Martin J. Sklar – Capitalism and Socialism in the Emergence of Modern America: The Formative Era, 1890s-1916


To some large extent, the best of the past few decades’ business history may be characterized as the social, organizational, and economic history of the business firm, of the enterprise, relatively narrowly conceived.1 More recently, the task increasingly recognized as on the agenda by the leading scholars is to make it more broadly conceived, that is, to relate the evolving shape of enterprise to that of society, or at least to broader forces or trends shaping society.2 This work may be thought of as involving a marriage of the invaluable business history emanating from such institutional scholars as A. D. H. Kaplan, Edith T. Penrose, Alfred D. Chandler, Jr., and his younger colleagues, on the one hand, and on the other, the venerable older sociological-economic history emanating from such scholars as John R. Commons, Thorstein Veblen, Joseph A. Schumpeter, Peter F. Drucker, Adolf A. Berle, Gardiner C. Means, Thomas Cochran, Louis Hacker, Edward Kirkland, and John K. Galbraith. Among the latter, Berle and Galbraith, and most persistently and incisively Drucker, in the mid- to late-20th century, have led in bringing together the two bodies of work, yielding rich and fruitful concepts, perspectives, and paths of research. To those of us who knew his lectures or seminar work, and have read his writings with care, William A. Williams’s significant and lasting contribution resides in large part in his pioneering efforts along these matrimonial lines in interpreting United States political-economic history.3

The years 1890-1916 in the United States mark the period of the rise and early development of the large corporation as a characteristic form of business enterprise, not confined to an exceptional sector like railroads, but in industry, finance, and trade, that is, in the economy in general. These years, accordingly, mark the rise and early development in the United States of corporate capitalism as the dominant property-production system (or mode of production) in the nation’s political-economic history. These same years, not coincidentally, also mark a period in United States history of a great Age of Reformreform in social relations, politics, institutions, culture, and thought. In short, the rise of corporate capitalism and a social reformation of the nation went together at the outset, and they continued their fellow traveling thereafter.

What is less explicitly recognized and examined in the extant historical literature, scholarly or otherwise, but no less the caseand I might say, what has made my work perplexing, not to mention vexing, to most of my reviewers or interlocutors, on the right and on the left, with a few astute exceptionsthese years marked, as well, the period of the emerging “dialogue”or interplay and interactionin United States public life between capitalism and socialism, engaged reciprocally both in conflict and complementarity, as the essential reformational forces shaping and reshaping modern U.S. society. The essence of the modern corporate reorganization and continuing corporate organization of enterprise thereafter has been the mixture, the inter-meshing, of capitalism and socialism in the joint shaping of one and the same society. The society in question, U.S. society, presents us with this mixture taking place in the political mode of a liberal democracy.4

This formulation may serve to suggest, or to remind us of, a strong correlation between the shape of business enterprise, and the shape of the mode of production more broadly, on the one hand, and the shape of society in the modern world, on the other, if not in other epochs. As this implies, the study of the enterprise is essential to the study of the society, which business historians well understand; but equally, the study of the enterprise without an integral reference to the society in its broader socio-political characteristics, trends, and movements, is to leave out something essential. For, enterprise as such encompasses not simply “business” in the narrow sense, not simply “getting and spending,” profit and loss, organization and technique, input-throughput-output, etc., but also property relations, labor relations, class relations, sex and race relations, contracts and law, statutes and jurisprudence, modes of consciousness, and culturein sum, human relations writ largebroad social relations that, in a modern “market society” such as the United States at the time, constituted the prevalent social relations permeating, modifying, shaping, or subordinating the others. In other words, enterprise hierarchy and broader social hierarchy are strongly interwoven and correlated, even if they are not by all means identical.

The rise of corporate capitalism in these late-19th and early-20th century years in the United States meant, accordingly, the incipient transformation of society. That is, the corporate reconstruction of American capitalism meant, also, the early phases in a socio-political reconstruction of U.S. society, along the hybrid lines of capitalism and socialism in a liberal democracy. The title of this paper, “Capitalism and Socialism in the Emergence of Modern America: The Formative Era, 1890s-1916,” is a formal reference to this historical turning point in human affairs, at least in the United States.

Let me pause at this point to indicate what I take the terms capitalism, socialism, and liberal democracy to mean. My understanding of these terms resides primarily neither in dictionary definitions nor in ahistorical definitions found in sectarian, or even less inflexible, doctrine. Rather, it corresponds with my efforts at comprehending their evolving characteristics in historical context, in this case, in the historical context of the United States in the period under discussion. Just as we do not affirm or deny the presence of capitalism as a major characteristic of a society on the basis of our finding or not finding in such society parties or voters or advocates professing themselves “capitalists,” nor on the basis of writers’ or publicists’ or scholars’ exemplary prescriptions, but on the basis of social relations such as those of property, labor, and class, along with their corresponding social movements and modes of consciousness, so should we do with socialism. For example, that there has been not a single vote by an American for a party called “The Capitalist Party,” in all the nation’s history, does not mean that capitalism has been absent from, or has not been a major characteristic of, U.S. society. By the same token, the relative paucity of votes for a party called “The Socialist Party,” does not mean that socialism has been absent from, or has not been a major characteristic of, U.S. society. As for the substance of liberal democracy, this too, is a matter not simply of professing and prescribing, but also of evolving institutional and social relations.

