Economists and other gossipmongers sometimes like to quote the words of Nicholas Murray Butler, who was at the time President of Columbia University, in a 1911 speech called \”Politics and Economics\” to the 143rd Annual Banquet of the Chamber of Commerce of the State of New York in 1911 (pp. 43-55), and available through the magic of the HathiTrust Digital Library, .
Here\’s the much-quoted part of the speech:
\”I weigh my words, when I say that in my judgment the limited liability corporation is the greatest single discovery of modern times, whether you judge it by its social, by its ethical, by its industrial or, in the long run,—-after we understand it and know how to use it,—by its political, effects. Even steam and electricity are far less important than the limited liability corporation, and they would be reduced to comparative impotence without it.\”
The quotation is often used to illustrate someone who has gone far over-the-top in admiring the private company–and perhaps even someone who is licking the boots of New York\’s rich and powerful at this banquet dinner. But that interpretation is unfair to Butler. This is just an speech, not an academic tract, but he is pointing out the enormous industrial change that has occurred, while also arguing in favor of the development of a body of law like the Sherman antitrust legislation to constrain corporations, and also making the point that these issues of large-scale companies had already been an issue for hundreds of years, back at least to reports commissioned by the Diet of Nuremburg in the 1520s. Here\’s a more extended quotation from of Butler (bracketed references to laughter or applause are omitted):
The fact of the matter is, and it may just as well be recognized in this country and in every other country, that the era of unrestricted individual competition has gone forever. And the reason why it has gone is partly because it has done its work, partly because it has been taken up into a new and larger principle of co-operation. What happens in every form of organic evolution is that an old part no longer useful to the structure drops away, and its functions pass over into and are absorbed by a new development. That new development is co operation, and co-operation as a substitute for un- limited, unrestricted, individual competition has come to stay as an economic fact, and legal institutions will have to be adjusted to it. It cannot be stopped. It ought not to be stopped. It is not in the public interest that it should be stopped.
Now, how has this co-operation manifested itself? This new movement of cooperation has manifested itself in the last sixty or seventy years chieﬂy in the limited liability corporation. I weigh my words, when I say that in my judgment the limited liability corporation is the greatest single discovery of modern times, whether you judge it by its social, by its ethical, by its industrial or, in the long run,—-after we understand it and know how to use it,—by its political, effects. Even steam and electricity are far less important than the limited liability corporation, and they would be reduced to comparative impotence without it. Now, what is this limited liability corporation? It is simply a device by which a large number of individuals may share in an undertaking without risking in that undertaking more than they voluntarily and individually assume. It substitutes co-operation on a large scale for individual, cut-throat, parochial, competition. It makes possible huge economy in production and in trading. It means the steadier employment of labor at an increased wage. It means the modern provision of industrial insurance, of care for disability, old age and widowhood. It means—and this is vital to a body like this—it means the only possible engine for carrying on international trade on a scale commensurate with modern needs and opportunities. …
\”I know how unsafe it is for any layman even to mention the SHERMAN law. I know that there is a prejudice in some political and journalistic circles against a layman saying anything about that law except the single word “Guilty.” But let me suggest that you do not agitate for an amendment of the SHERMAN law. Supplement it, if you like, but do not amend it. The SHERMAN law has now been subjected to twenty years of the most careful, the most extensive and the most elaborate legal and judicial examination and determination. Under it you are working out a solution slowly, patiently, and with much doubt; but you are working out a solution of the relations of business to that law by the very processes which have always been those governing in our Anglo-Saxon life, the process of the application of the common law, building up from precedent to precedent ; and the man who undertakes to amend that law will make it worse. The ﬁrst thing that will be done in that case will be to except some privileged people from it, and the only people who will be excepted will be those with a large number of votes. …
\”There is nothing new about all this conﬂict over large and new business undertakings. … As a matter of fact there has not a single thing been said about corporations, about large industrial combinations, which was not said in England about co-partnerships, when co-partnerships were ﬁrst invented. You may go all the way back ﬁve hundred years, and you will ﬁnd exactly these same expressions. I ran upon this the other day. Let me read it, and perhaps you may guess from what American daily newspaper it comes:
“`The merchants form great companies and become wealthy ; but many of\’ them are dishonest and cheat one another. Hence the directors of the companies, who have charge of the accounts, are nearly always richer than their associates. Those who thus grow rich are clever, since they do not have the reputation of being thieves.\’
\”That was not published in New York, or Chicago or San Francisco. That is found in the Chronicle of Augsburg, Germany, in 1512. In one year more that quotation will be four hundred years old. They were very much disturbed about this problem in those days, and the Diet of Nuremberg appointed a committee in 1522 to investigate monopolies. They sent an inquiry to several cities, to Boards of Trade and Chambers of Commerce, to know what better be done. This is the answer they got from Augsburg:
“`It is impossible to limit the size of the companies for that would limit business and hurt the common welfare; the bigger and more numerous they are the better for everybody. If a merchant is not perfectly free to do business in Germany he will go elsewhere to Germany’s loss. Any one can see what harm and evil such an action would mean to us. If a merchant cannot do business, above a certain amount, what is he to do with his surplus money? It is impossible to set a limit to business, and it would be well to let the merchant alone and put no restrictions on his ability or capital. * * * * * Some people talk of limiting the earning capacity of investments. This would be unbearable and would work great injustice and harm by taking away the livelihood of widows, orphans and other sufferers, noble and non-noble, who derive their income from investments in these companies. Many merchants out of love and friendship invest the money of their friends—men, women and children—- who know nothing of business, in order to provide them with an assured income. Hence any one can see that the idea that the merchant companies undermine the public welfare ought not to be seriously considered. …\’
\”I read that to illustrate that the business and political mind of Europe has been on this question for at least four hundred years. … . We must learn that economic laws, economic principles, based on everlasting human nature are fundamental and vital, and your care and mine, as citizens of this Republic, is not to interfere with these laws, not to check them; but to see to it that no moral wrong is done in their name. That is a very different proposition from the one of overturning a great economic and industrial system by statute.\”
At least for me, the closing paragraph contains food for thought.