"Islands of conscious power": Louis D. Brandeis and the modern corporation. (American jurist)

"Islands of Conscious Power": Louis D. Brandeis and the Modern Corporation

In this examination of the beliefs of Louis Brandeis about the

twentieth-century corporation, we are given a paradoxical

portrait of a man strongly committed to individual liberty and

fulfillment who nevertheless became an outspoken advocate

of Taylorism. By tracing Brandeis's views on the law and

economics of the corporation and placing them against the jurist's

belief in the primacy of society's needs, the article reveals the

complexities and contradictions in Brandeis's thought as he

struggled to visualize an order in which the interests of

individuals and society would be identical.

"Two souls," wrote Dorothy Thompson in 1938, "dwell in the bosom . . . of the American people. The one loves the Abundant Life, as expressed in the cheap and plentiful products of large-scale mass production and distribution . . . The other soul yearns for former simplicities, for decentralization, for the interests of the `little man,' revolts against high-pressure salesmanship, denounces `monopoly' and `economic empires,' and seeks means of breaking them up."(1) Throughout his long and distinguished public life, Louis Dembitz Brandeis seemed, more than any other American, the authoritative voice of this "other soul," the keeper of Thomas Jefferson's faith in "little men and little institutions."(2) Born in 1856, educated in Dresden and at the Harvard Law School, Brandeis had won wealth and standing in Boston's cultural elite by the age of forty through his brilliant representation of corporate interests. But after 1900, he turned his talents and his passion for justice vehemently against these interests. First as "the people's attorney" in a variety of causes and then, for twenty-three years after his appointment to the Supreme Court in 1916, from the "highest Bench of the world," he became the indefatigable champion of small enterprise, attacking the power of the trusts and freely invoking the authority of the state to sustain the regime of competition he believed that power was destroying.(3)

The persistence and rigor of his advocacy and the austere rectitude he brought to it led Franklin D. Roosevelt to refer to Brandeis affectionately as "Isaiah" and, in the last decade of his life, inspired admiring, even adulatory, portraits by Alfred Lief and a young Alpheus Mason, who in 1946 produced the full-scale biography that stood for some forty years as definitive.(4) Following the publication of Brandeis's voluminous correspondence in 1978, several new and comprehensive studies appeared, each sharing Mason's sympathy for his subject and his emphasis on the consistency of Brandeis's liberal values, the self-assurance with which he promoted them, and the coherence of his political and economic philosophy.(5) John Thomas has aptly called this philosophy an "intense libertarianism," but beyond a deeply felt commitment to the autonomy and personal development of the individual in all aspects of social life, Brandeis's creed has little in common with the simple, often naive, hostility to the state that characterizes much of libertarian thought in our own day.(6) At the core were the ideas of decentralization and privacy; throughout his life, Brandeis stood foursquare behind the economic claims of the independent agent against those of the corporation and the trust, the prerogatives of the states and municipalities against the federal government, and the right of each citizen "to be let alone" by the state, "the most comprehensive of rights and right most valued by civilized men."(7) But against these rights he insisted on the individual responsibility of free men and women and on the recognition of their obligations to others. "All rights are derived from the purposes of the society in which they exist; above all rights rises duty to the community," he wrote, and that the instrument of government could and should be creatively employed to enforce that duty, he had no doubt.(8) "His activity," wrote the editors of his letters, "in all its phases, was united by a set of unwavering assumptions and goals to preserve democracy and individual opportunity in an industrialized America."(9) To Paul Freund, he was "a mind of one piece."(10)

But critical voices have been heard as well. As early as 1962, Richard Abrams gently suggested the "inadequacy" of Brandeis's analysis of the issues in the bitter struggle over the New Haven railroad merger.(11) Nine years later, discussing Brandeis's role in the eastern rate hearings of 1910, Albro Martin was less charitable. Seeing "a certain intellectual coarseness in Brandeis' grasp of the workings of the capitalistic economy," Martin accused the people's lawyer of "devotion to a set of economic and social doctrines which were at best rather old-fashioned and at worst distinctly inimical to the interests of the very people whom he claimed to represent." Brandeis lacked the "analytical mind of the economist . . . and his eagerness to employ the crushing power of government to bring back a past that never was is poignantly self-contradictory in its authoritarian, father-knows-best fervor."(12)