Capitalism refers not simply to effort for gain; that is characteristic of enterprise throughout history and of many types, including socialistic. Rather, capitalism, as indicating a type of society and its characteristic property relations, refers to a society of widespread money-market relations, in which production in general is for market exchange effected by money or money instruments as the medium and measure of exchange, and also as a store of effective demand for, and a legal claim upon, resources, products, and labor; but even this is not enough: it refers also to a society in which not only land, resources, and goods, but also labor-power, appear in the market as objects of moneyexchange or as commoditieslabor-power in the form of wage-labor. In capitalist property-production relations, the prevalent investor employer-manager function becomes personified in owners of property, or capitalists, engaged in discretionary investment of money, time, and effort, for private gain, and other basic labor functions appear as propertyless wage-earners employed by the property owners. Respectively, property owners and wage-earners also appear as great classes of society, each characterized by diversity and hierarchy, yet with wage-earning labor in general subordinate to capital in authority, powers, and wealth, at the enterprise, and in society on the whole. Labor-power, no less than plant and materials, becomes a factor of production, with market made value. But it is a human factor, and so as wage-labor it accrues payment, liberties, obligations, and liabilities, and these are different or absent from other types of social status, such as that of slave, serf, or self-employed. It is governed predominantly under principles of commutative justice with largely market-made work incentives. Compared with past or other types of property-production relations, capitalist property rights and market relations have tended to redefine, expand, and also limit, human rights, in accordance with evolving class differences and custom, as well as in accordance with contractual relations, law, and government structures and functions more or less suited to a capitalist market-contract society.

In capitalist relations, principles of liberty and efficiency (often referred to as “bourgeois”) tend in some decisive ways to broaden the sphere of individual initiative and authority as well as equalitarian values and behavior, but they tend at the same time, on behalf of concurrent principles of property rights and economic development, to range themselves against emergent, ever broader standards of liberty, equality, social justice, and development. Modern capitalist relations, therefore, tend to intensify and bring to a culminating pitch crisis-building tensionsmanifested in class antagonisms, social movements, currents of thought, and public politicsamong multiplying claims of liberty, equality, and development, or, to put the same thing in other words, among rival claims of efficiency, growth, prosperity, security, and social justice. In the liberal democracy constituting the U.S. political system, with its cognate political culture, this has meant the need, usually met, for political leaders of high-quality skills and sophistication, seeking and able to navigate among the rival claims and reconcile them in evolving syntheses, or subordinate some to others, or transform the mixture and pattern of the claims altogether.

Modern socialism historically had its roots in social relations and modes of consciousness within and integral to capitalism, oriented toward (a) applying the principle of self-government, or self-control, to wage-earners, not only to employers and the self-employed, in market relations; and (b) adapting market relations to social goals, hence to public policy, as determined not only in the market as such, but also in socio-political, or civic, spheresthat is, both in society and in government. It represented the principle of fully citizen-izing the wage-earner and civil-izing the economy, and thereby universalizing full and equal citizenship in society as a whole. This principle cohered strongly with prevalent American political principles associated with republicanism and rooted in the traditions and experiences of the American Revolution. These socialist principles, accordingly, always enjoyed strong standing in the American grain.

The strengthening of socialist tendencies in modern times corresponded historically in the United States (a) with capitalist industrialization, (b) with the rise of large-scale business enterprise, but especially large corporations that eventually broke apart the investor, owner, and manager functions, and (c) with the rise and development of such social formations as agricultural cooperatives, modern credit systems, social insurance organizations, trade unions, and a growing, diversified wage-earning working class, along with a growing, diversified managerial and professional middle class.

Socialist relations refer to the trends toward making political, associational, and contractual activity a balance against, or an adversarial alternative to, or a means of redefining, property ownership, in such ways especially as to make the market socially accountable and socially responsible. It has involved political, social, and economic reordering in the direction of regulating, modifying, remedying, or displacing, market behavior and market outcomes by social policy determined in some cases contractually, civically, or associationally, in other cases politically and governmentallythat is, both in spheres in which policy may be determined in principle by socially engaged persons (“one person, one vote”) and in spheres of the market where in principle policy may be determined by dollar-holdings (“one dollar, one vote”).

