26, 1914, p. 1; Wilson Predicts a Gigantic Boom, NEW YORK TIMES, June 26, 1914, p. 1; The Financial Situation in America and Europe, NEW YORK TIMES, June 29, 1914, p. 12.

66. Wilson Rages 1mpotentlγ, Los ANGELES TIMES, June 26, 1914, p. 13; New York Editors Want to Know If Crash Is Conspiracy or Psychology, WASHINGTON POST, June 26, 1914, p. 3; Developments of the Week, WALL STREET JOURNAL, June 29, 1914, p. 1; B. C. Forbes, quoted in Big Failure Shows the Reality of Trade Slump That Could Have Been Avoided, WASHINGTON POST, June 27, 1914, p. 10.

67. Business Men See Good Times Ahead, NEW YORK TIMES, July 13, 1914, p. 1; Views of Bankers in South and West, NEW YORK TIMES, July 13, 1914, p. 7.

68. Governors Close Stock Exchange, NEW YORK TIMES, Aug. 1, 1914, p. 1; Financial Markets, NEW YORK TIMES, Aug. 1, 1914, p. 12; Stock Market, BOSTON DAILY GLOBE, Aug. 1, 1914, p. 7; Gotham Closes Stock Exchange, Los ANGELES TIMES, Aug. 1, 1914, p. 18; Many Millions Lost, WASHINGTON POST, Aug. 1, 1914, p. 3; Merchant’s Point of View, NEW YORK TIMES, Aug. 30, 1914, p. X12; Security Markets of World Closed to Stop Unloading, Aug. 1, 1914, p. 1; War Crisis Shuts New York Stock Exchange, BOSTON DAILY GLOBE, Aug. 1, 1914, p. 1; Bankers Back Exchange Close, CHICAGO DAILY TRIBUNE, Aug. 1, 1914, p. 5. The stock market closing was evidently at McAdoo’s request; SILBER, WHEN WASHINGTON SHUT DOWN WALL STREET, pp. 12-13.

69. Financial Markets, NEW YORK TIMES, Feb. 12, 1915, p. 14; Lines Win Fight for Higher Rates, WASHINGTON POST, Dec. 19, 1914, p. 1; Railways Lay Needs Before President, NEW YORK TIMES, Sept. 10, 1914, p. 18; President Asked to Aid Railroads, ATLANTA CONSTITUTION, Sept. 10, 1914, p. 4; Lines Win Fight for Higher Rates, WASHINGTON POST, Dec. 19, 1914, p. 1; Sees a Big Trade Boom, WASHINGTON POST, Dec. 30, 1914, p. 9.

70. How America Faced the European War Panic, NEW YORK TIMES, Aug. 2, 1914, p. SM6; Financial Ship Weathers Gale, Los ANGELES TIMES, Aug. 4, 1914, p. II10; Calm in New York, WASHINGTON POST, Aug. 4, 1914, p. 4.338

71. Agree on War Tax, WASHINGTON POST, Sept. 16, 1914, p. 1; Stock Exchange and War Tax, WALL STREET JOURNAL, Sept. 2, 1914, p. 5; Stamp Tax in Effect Tuesday, BOSTON DAILY GLOBE, NOV. 29, 1914, p. 25.

72. Bond Market Opens with Restrictions, NEW YORK TIMES, Sept. 20, 1914, p. 9; The Financial Situation in America and Europe, NEW YORK TIMES, Sept. 21, 1914, p. 10; Financial Markets, NEW YORK TIMES, Sept. 26, 1914, p. 12; Financial Markets, NEW YORK TIMES, Sept. 29,1914, p. 14; Bond Demand Grows, WASHINGTON POST, Oct. 1, 1914, p. 12; Trade More Confident, WASHINGTON POST, Oct. 3, 1914, p. 15; The Financial Situation in America and Europe, Oct. 5, 1914, p. 12; Plan Big Cotton Loan, WASHINGTON POST, Oct. 6, 1914, p. 11; Confidence Gaining in the Business Channels, WALL STREET JOURNAL, Oct. 7, 1914, p. 8; Financial Markets, NEW YORK TIMES, Oct. 8, 1914, p. 14.

