It seems singularly appropriate to begin this series at this time, as the annual ESOP Association Conference was held in Washington, DC. The awards ceremony was last Wednesday night, as a matter of fact, and EEI’s biggest for-profit client, Mid South Building Supply, won some prestigious awards.
That is our segue into this series that consists (mostly) of a very long-lost talk given by Judge Peter Stenger Grosscup (1852-1921) of the U.S. Seventh Circuit Court of Appeals in Chicago, on the importance of reforming the corporation and promoting worker ownership. Grosscup was one of the final speakers at a conference on “Trusts and Combinations” held October 22-25, 1907, in response to the then-recent “Panic of 1907.”
Louis Kelso, the inventor of the ESOP, was impressed with Grosscup’s grasp of the situation and the importance of widespread capital ownership as a solution to the problem of the corporation as it then existed. What Grosscup lacked was a feasible method of financing widespread capital ownership.
In this Grosscup was not alone. He accepted without question the conventional wisdom that dictated the only way to finance new capital formation is by cutting consumption and accumulating money savings. The more technology advanced, the more expensive it became, and the richer the investor presumably had to be.
|Charles A. Conant|
This was odd, because Charles Arthur Conant (1861-1915), a recognized expert on banking and finance, worked in the Orient for the Roosevelt Administration, and Grosscup was one of Roosevelt’s most prominent “Trust Busters.” Conant’s book, A History of Modern Banks of Issue (1896), is a classic of banking principle finance, and a virtual guidebook for the use of “pure credit,” i.e., credit that does not rely on existing accumulations of savings, by definition a virtual monopoly of the rich. Perhaps Conant’s imperialism, with its implicit elitism, turned Grosscup off.
Grosscup retired from the bench in 1911, a year before a young assistant professor at the University of Chicago began to come into prominence. This was Dr. Harold G. Moulton (1883-1965), whose grasp of Say’s Law of Markets and the banking principle of economics was unsurpassed in the first half of the twentieth century. Moulton eventually became the first president of the Brookings Institution, the first “think tank,” where he served from 1928 to 1952, by which time Keynesian economics based on the currency principle had virtually eliminated pure credit from serious consideration.
Kelso and Adler relied heavily on Moulton in their second collaboration, The New Capitalists (1961). The subtitle of this very short book is significant: “A Proposal to Free Economic Growth from the Slavery of Savings.” “Savings,” of course, referred to existing accumulations of savings held by the rich, not the pure credit, “future savings” to which anyone with a financially feasible and creditworthy capital project should have access.
It is unlikely that anything Grosscup said after Theodore Roosevelt lost the 1912 election would have been heeded. He had endorsed Roosevelt, and Woodrow Wilson was not a forgiving man. Nor is the potential of the Federal Reserve to finance widespread capital ownership something that would have occurred to the elitist Wilson, who had strong ties to the same Wall Street crowd that had backed Taft against Roosevelt.
It wasn’t until Louis Kelso linked money creation with expanded capital ownership that it became possible for ordinary people without savings to become capital owners without taking anything away from the rich. Once that breakthrough occurred, and the initial enabling legislation passed Congress, the door was opened to the more than 11 million workers in more than 10 thousand companies in the U.S. alone becoming part-owners of the companies that employ them.
What is unusual about this piece is that it was not listed on any bibliography, it’s atypically short for a Grosscup article, and it suggests that Grosscup may have been familiar with Pope Leo XIII’s endorsement of worker ownership in Rerum Novarum. It seems that Grosscup and Archbishop John Ireland of Minneapolis served on the same committee at the conference, and Ireland was a strong supporter of worker ownership, as well as being an authority on Rerum Novarum.
Tomorrow we’ll begin putting up the full text of Judge Grosscup’s talk.