Socialist relations have, accordingly, involved principles of distributive justice complementing and modifying principles of commutative justice, in such ways as to conceive and treat labor not simply as a market-made factor of production, but also as consisting of workers as human beings and citizens, deserving an increasing weight of socially constituted or positive work incentives, as against primarily market-made or negative work incentives, and what workers and others regard as socially “progressive” standards and conditions of living. Socialism, therefore, has corresponded with social relations, law, public policy, standards, and values asserting a broadening conception of human rights reshaping and redefining property rights and market behavior. These assertions emanate incessantly from such sources as, for example, trade unions, social movements, interest groups, churches and religious groups, civic associations, and electoral activity, as well as initiatives within the business sphere itself. In sum, a citizen-associational stake in society increasingly supplements, refashions, or in some degree displaces the property stake, as a rising and increasingly preponderant authority in society. Associational investment serving social goals or needs (for example, in health care, pensions, worker compensation, unemployment insurance, day care, occupational safety, environmental protection) significantly complements or constrains discretionary investment primarily for the investors’ private gain.

In general, as socialist relations develop and strengthen in society, investment activity, whether associational or governmental, based on social goals or public policy, redirects, complements, or displaces discretionary investment for private gain. Capitalists as society’s sole or paramount investing, profit accruing, enterprise-managing, and surplus-disposing agency, are increasingly regulated, directed, complemented, supplemented, or replaced by other agencies ranging from government to public corporations, to trade unions and interest groups, to pension funds, philanthropic foundations, religious bodies, and other civic associations, not to mention stock-holder groups and professional managers in enterprises themselves. Non-profit sectors of society grow as fields of gainful employment, and along with them gainfully employed activity in social services, in policy formation, in ministering to people’s wants and needs, and indeed in inventing and creating new wants and needs. All in all, these trends amount to what may be cogently regarded as the expanding of the realm of human discretion or freedom, although some of our latter-day tory radicals disdain, denounce, and decry them as involving a deleterious “consumerism.” (Consumerism is, properly speaking, an essential working class principle, and so it may be understandable that the abstemious-minded among middle class intellectuals may disown it, at least in theory.)

Along with the development and strengthening of these trends, the tendency emerges, and itself grows stronger over time, for people to hold their political leaders and government, rather than business leaders and business enterprise, primarily responsible for a well-working and just economythat is, one characterized by prosperity, security, opportunity, development, and progress, and not merely for the propertied and privileged but for workers, the propertyless, and the people at large. Prevalent political thinking, especially in public discourse, affirms the need to reconcile and interrelate liberty and equality, efficiency and social justice, as the condition of development, instead of leaving them arrayed against one another in mutual enmity. If the older Whig principle, of bourgeois pedigree, was that Dominion or Power follows wealth or property, socialism signifies bringing into play a new, inverted Whig principle that wealth and income follow power, that is, the power that comes from the ballot, public opinion, law and litigation, civic and political organization.

Taking the foregoing into account, I do not believe it is especially controversial to say that in the past century, facilitated by liberal democracy and its broad framework of political consensus as the ground of ongoing class and social conflict, U.S. society has developed along both these capitalist and socialist lines. With the emergence and development of large corporate enterprise, that is, as the prevalent characteristic of the political economy, U.S. society has evolved as a mix of capitalism and socialism. The two have been intertwined, both in conflict and in the symbiotic serving of one another, not simply across and on different sides of class and institutional divides, but also within them. Capitalism needs socialism for stability, and socialism needs capitalism for the wealth creation that generates and supports an ever expanding equalitarianism and noncapitalist investment and labor activity.

The large business corporation itself, indeed, as I have suggested elsewhere (The United States as a Developing Country, ch. 1) and will return to later in this paper, representing an evolving mode of production, an evolving set of property-production relations, has constituted an embodiment of the capitalism-socialism mix. It is a major mistakeand ahistorically staticto think of corporations, or business in general, as necessarily simply capitalist in essential characteristics. The same may be said of trade unions, agriculturual cooperatives, credit unions, pension funds, and countless other associations, institutions, and social movements in modern U.S. society: They each and all may embody the capitalism-socialism mix in their operations, goals, principles, and values. Another way of putting this is that with the growing importance of socialist relations in modern society, democratic politics (including the broad range of associational activity) oriented strongly toward equalitarianism, social goals, and public functions, become more and more integral to the workings of the economic system per se, and economic theory that ignores this civic and political dimension in the modern economy will be found considerably wanting.

Liberal democracy as it pertains to the United States, refers to a political order in which, in principle, society, not the state, is sovereign (“the sovereignty of the people”), in which, in principle, that is, society is supreme over the state. Government powers are accordingly limited by law determined largely by representative institutions and enforced in decisive part by an independent judiciary. Often, this type of political order is referred to as constitutional government, a government of law, not of persons, hence a government and a society under the rule of law, with individual rights embedded in and protected by organic and statute law, and similarly, with restrictions of individual and social behavior stipulated in law, not left to arbitrary or ad hoc government or party action. In principle, law and prevalent political and juridical thought and practice define the individual as the basic unit of society and the body politic, with rights and obligations remaining fundamentally individual, not corporative. The principle of positive government, as against state command, has strongly evolved within this constitutional order. In the United States, liberal democracy was less inclusive of all the people, indeed of all the citizens, in much of the nation’s first two hundred years of its historythe great citizen exclusions being against African-Americans (who had also been excluded as slaves) and womenand more inclusive as the 20th century progressed, especially since mid-century, coinciding with the rise and development of corporate capitalism and the capitalism-socialism mix.