73. Wilson Convinced Business Is Better, BOSTON DAILY GLOBE, Oct. 1, 1914, p. 8; Stock Deals Revived, WASHINGTON POST, Oct. 14, 1914, p. 12; Favors Recess Plan, Sept. 30, 1914, p. 5; Wall Street Sees Lull in Radical Laws, CHICAGO DAILY TRIBUNE, Nov. 9, 1914, p. 15.

74. Reserve Banks Will Open Today, NEW YORK TIMES, NOV. 16, 1914, p. 1; Banks Open Nov. 16, WASHINGTON POST, Oct. 26, 1914, p. 1; England Opens Seas to Cotton, NEW YORK TIMES, Oct. 27, 1914, p. 1; Bond Market, WALL STREET JOURNAL, Oct. 27, 1914, p. 5; Steel Trade Picking Up, NEW YORK TIMES, NOV. 1,1914, p. XX11; The Financial Situation in America and Europe, NEW YORK TIMES, NOV. 2, 1914, p. 10; Rate Increase Vital to Roads, NEW YORK TIMES, NOV. 2, 1914, p. 11; Stocks in Demand, BOSTON DAILY GLOBE, NOV. 11, 1914, p. 1; Ford Triples Despite the European War, CHICAGO DAILY TRIBUNE, NOV. 8, 1914, p. G8; Bond Trading Resumes on the N.Y. Stock Exchange, WALL STREET JOURNAL, NOV. 30,1914, p. 1; Trading in Bonds, WASHINGTON POST, NOV. 29, 1914, p. 11; Financial Markets, NEW YORK TIMES, Dec. 13, 1914, p. XX8; Stock Trading Today, WASHINGTON POST, Dec. 12, 1914, p. 10; Stock Market, BOSTON DAILY GLOBE, Dec. 29,1914, p. 11.

75. The Sixty-Third Congress and “The New Freedom” for American Business, CURRENT OPINION, vol. 58, no. 4 (Apr. 1, 1915), p. 223.

TEN: MANUFACTURING SECURITIES

1. Quoted in CLEVELAND & HUERTAS, CITIBANK, p. 136.

2. Huertas & Silverman, Charles E. Mitchell, pp. 81-103; CAROSSO, INVESTMENT BANKING IN AMERICA, p. 274; GEISST, WALL STREET, p. 164; KLEIN, RAINBOW’S END, p. 53; CLEVELAND & HUERTAS, CITIBANK, pp. 86-87.

3. PEACH, THE SECURITY AFFILIATES OF NATIONAL BANKS, pp. 38-39.

4. PEACH, THE SECURITY AFFILIATES OF NATIONAL BANKS; CAROSSO, INVESTMENT BANKING IN AMERICA, pp. 96-98, 276-79; SELIGMAN, THE TRANSFORMATION OF WALL STREET, p. 23.

5. KLEIN, RAINBOW’S END, pp. 55-59; ALLEN, ONLY YESTERDAY, pp. 138,136.

6. Joel Seligman quotes Ferdinand Pecora as writing that “Mitchell had astutely .338. foreseen as early as June 1917 that the World War I Liberty Bond drives would result in ‘the development of a large, new army of investors in this country’“; JOEL SELIGMAN, THE TRANSFORMATION OF WALL STREET, p. 25.339

7. Editorial, THE STREET, vol. 1, no. 1, July 30, 1919, p. 8; Robert B. Armstrong, The Liberty Loans—And After, id. at p. 1.

8. Now Is the Time to Invest, WASHINGTON POST, Aug. 10, 1914, p. 4; Save and Invest, WALL STREET JOURNAL, Oct. 7, 1914, p. 2; GRAHAM & DODD, SECURITY ANALYSIS, p. 2; NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 101, 135, 148; Building Up the Financial Power of the United States, WASHINGTON POST, Jan. 19, 1916, p. 4; SOBEL, THE BIG BOARD, pp. 213, 215.

9. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 92-95,104-5; Federal Reserve System and Long Time Investments, WALL STREET JOURNAL, Jan. 5, 1915, p. 8; Safeguarding Investments, WASHINGTON POST, Nov. 11, 1916, p. 6.

10. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 98, 118, 113-14.

11. Woodrow Wilson, An Address to a Joint Session of Congress, April 2, 1917, in WILSON, THE PAPERS OF WOODROW WILSON (Link, ed.), vol. 41, p. 519. Noyes attributed the drop in the market to the diversion of capital to war loans as well as to the market’s anticipation of governmental control of profiteering through instrumentalities like the War Industries Board; NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 225-26.