But the informed and penetrating critical analysis of Thomas McCraw, developed in a series of works published between 1981 and 1985, is more telling.(13) Drawing perceptively on recent developments in economic theory to distinguish "center" from "peripheral" firms and horizontal from vertical integration, McCraw argues that Brandeis's failure to grasp these distinctions "fed his confusion concerning how and why big businesses evolved, which business practices would or would not help consumers, and which types of organizations were or were not efficient."(14) At the base of this confusion was Brandeis's tenacious commitment to smallness, an "anti-modern ideology" prepared to sacrifice the interests of the majority of consumers to the preservation, on political grounds, of inefficiently small units of production threatened by inexorable pressures toward concentration. In the end, Brandeis's refusal to separate social science from moral philosophy, his readiness to tailor his economics to his "aesthetic preference for small size," overwhelmed his formidable analytical powers at the brink of conceptual breakthrough and, in coloring his perception of economic reality, "doomed to superficiality both his diagnosis and his prescription."(15)

I propose here to take issue with both these constellations of opinion. I hope first to show that, fairly examined in their proper place in the history of American economic thought, Brandeis's ideas about size and concentration in industry encompass elements of fruitful originality and strikingly modern insight. Indeed, Brandeis's suggestion, made in the face of potent contemporary opinion to the contrary, that the spontaneous "centripetal forces" driving the industrial corporation toward tightly hierarchical forms of internal organization are themselves naturally opposed by "centrifugal" forces whose magnitude increases with the size of the firm, and that the balance of these pressures imposes natural limits on the growth of the enterprise, contains the seeds of the very theory of industrial organization on which McCraw's critique itself is based.(16) McCraw, moreover, seems not to recognize the extent to which personal values and political preferences intruded on all economic analysis at the turn of the century and overstates the degree to which economists in our own time have succeeded in separating the positive from the normative in economic discourse. Brandeis came to intellectual maturity before the ideal of objective social science had fully replaced the older conception of political economy as moral philosophy, and even those pressing hardest for the reformulation of economic theory as an experimental science, the American disciples of German historicism, were driven by the imperatives of social justice as they perceived them. Like Brandeis, they were drawn to just those theoretical questions suggested by their own normative evaluations of social life and conditions, and their solutions reflect the particular moral and political values they brought to the inquiry, quite independently of what subsequent history or theory might show to have been the "right" answers. Nor, finally, is McCraw himself free from this conflation of science and politics. His conclusions too derive from a set of explicit value judgments and a corresponding conceptual vocabulary that, unlike those of Brandeis, see the creation of material wealth as the touchstone of economic life and relegate those qualitative aspects of economic organization that speak to the autonomy and moral development of the individual to irrelevance. If, from this perspective, McCraw is able to identify genuine shortcomings in Brandeis's analysis, his indifference to the normative concerns most important to Brandeis blinds him to its equally real achievements.

But I shall also argue here that, far from being the embodiment of coherent, consistent liberal values that his biographers have portrayed, Brandeis was a social theorist of deeply contradictory impulses who mirrored precisely the American dilemma described by Dorothy Thompson. Toward this end, I separate Brandeis's thinking on economic matters into three useful, if informal, categories. Two of them, a jurisprudential component based on a moral commitment to personal responsibility and the flowering of individuality as the necessary prerequisites to democracy, and a more explicitly economic approach to concentration that distinguishes between monopoly and bigness and directs its primary attack against bigness as such, are satisfyingly consistent and together form a seamless political economy that, though not without its difficulties, still has much to offer us today. But the third, managerial, component of Brandeis's thought, an uncharacteristic, seemingly uncritical attraction to Frederick Winslow Taylor's system of scientific management, implicitly denies the individual development at the core of the jurisprudential component and exalts the very exercise of power in industrial hierarchies that his economic prescriptions were intended to minimize.

This attachment was neither an aberration nor a passing infatuation. It was rather the first sustained expression of Brandeis's mature aspirations for the good society, aspirations that found their fullest expression in his understanding of the meaning of Zionism for free men and women and that raise troubling questions about the nature of the individuality and moral development to which he seemed so devoted. Strongly attracted by the claim that Taylor's system could identify the common interest of worker and owner and show how to achieve it, and at a moment in his own life when immersion in the labor problems and Yiddishkeit of New York's garment trade brought hard questions of religious identity to the front of his mind, Brandeis began with increasing seriousness to ponder the meaning of the "common good." But where Taylor himself saw the firm as a social machine and adopted an unapologetically authoritarian managerial philosophy, Brandeis's intensifying identification with the Zionist cause and his own Jewishness drew him closer to an organismic view of social existence and managerial relations shared by many intellectuals of his day and more properly understood as collectivist than authoritarian. In the Zion of his imagination, every citizen would instinctively recognize the common good and cheerfully accept the direction of superiors to do his or her part in realizing it. The needs of the whole would dominate the desires of the self in the consciousness of every free man and woman; the will to cooperate would replace the urge to compete. In the end, their freedom would be Lenin's, not Jefferson's.