The term, corporate liberalism, as I use it, refers to the prevalent social-political movements in the United States, and their general outlook, oriented not only to making corporations and the market system in general serve the purposes of efficiency, innovation, and growth (development), but also to social-reform and socialistic efforts at making corporations and the market system serve the causes of equal rights, equal liberties, and equal opportunities in the economy and in the society at large. In a broader perspective, corporate liberalism also refers to the prevalent social-political movements in the United States, and their general outlook, that since the early 20th century have operated incrementally to join together the capitalism-socialism mix and liberal democracy, and in so doing, constructed a vigorous social associationalism in market and civic spheres, and strong positive government, as the predominant characteristics of modern U.S. society, and as the effective alternative to an organizational corporatism or a corporate-state.

In these respects, the historic political development of the last third of the 20th century in the United States has been the bipartisan embrace of corporate liberalism in the sense meant here, and accordingly, a continuing glacial leftward shift of the Republican party, as well as the Democratic party, and of U.S. society in general. In the 1990s, President Clinton and Speaker Gingrich have been the master leaders of this bipartisan leftward shift in the U.S. political spectrum and political culture.


Let me indicate some implications of the foregoing.

  1. Capitalism is not to be equated with “markets” and socialism with “government”: both modes of production and sets of social relationsboth capitalism and socialismhave historically involved both markets and government. The large corporation and the market in general (and this therefore may also apply to smaller enterprise) are not simply capitalist, and government is not the sole redoubt of socialism. Each may be a realm of both capitalism and socialism, cohabiting and codeveloping.
  2. Capitalism is not to be equated with “management” and socialism with “workers”; each (capitalism, socialism) involves class conflict and class complementarily; that is, each involves sets of class relations, broader social relations, and modes of consciousness that are analytically distinct, yet historically intersecting.
  3. Workers, farmers, professionals, intellectuals, reformers, et al., as well as capitalists (investors, employers, owners, managers) have engaged in constructing and affirming capitalism; capitalists as well as workers, farmers, professionals, intellectuals, reformers, and others have engaged in constructing and affirming socialism. Usually, the same people have been engaged in constructing and affirming capitalism and socialism at the same timewhether they, I, or you like it or not.
  4. The older linear evolutionary conceptionfirst capitalism, and afterward (if at all), then socialism succeeding itdoes not stand the historical test. Nor does the idea that the two are necessarily and properly mutually exclusive. In the United States and much of the Western world, capitalism has generated socialism-formed its soil and nutrimentand the two have codeveloped both antagonistically and symbiotically. In a similar vein, it could be said that “Communism” (state-command socialism) has generated capitalism in the Eastern world. It may be that the mixed or combined mode of production that has been strongly developing in present times in many societies and transnationally, requires a revised or substantially new terminologya need perhaps expressed, still rather inadequately or awkwardly, in the frequent references to the modern economy as “the information economy,” or “the digital economy,” or “the service economy,” etc.
  5. Scholars of all hues of opinion, as well as lay thinkers, East and West, North and South, however fiercely independent they may proudly be in other matters, in this matter have submitted to being captivated by a “Leninist cultural hegemony” (pace Gramsci) in equating “true socialism” or “real socialism” with the Soviet style system of government ownership, state command, managerial authoritarianism, and a vanguard party political monopolyin effect, also with a populist or millenarian utopia. In this Leninist-Populist captivity, that is, they have been equating socialism with a primitive collectivistic or “communitarian” socialism that emerged in thought and in social relations in preindustrial societies, indeed largely premarket societies in the modern sense, analogous to equating capitalism with its less developed mercantilist (and preindustrial) types, rather than identifying socialismas Marx did, by the waywith a society based on modern capitalist market development, complex associationalism, and a constitutional democratic political system.
  6. Liberal democracy ought not be identified exclusively with capitalist, or “bourgeois,” society. Although historically originating and developing first in bourgeois and capitalist society, liberal democracy is also transhistorical in character and career, and has developed in correlation with both capitalism and socialism, as the latter two have themselves codeveloped.
  7. Hierarchical relations in some spheres (as in corporations, families, schools, universities, associations, churches, etc.) are not incompatible with, and are often the basis of, equalitarian relations in other spheres. The capitalism-socialism mix in the United States, and the correlated outlook referred to as corporate liberalism, or modern liberalism, have involved systemically not only making corporate hierarchies serve the purposes of efficiency, innovation, and growth, but also making corporate hierarchies accountable to and serve social goals of equal rights, equal liberties, and equal opportunities.