12. MCADOO, CROWDED YEARS, pp. 372-74. While there is no question that the Liberty Bond drives were successful in terms of the money they raised, scholars recently have questioned whether it was patriotism or market forces that made the difference; Rockoff & Kang, Capitalizing Patriotism.

13. MCADOO, CROWDED YEARS, pp. 382-83; NOYES, THE WAR PERIOD OF AMERICAN FINANCE, p. 175.

14. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 181-83.

15. ST. CLAIR, THE STORY OF THE LIBERTY LOANS, pp. 41-42; NOYES, THE WAR PERIOD OF AMERICAN FINANCE, p. 184.

16. Uses of National Bonds, NEW YORK TIMES, May 18, 1917, p. 12; Vanderlip Says War Bond Is Best Investment, NEW YORK TIMES, May 27, 1917, p. 62; It Is Your Duty, NEW YORK TIMES, June 12, 1917, p. 16; Theodore Roosevelt Writes of Duty of Every American to Invest in Liberty Bonds, WASHINGTON POST, Oct. 20, 1917, p. 1; Sophie Irene Loeb, Are You Preparing for the Next Liberty Loan?, WASHINGTON POST, Aug. 19, 1918, p. 7; Entire Savings in Liberty Bonds, WALL STREET JOURNAL, Oct. 9, 1917, p. 8; SuggestsTheγ Buy Bonds, WASHINGTON POST, Oct. 17, 1917, p. S1.

17. Edward A. Bradford, Fashions in War Bonds, NEW YORK TIMES, Sept. 30, 1917, p. SM3; NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 175-90; Must Stir Nation to Buy the Bonds, NEW YORK TIMES, May 18, 1917, p. 1; Liberty Loan Is Safe, WASHINGTON POST, June 14, 1917, p. 1; Bonds for Farmers, Slogan, WASHINGTON POST, Aug. 5, 1917, p. 11; Everybody Gets a Chance, WASHINGTON POST, Oct. 3, 1917, p. 6; ST. CLAIR, THE STORY OF THE LIBERTY LOANS, p. 45. St. Clair publishes full color plates of many of the posters.

18. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 225-26; GRAHAM & DODD, SECURITY ANALYSIS, p. 2; Liberty Bonds Below Par Laid at Door of Wealthy, WALL STREET JOURNAL, Jan. 21, 1918, p. 8; Selling Government Bonds, WALL STREET JOURNAL, Apr. 15, 1918, p. 1.340

19. PEACH, THE SECURITY AFFILIATES OF NATIONAL BANKS, pp. 22-31; Huertas & Silverman, Charles E. Mitchell, p. 85.

20. Charles E. Mitchell, “Sound Inflation,” MAGAZINE OF WALL STREET, vol. 20, pp. 295-96; Liberty Loan Subscriptions $3,035,226,850, ATLANTA CONSTITUTION, June 23, 1917, p. 1; Liberty Loan’s Estimate Stands, WASHINGTON POST, June 19, 1917, p. 2; Loan over Top; 5 Billions, CHICAGO DAILY TRIBUNE, Oct. 28, 1917, p. 1; Minimum Passed by Eight Districts, BOSTON DAILY GLOBE, Oct. 26, 1917, p. 1; Billion in Bonds Sold, But Drive Must Go Faster, NEW YORK TIMES, Oct. 17, 1917, p. 1; Facts About the Third Liberty Bond Drives, BOSTON DAILY GLOBE, Apr. 6, 1918, p. 6; 17,000,000 Buyers Set a New Record in the Bond Drive, NEW YORK TIMES, May 6, 1918, p. 1; Final Figures of Liberty Loan Given to Public, CHICAGO DAILY TRIBUNE, Nov. 20, 1918, p. 10.