A Mere Artificial Being

In the laboratory of American federalism, the first tentative experiments in limited liability began in 1811, when New York allowed free incorporation for some business purposes.(17) But partnerships and proprietorships remained the predominant forms of business organization well into the nineteenth century, and in the typical manufacturing enterprise of these years the costs of fixed capital were small relative to those of labor and materials.(18) Expensive machines and buildings were seldom required, so the ordinary citizen could not only realistically aspire to his own small business or shop, but could also easily shut down and reopen as conditions dictated. Business relationships were fluid, new partnerships constantly formed and reformed. Failures were frequent, but despite the law's demand that every principal assume unlimited liability for the debts of the business, the consequences of bankruptcy were rarely devastating, and unless the scent of dishonesty rather than mere foolishness or bad luck surrounded him, the bankrupt found it easy to start over. The prevalence of small enterprise, the openness of the land, and the ease with which even the commonest of white men could start a business fostered the independence and responsibility that so impressed Alexis de Tocqueville. In these small, family-centered firms, every person could see just what each was contributing, and working relationships marked by respect and dignity developed easily. Work was ordinarily done near the home of a master artisan, who took personal responsibility for feeding and housing his help. For all the material hardship and uncertainty they endured and accepted as a natural part of life, Americans in the early nineteenth century enjoyed qualitative aspects of working life hard to recognize today. Power in the shop, and even in the modest factories of the era, was necessarily leavened by reciprocal obligation; masters were not yet "bosses," apprentices and journeymen not yet "workers."(19)

But by midcentury, technology had begun to make possible the mass production of material wealth at prices ordinary people could afford and to turn small enterprises into fodder for huge industrial combines. Because costs fell so dramatically at the scale of operations demanded by the new machines and processes, firms producing the same goods rapidly merged, and the intensifying need for stable supplies and outlets caused by the declining number of competitors drove the new companies to swallow previously independent suppliers and distributors as well.(20) Combinations grew and flourished, but as they transformed independent artisans and merchants into workers and clerks, it was certain that the new order would be strongly resisted by those for whom economic opportunity and self-reliance were still the animating ideals of the American experiment. One of these was Louis Brandeis. "Remember," he wrote informally in 1922, ". . . that always and everywhere the intellectual, moral and spiritual development of those concerned will remain an essential--and the main factor--in real betterment."

This development of the individual is, thus, both a necessary means

and the end sought. For our objective is the making of men and women

who shall be free--self-respecting members of a democracy--and who

shall be worthy of respect. Improvement in material conditions of the

worker and ease are the incidents of better conditions--valuable mainly

as they may ever increase opportunities for development. The greater

developer is responsibility. Hence, no remedy can be hopeful which

does not devolve upon the workers' [sic] participation in,

responsibility for, the conduct of business; and their aim should be the eventual

assumption of full responsibility--as in cooperative enterprises. This

participation in and eventual control of industry is likewise an

essential of obtaining justice in distributing the fruits of industry.

But democracy in any sphere is a serious undertaking. It

substitutes self-restraint for external restraint. It is more difficult to maintain

than to achieve. It demands continuous sacrifice by the individual and

more exigent obedience to the moral law than any other form of

government. Success in any democratic undertaking must proceed from the

individual. It is possible only where the process of perfecting the

individual is pursued.(21)

In these few sentences are the central themes of Brandeis's thought. As he struggled with the questions that dominated his long public life, he placed his faith in Jefferson's vision of self-reliant, free citizens joined in small institutions that nurtured their talents and developed their capacities. Would the Americans Tocqueville admired succumb to the alluring but perilous bargain of material wealth for industrial hierarchy now offered by "bigness"? Or could they find a way to enjoy the fruits of industrialism without becoming a "nation of slaves"?(22) If there was such a way, Brandeis believed, it lay in economic and political institutions that preserved the crucial links between liberty, democracy, and responsibility forged in a simpler time. Just as increasing scale in politics reduced informed, active citizens to mere voters, the exchange of economic autonomy for the illusion of security produced people "dependent for mere subsistence upon somebody and something else than [their] own exertion and conduct."(23) If Americans were to be free, labor and capital alike must be made responsible, to one another and to the public. Socialism was no solution; if the separation of ownership from control left…