As a further help to conveying a general understanding of the capitalism-socialism mix, let me here sketch briefly ways in which the rise of modern corporate enterprise in the years around the turn of the 20th century, represented the emergence, and hence the incipient phase in the development, of a property-production market system combining capitalist and socialist characteristics.5 This was a change in the property-production system that Marx, no less, assessed as transitional between capitalism and socialism,6 but which an odd menage a trots of populists, Leninists, and neo-classical free-marketeers have labeled predatory “corporate interests” or a “monopoly capitalism” purportedly obstructive alilce of economic efficiencies and social justice, and in so doing have so strongly influenced scholars and intellectuals more broadly (with some important exceptions, especially in the business history and management fields) as to render corporate enterprise less a matter, among them, of historical institutions to be studied and understood (and on that basis to be shaped and reshaped) than as a matter, as Mr. Dooley (Finley Peter Dunne) satirized, of “hideous monsters” to be denounced and destroyed, although “not so fast,” and although they seem nevertheless to endure.

Corporate enterprise represented a shifting from individual proprietary to associational forms of property ownership, and hence a transformation of property relations in substance as well. Corporate enterprise represented “private” property “publicly held.” Ownership and liability became both widely spread and limited, or socialized. Individuals and associations owned stock, but none of the stockholders, let alone the managers, owned the physical property as such, or even intangible assets other than the stock. In intensifying the specialization and division of labor on the basis of their horizontal and vertical coordination or integration, the corporate form of enterprise at the same time separated the investor ownership function from the managerial function, thereby giving a practical embodiment to the distinction between the enterprise as a techno-economic organization, and the enterprise as property. This marked an important departure from the older capitalist unity of investor owner-manager in the proprietary form of enterprise, a departure reinforced and immeasurably strengthened by subsequent practice and jurisprudence subordinating stockholder claims and interests to management discretion, authority and prerogative.7 In addition, the large corporation brought into cooperative association hitherto “arms-length” market-competitive or market-exchanging units, and by hierarchical coordination or integration brought into cooperative relations managerial, professional, technical, and manual labor, office and shop floor, men and women, and especially in the United States, people of diverse racial, national, ethnic, religious, cultural, and sectional origins and backgrounds. In such ways as these, the large corporations were socially integrative, not only economically integrative, and hence politically significant along a broad front.

The size and complexity of its associational activity, the widespread public ownership of its stock, and both the concentrated and the extensive market power in its buying, selling, and contractual activity, meant that large corporate enterprise exerted a huge and varied impact not only on its own immediate personnel, but also on innumerable persons and whole communities outside it. It therefore became “natural” for public opinion, including that of business executives, as well as that of political and intellectual leaders, to view the large corporation as no longer representing simply a matter of private property in the older sense, but property affected with, and embodying, a public character, a public concern, and a public interest. The corporate reorganization of the property-production system, accordingly, called into play growing civic and government intervention in the marketplace (at the local, state, and national levels), intervention both regulatory and distributive, involving principles or ideals of the public interest or general welfare as determined in civic and political arenas, as well as in the marketplace itself. To put the same thing differently, the large corporation brought into play checking and balancing powers within and outside the market, moving programmatically and psychologically toward patterns of social accountability. This opened wider the way for applying accountability norms to noncorporate spheres as well.

With respect to the impact of large corporate enterprise on market relations, the transformation, commonly described as a movement toward oligopoly, may also be designated as a passage from competitive to administered markets. Not to take up other aspects here, this change involved a growing capacity of enterprises to manage and regulate investment and supply, and to influence or modify demand, in such ways as to adjust supply to demand and make rather than simply take prices, and to target revenue volume and rates of return. This new capacity permitted counter-cyclical planning by corporate managers to stabilize prices, returns on investment, and employment, at targeted levels, thereby in effect socially intervening to modify and soften (not abolish) the business cycle, hitherto regarded under the competitive regime as almost a “force of nature” beyond human control8a softening trend noticeable in the years 1898-1929.

Administered pricing also meant revenues exceeding replacement and expansion requirements in the enterprise’s existing operations, and therefore available for allocation to other purposes, ranging from acquisitions, new business ventures, and reorganization, to advertising and public relations, to worker pensions and other benefits, to philanthropy, research and development, to politics, lobbying, and tax payments affecting government programs. In other words, prices came to carry both enterprise costs and social coststhat is, a price socialism through price and market administration. This, however, could only have transpired without noticeable impoverishment or constriction of non-corporate sectors compared with the past, because the new hierarchical organization of managerial

corporations, combined with new financial, productive, transportation, and communications processes, permitted new efficiencies not attainable under the proprietary-competitive regime, manifested, for example, in integrations and standardizations that yielded rising volumes of production and a diversification of products. In addition, they yielded significantly higher productivity, in the sense of a continuing lowering of real costs per unit of output, measured in terms of energy, materials, and labor time, which indeed found expression in the statistical record (at both the micro and the macroeconomic levels) in the years 1898-1929, and subsequently.