21. PEACH, THE SECURITY AFFILIATES OF NATIONAL BANKS, pp. 31-33; CLEVELAND & HUERTAS, CITIBANK, p. 136.

22. The financial newspaper The Street began publication in 1919 in order to fill a perceived demand for more investment news and advice. Buying Is Better at Higher Prices, WASHINGTON POST, Jan. 14, 1918, p. 9; Hold Liberty Bonds, He Warns, WASHINGTON POST, Jan. 21, 1918, p. 6; Public Is Buying U.S. Steel Shares, WASHINGTON POST, Jan. 24, 1918, p. 9; The Financial Situation: Prices Reflecting a Return of Confidence, NEW YORK TIMES, Jan. 7, 1918, p. 16; 100,000 Own P.R.R. Stock, NEW YORK TIMES, Jan. 22, 1918, p. 18; Condemns Trading of Liberty Bonds, NEW YORK TIMES, July 9, 1918, p. 17.

23. This was hardly the low point for Liberty Bonds. They dropped to 82 in 1920, for reasons beyond the scope of my story. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 202, 342.

24. Vanderlip Says War Bond Is Best Investment, NEW YORK TIMES, May 27, 1917, p. 62.

25. WlLLOUGHBY, THE CAPITAL ISSUES COMMITTEE AND WAR FINANCE CORPORATION, pp. 9-15. Government’s Corporation Will Aid Savings Banks, WALL STREET JOURNAL, Feb. 14, 1918, p. 5; WILLOUGHBY, id., p. 10. My discussion of the basic facts surrounding the Capital Issues Committee and its work draws heavily on Willoughby.

26. WlLLOUGHBY, THE CAPITAL ISSUES COMMITTEE AND WAR FINANCE CORPORATION, pp. 16-17; CAROSSO, INVESTMENT BANKING IN AMERICA, pp. 230-31; PROCEEDINGS OF THE SIXTH ANNUAL CONVENTION OF THE INVESTMENT BANKERS ASSOCIATION OF AMERICA, NOV. 12,13 and 14, 1917, p. 152.

27. CAPITAL ISSUES COMMITTEE, [FIRST] REPORT, doc. no. 1485, 65th Cong., 3d Sess., Dec. 2, 1918, p. 3 (hereinafter, “FIRST REPORT”). An excellent description of the Red Scare of 1919 and the national turn to intolerance is provided in ALLEN, ONLY YESTERDAY, pp. 38-62.

28. WlLLOUGHBY, THE CAPITAL ISSUES COMMITTEE AND WAR FINANCE CORPORATION, pp. 17-20.

29. Ibid., pp. 24-33.341

30. Ibid., pp. 37-38. For a fascinating account of the way McAdoo protected the integrity of the United States’ money supply in order to bring the nation to world monetary leadership, see SILBER, WHEN WASHINGTON SHUT DOWN WALL STREET.

31. CAPITAL ISSUES COMMITTEE, FIRST REPORT, p. 2; CAPITAL ISSUES COMMITTEE, [FINAL] REPORT, doc. no. 1836, 65th Cong., 3d Sess., Feb. 28, 1919, p. 1 (hereinafter “FINAL REPORT”).

32. CAPITAL ISSUES COMMITTEE, FIRST REPORT, p. 3; CAPITAL ISSUES COMMITTEE, FINAL REPORT, pp. 2, 3; CAROSSO, INVESTMENT BANKING IN AMERICA, p. 233.

33. It is wrong to state, as Link does, that the Owen bill “was almost identical to the Truth-in-Securities Act of 1933”; LINK, WILSON: THE NEW FREEDOM, p. 426, n. 29. The Taylor bill of 1919, discussed below in the text, was far closer in both form and concept; 66th Cong., 1st Sess., H.R. 188, May 19, 1919. Michael Parrish places a gap between the postwar interest in federal securities regulation, which ultimately produced nothing, and the 1933 Act, PARRISH, SECURITIES REGULATION AND THE NEW DEAL, p. 20, but when the New Deal legislation was on the table it was based on the concepts and tools of the Taylor bill.

34. S. 1291, 64th Cong., 1st Sess., Dec. 10, 1915.

35. JOEL SELIGMAN, THE TRANSFORMATION OF WALL STREET, p. 41. Wall Street embraced the Taylor approach much as it would approve of the 1933 Act. Counsel to the Investment Bankers Association, Robert Reed, called the Taylor bill “perhaps the most intelligently conceived plan of enforced publicity yet proposed,” except, that is, for its requirement that the underwriter sign the registration statement; Reed, “Blue Sky” Laws, pp. 185-86, n. 6. Reed’s support is consistent with the view taken by the New York Stock Exchange in 1914, that the regulation of corporate securities was a federal matter, not an exchange matter.

