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.
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| Judge Grosscup |
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.”
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| Louis Kelso |
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.
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| 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.
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| Theodore Roosevelt |
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.
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| Archbishop Ireland |
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.