These new social planning powers of corporate administration, however much class-biased, short-sighted or farsighted, just or unjust, their exercise may be judged to have been in these years, gave business enterprise a social and political significance of a scope and intensity different from that which it had before under the proprietary-competitive market regime. Corporation managers now

assumed palpably far-reaching roles and powers in the market, in local communities, and in society at large, that called for social accountability, or in Madisonian terms, effective checks and balances from the civic and political spheres, as well as from within the market, if not from within the corporations themselves. Even without reference to broader social standards and goals, these checks and balances were applicable not merely with respect to attaining fair pricing and other kinds of desirable market behavior, but also to exerting a discipline, where no longer provided by a competitive price mechanism, in favor of innovation and continuously rising efficiency. In the United States version of liberal democracy, it was hardly possible for government not to take notice and “compete” in exercising administering powers, through regulatory, fiscal, monetary, and transfer policies. The Madisonian tradition, in particular, validated, indeed mandated, the continuing implementation, extension, improvisation, and refinement, of the capitalism-socialism mix. It is a profound historical error to think that strong government engagement with market relations has its source in exoteric or “radical” doctrine and practice, and not to understand, on the contrary, that it is squarely in the American Grain of the “American Science of Politics.” At the same time, it is important to emphasize here that both the capitalism-socialism mix and the Madisonian imperative refer not only to government-market relations, but also to market relations themselves.

The new corporate-administered system, in other words, meant the emergence of regulation (or administration) of markets by parties within the market and resulted in further regulation (or administration) by law and government from outside the market. In all, it meant a growing capacity for original and compensatory social direction, associationally and governmentally, in managing, modifying, steering, or remedying the administered price system, for purposes of allocating resources and labor not only to productively and economically, but also to socially or culturally, necessary or desired purposes.

I take the work of Alfred D. Chandler, Jr. and other recent business historians, although employing some different terms from those used here, and having interpretive disagreements among themselves, to be corroborative of the view of the large-corporate property-production system sketched here. Their investigations have revealed the modern large corporation as consisting of an intermeshing of organizational, or planned, coordination with market coordination, at the level of the firm and inter-firm operations, and a similar interrelation at the macroeconomic level of the economy as a whole. In the corporate regime, organizational or planned coordination adapts to markets, but also makes marketsshapes and reshapes, creates and invents, displaces and replaces, administers or manages, markets.9 These relations pertain to the government economy relation as well as to the internal and external relations of firms themselves, and correspond with what I refer to as a corporate-administered property-production system, or as a system of administered markets, where both the enterprise units and the economy in general combine capitalist and socialist characteristics. In direct language, corporations are as much socialist as they are capitalist entities; “business” is not only capitalistit is also socialist.

In the society as a whole, the corporate reconstruction of the U.S. economy brought with it a new and growing interplay, mix, and checking and balancing of “public” and “private” associational authoritygovernmental and nongovernmentalacting within and upon market relations, thereby subjecting them, with new intensities and demands, to social and political pressures and action. It was a mixture, interplay, checking and balancing of authority in which social discretion, exercised in associational decision-making in corporations, in civic bodies, in politics, and in fiscal, financial, monetary, distributive, entrepreneurial, and regulatory powers of government, grew and developed, with functions on a scale and with a scope representing a departure from the past, and a new stage in the history of property-production systems (or modes of production).

The period 1890s-1916 marked the origins and only an early phase of this historic departure. The more corporate capitalism developed, and the more capital accumulation evolved into what I have elsewhere interpreted as capital disaccumulation,10 the stronger became the socialist characteristics and trends, involving a continuing enlargement and interplay of the spheres of associative governance in both the “private” and “public” sectors.


Now let me indicate formative aspects of the government role, through law and judicial process, in this early phase in the development of corporate liberalism, especially as it related to two major questions: (1) how to permit and at the same time check, balance, and harness the great concentrations of power in the market and in society represented by the large corporations; (2) how to fashion a system of substantial and growing governmental regulation, intervention, and participation in the market without surrendering the principle and practice of society’s supremacy over the state, without that is, embracing a comprehensive system of state command: In short, how to reconcile the modern economyand the capitalism-socialism mixwith liberal democracy.

It is helpful to keep in mind that by the late 1880s, Americans were no strangers to significant U.S. government involvement in shaping or regulating national economic developmentat that time, for example, not to mention prior times, the rules and regulations governing the national banking system, public land disposal, rivers and harbors projects, land grants for higher education in aid of agriculture and industry, subsidies and land grants to transcontinental railroads, soldiers and widows pensions, protective tariffs, laws providing for and regulating the creation and supply of money. New initiatives for extending and intensifying the national government’s engagement in regulating the economy came as a response to a growing regulatory power that had emerged in the market on the part of capitalist enterprises, usually in corporate form, first in railroads and then in some manufacturing industries. In other words, national government engagement in these areas arose as a practical response to changing market circumstances translated rather promptly into political issues in an environment of liberal democracy. It was a case of “business” preceding government in the acquisition and development of regulatory powers.