36. H.R. 15399, 65th Cong., 3d Sess., Jan. 30, 1919; H.R. 15571, 65th Cong., 3d Sess., Feb. 13, 1919; SELIGMAN, THE TRANSFORMATION OF WALL STREET, pp. 49-50.

37. H.R. 15477, 65th Cong., 3d Sess., Jan. 30, 1919; H.R. 15922, 65th Cong., 3d Sess., Feb. 13, 1919. H.R. 15922 dropped the “due diligence” defense of H.R. 15477. Parrish identifies this bill as similar to one of the central models for the 1933 Act drafted at Franklin Roosevelt’s request; PARRISH, SECURITIES REGULATION AND THE NEW DEAL, pp. 17-18.

38. Wilson, An Address to a Joint Session of Congress, Aug. 8, 1919, in WlLSON, THE PAPERS OF WOODROW WILSON (Link, ed.), vol. 62, pp. 215, 214, 216; A Memorandum by Alexander Mitchell Palmer, c. Aug. 6, 1919, in id., vol. 62, pp. 171, 180.

39. PARRISH, SECURITIES REGULATION AND THE NEW DEAL, pp. 18-19; Reed, Blue Sky Laws, p. 185, n. 6; SELIGMAN, THE TRANSFORMATION OF WALL STREET, pp. 49-50. In addition to the Investment Bankers Association, the bill was endorsed by the American Bankers’ Association and the Mortgage Bankers’ Association; CHER-RINGTON, THE INVESTOR AND THE SECURITIES ACT, p. 51, n. 21.

40. NOYES, THE WAR PERIOD OF AMERICAN FINANCE, pp. 301-3; ALLEN, ONLY YESTERDAY, pp. 264-65.

EPILOGUE

1. KEYNES, THE GENERAL THEORY OF EMPLOYMENT, INTEREST, AND MONEY, ch. 12. Lest I open myself to criticism that I am using the ideas of a British economist to explain the American market, I should note that the British stock market is the most similar to that of the United States, although based on a very different historical development and with some significant differences; Cheffins, Putting Britain on the Roe Map. More relevant, Keynes specifically noted the extraordinary degree of speculation in the New York market. KEYNES, id., pp. 158-59.342

Robert Shiller shows that the period from the late 1930s through the early 1960s was a period during which price-to-earnings ratios remained at historically low levels, which tends to predict higher long-term returns; SHILLER, IRRATIONAL EXUBERANCE, p. 8. As I will later discuss, this was the age of managerialism, during which corporate managements successfully used various corporate control techniques to protect themselves from excessive stockholder pressure.

2. SHILLER, IRRATIONAL EXUBERANCE, p. 8; MITCHELL, CORPORATE IRRESPONSIBILITY, passim.

3. CAROSSO, INVESTMENT BANKING IN AMERICA, p. 143; BERLE & MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY; Means, The Separation of Ownership and Control in American Industry; Douglas, Directors Who Do Not Direct; Lawrence E. Mitchell, unpublished remarks delivered at Columbia University on Nov. 11, 2006 (copy on file with author).

4. LARNER, MANAGEMENT CONTROL AND THE LARGE CORPORATION; UNITED STATES TEMPORARY NATIONAL ECONOMIC COMMITTEE, THE DISTRIBUTION OF OWNERSHIP IN THE 200 LARGEST NONFINANCIAL CORPORATIONS; BURCH, THE MANAGERIAL REVOLUTION REASSESSED; Zeitlin, Corporate Ownership and Control; Stigler & Friedland, The Literature of Economics; Shleifer & Vishny, Large Shareholders and Corporate Control; Holderness & Sheehan, The Role of Majority Shareholders in Publicly Held Corporations. An excellent overview of the research done through the mid-1970s is provided in ElSENBERG, THE STRUCTURE OF THE CORPORATION, ch. 5.

5. Holderness, Kroszner & Sheehan, Were the Good Old Days That Good?

6. LEWELLEN, EXECUTIVE COMPENSATION IN LARGE INDUSTRIAL CORPORATIONS; LARNER, MANAGEMENT CONTROL AND THE LARGE CORPORATION, pp. 34-61; KoLκo, WEALTH AND POWER IN AMERICA, pp. 67-68.