In railroads and industry, the regulatory power developed by “private parties” through internal

growth, functional and product diversification, marketing and contractual strategies, managerial organization, and mergers (loose and tight), was designed for several purposes, one of the more important purposes, or at any rate an essential effect, being to give their business institutions a “social security” against the invisible hand of the competitive market-price mechanism. Government was brought into the regulatory function, in part, by these parties’ feeling they needed governmental assistance to make their “social security” arrangements lasting and fully effective; in part, by the efforts of their competitors, suppliers, customers, employees, civic hosts or neighbors, and reformers, who feared such unchecked market power in restricted or privileged hands and its political and cultural, as well as its economic, implications; in part, by those who welcomed the new business power, if properly harnessed and limited, as a progressive step in the nation’s modern development; and in part, by those, like farmers, who would have liked, but by themselves were unable to attain, a similar power of social security, and resorted to government both to protect themselves from those who could attain it and to help them get it for themselves. By the 1890s, the movement toward government regulation of the economy was quite diverse and therefore rather broadly based, and it combined an interest in powers of social security with an interest in making such powers socially accountable, whether on the narrower ground of self-protection or on the broader ground of the public interest and the general welfare.

The regulatory interest in corporate social accountability encompassed the following concerns, among others: (1) providing a replacement for the older competitive investment and pricing discipline in spurring cost efficiency, innovation, and growth, and in guaranteeing fair prices, equitable market behavior, and reasonable returns on invesment; (2) making management operate with responsibility toward investors, creditors, consumers, suppliers, distributors, workers, and the public; (3) securing the confidence of investorssmall and medium as well as large, individual as well as institutionalin the corporation, and hence in the stock market, as a safe place for savings and as fair and reliable in the allocation of property income and other revenues; (4) restricting or guiding management practices along lines consistent with conservation of natural resources and the health and safety of employees and consumers; (5) making corporate market power work in favor of, rather than athwart, efforts at moderating the business cycle and stabilizing the economy as a whole with respect to employment, income distribution, and a continuing progressive national development. In the older competitive regime of capitalism, many of these were not governmental concerns; now they were more and more becoming so.

Summarized, accountability encompassed social as well as economic goals, and it involved (1) intra-firm relations, (2) inter-firm relations, and (3) relations between firms and the public, including government. In the years under discussion, it was in spheres (2) and (3) that what may be regarded as formative principles and measures took hold.

For the present sketching purposes, it is helpful to view the first major U.S. government regulatory measures in railroads and industry, the Interstate Commerce Commission Act (1887) and the Sherman Antitrust Act (1890), along with their judicial and statutory revision and supplementation in this period, as representing, respectively, the two basic principles of regulation that guided policy-making in these years: the principle of state command, on the one hand, and positive government, on the other. These two principles correlated strongly with what came to be regarded in policy-making thinking as a basic distinction between public utilities (common carriers, energy, telecommunications) and the general economy: Public utilities, being “natural monopolies” or uncommonly vital to the public interest, could be subjected to state command, but the general economy otherwise should not be so subjected, because that would impair economic efficiency and it would seriously undermine or destroy society’s supremacy over the state. The general economy should therefore be subject to the reach of strong positive government, its powers extending, in Woodrow Wilson’s words, as far as “experience permits or the times demand,”11in such manner as to promulgate rules of market behavior, incentives, and inhibitions, but nevertheless leaving to enterprises the primary and initiating roles as actors in the market, while subjecting them to a secondary yet substantial governmental regulation. In this way, corporations could be made agents of social policy without discarding the productive and marketing dynamism associated with capitalist enterprise.

This outlook correlated strongly with, indeed validated and gave a legal framework for, new principles and practices of an administered market system, as against the older “free (competitive) market” system. In the public utilities field, judicial decisions in the 1880s and 1890s, which extended substantive and procedural due process protections to corporations,12 established a legal framework for maintaining investor ownership and protecting an investor property right to a reasonable return, while subjecting common carriers to comprehensive oversight by the ICC. Congress then revised and filled out that legal framework as it strengthened and extended the Commission’s powers from oversight to comprehensive controls, in the Elkins act (1903), the Hepburn Act (1906), and the Mann-Elkins Act (1910), controls that ranged across the board from rate setting to investment operations. In the Adamson Act of 1916, furthermore, Congress added controls over hours of work (eight-hour day for railway workers). Comprehensive government control became the pattern for public utilities in general, in state and local as well as national policy, at that time and subsequently. Some outright government ownership occurred, but the prevalent pattern in public utilities was one that combined methods of state command with investor ownership and “private” corporate management: a species of public service enterprise. In mixing public and private authority, the enterprise serves social policy and goals, while preserving the incentive of associational intiative and gain. United States policy in the public utility field thereby applied, by attenuating, the principle of state command.