7. Based on data drawn from SHILLER, IRRATIONAL EXUBERANCE, p. 8.

8. Markowitz, Portfolio Selection; Sharpe, Capital Asset Prices; BERNSTEIN, CAPITAL IDEAS.

9. Nader, Green and Seligman describe 1975 as a year of reckoning for a dozen major conglomerates; NADER, GREEN & SELIGMAN, TAMING THE GlANT CORPORATION, p. 78; Farrell & Murphy, Comments on the Theme. The story of this era is well told in Joel Seligman, A Sheep in Wolf’s Clothing, pp. 325, 333-36. UNITED STATES SECURITIES AND EXCHANGE COMMISSION, REPORT ON QUESTIONABLE AND ILLEGAL CORPORATE PAYMENTS AND PRACTICES. SEC Staff Study of the Financial Collapse of the Penn Central Co.—Summary [1972-1973 Transfer Binder], FED. SEC. L. REP. (CCH) PAR. 78,931 (1972). Numerous lawsuits resulted from the collapse of Penn Central: e.g., In re Penn Central Transp. Co., 484 F. 2d 1300 (3d Cir. 1973); In re Penn Central Transp. Co., 452 F. 2d 1107 (3d Cir. 1971); SEC v. Penn Central Co., Fed. Sec. L. Rep. P 94,527 (E.D. Pa. May 2, 1974). The securities class action first became a practical remedy for shareholders after 1966. Patrick, The Securities Class Action for Damages Comes of Age; Escott v. BarChris Construction Corp., 283 F. Supp. 643 (S.D.N.Y. 1968). See also Gould v. American-Hawaiian S.S. Co., 535 F. 2d 761 (3d Cir. 1976); Securities and Exchange Commission v. Texas Gulf Sulphur, 446 F. 2d 1301 (2d Cir. 1971), cert. den. 404 U.S. 1005 (1972). A history of the SEC’s attempts to federalize corporate law is told in Karmel, Realizing the Dream of William O. Douglas. An example of shareholder activism is Medical Committee for Human Rights v. Securities and Exchange Commission, 432 F. 2d 659 (1970).343

10. Tsuk Mitchell, Shareholders as Proxies; Gordon, Independent Directors and Stock Market Prices; Mitchell, The Trouble with Boards.

11. On poison pills, see Subramanian, The Influence of Antitakeover Statutes on Incorporation Choice; Kahan & Rock, How I Learned to Stop Worrying and Love the Pill.

12. Lucier, Kocourek & Habbel, CEO Succession 2005.

13. MITCHELL, CORPORATE IRRESPONSIBILITY. On executive compensation, see BEBCHUK & FRIED, PAY WITHOUT PERFORMANCE; CRYSTAL, IN SEARCH OF EXCESS.

14. See NYSE data at http://www.nysedata.com/nysedata/default.aspx?tabid=115; John Authers and Deborah Brewster, Goldilocks Still Defies the Bears, FINANCIAL TIMES, Jan. 9, 2007, p. 11; Philip Cogan, Darwinian Truth Behind the Investment Struggle, FINANCIAL TIMES, Aug. 12, 2006, p. 16; but see Mutual Funds and Portfolio Turnover, INVESTMENT COMPANY INSTITUTE, RESEARCH COMMENTARY, NOV. 17, 2004 (available at http://www.ici.org/stats/res/rc_v1n2.pdf) (arguing that a simple average of the turnover rate [117 percent in 2004] is misleading and a median turnover rate [76 percent in 2004] is more accurate).

15. ToNELLO, REVISITING STOCK MARKET SHORT TERMISM, p. 3 (citing Graham, Harvey & Rajgopal, The Economic Implications of Corporate Financial Reporting); TONELLO, id., p. 8.

16. The rise of private equity over the last decade has created new classes of investors who have the potential to change something of the shape of American corporate capitalism. I do not discuss this development because I believe it is too early to say anything meaningful about the phenomenon, and too complex and varied to assess in the Epilogue to a history.

17. Cheffins, Putting Britain on the Roe Map; La Porta, Lopez-De-Silanes & Shleifer, Corporate Ownership Around the World; Shleifer & Vishny, A Survey of Corporate Governance.