With respect to the rest of the economy in general, the essential questions in policy-making debate in this period became, first, whether to permit large corporate enterprise to exercise regulatory powers in the market at all, and if so, whether to treat it in effect as a public utility subject in principle to state commandin practice to an attenuated state commandor whether to subject enterprise to a strong, but secondary, government regulation consistent with the principle of positive government in a liberal democracy. The older common law tradition concerning restraint of trade and monopoly had permitted regulatory powers exercised by business enterprise if they did not violate public policy, if they did not involve unfair practices or prices, if they did not unduly injure or impair the public health, safety, morals, or welfare, and if they did not violate others’ legitimate property rights or liberties or improperly prevent them from entering a business or competing in the market if they so wished. This left a wide berth for judicial guidance or determination on a case by case basis that permitted consideration and affirmation of changing practices with changing circumstances as the market and the economy evolved. The question in U.S. jurisprudence and politics became whether the Sherman Act constituted a federal statutory embodiment, or a superseding, of the common law tradition.

From 1897 to 1911, the U.S. Supreme Court held that the Sherman Act had superseded the common law, that therefore only the U.S. government, and not business enterprise, could exercise regulatory powers over the interstate and foreign market, and that otherwise the market must be left to the older forces of the competitive mechanisms.13 Presidents William McKinley, Theodore Roosevelt, and William Howard Taft declined to apply the Sherman Act to the enforcement of such public policy. Viewing large corporations as technologically and economically progressive, although in need of governmental supervision to make them socially accountable, but without embracing the inefficiencies of government ownership, Roosevelt came to advocate applying the public utility principle to large corporations in the economy in general. This would mean submitting them to a state command system of federal registration or license combined with commission regulation, covering their contracts, investment strategies, market behavior and, as the state might consider it necessary, prices, wages, and labor policies. Roosevelt’s proposals sharpened the focus on the larger issues at stake, and it resulted in their rejection not only by Congress, but also by some of his own closest political loyalists.14

In 1911, the Supreme Court, in the “Rule of Reason” decisions in the Standard Oil and American Tobacco cases, reinterpreted the Sherman Act to constitute, after all, a federal statutory embodiment of the common law.15 The Federal Trade Commission Act and the Clayton Antitrust Act, of 1914, combined with the Supreme Court’s common law construction of the Sherman Act, established the essential framework of positive government regulation for the general economy (apart from public utilities) that has since prevailed, permitting regulatory powers by business enterprise in the market, but subject to legislated policies, executive commission action, and judicial process and review. What is in effect the common law approach of the federal regulatory framework provides for the combining of “public” and “private” authority, leaving broad initiative and discretion to individual and associational activity in enterprises and in the market, while at the same time limiting them by, or making them serve, public policy and social goals, but without subjecting them, or the economy in general, and hence society to a very large degree, to state command.16 This framework for the mixture of public and private authority became the basis for making corporations socially accountable in a liberal democracy, and was applied generallyfor example, to the establishment and design of the Federal Reserve System in commercial banking, the Federal Farm Land Banks in agricultural finance (to mention examples only within the period under discussion), and as time went on, to many other spheres. It would not be until the 1930s that effective attention would be paid to intra-corporate accountability, especially with respect to management-labor relations.


In the early years of the 20th century, the capitalism-socialism mix already found expression in the thinking and writings of leading U.S. social-science intellectuals (not to mention the many, many others in intellectual and public life). In 1913, for example, John Bates Clark, the preeminent American neo-classical, marginal-utility economist, stated: “There are two movements in progress which have so strong a hold on the American people that no political party can hope for success which disregards them. They are both moral and economic in nature, and . . . taken together, they have placed American politics on somewhat the same moral plane which they occupied before and during the Civil War. We may characterize them as the struggles for Socialism on the one hand, and for reform on the other.” In so far as socialists utopians, Clark held that they “can always outdo other classes but as realists “in all probability reformers can outdo them in It was a matter of choosing between a socialist’s unrealizable “vision . . . more beatific than any other,” and a reformer’s “Eden he can seriously expect to reach,” and that “is practicable for all humanity.”17

At about the same time, Wesley Clair Mitchell, the great pioneer in business cycle study, and in the 1920s a principal adviser to Herbert C. Hoover (both while Secretary of Commerce and President), wrote: “The union of self-interest and social service in the economic life of the individual appears in a larger scale in the life of society under the guise of a union of individualistic and socialistic institutions.” (Note: institutions, not merely inclinations, or tendencies, or ideals.) Seeing symbiosis, rather than mutual repulsion or exclusion, between money market relations and socialism, Mitchell observed that “Production as carried on by a thoroughgoing use of money is in external form an eminently socialistic process. It is conducted by interdependent groups of interdependent individuals.” People “can promote their individual interests best by working with others and for others,” while at the same time, “they make their own terms, and they are nominally free” to change jobs. “This union of self-interest and social service in the economic life of the individuals, and of individualistic and socialistic institutions in the economic life of society, rests on the use of money as a means of conducting exchanges.” Mitchell here, in effect, formulated a principle of the associational and market basis of the capitalism-socialism mix. Mitchell valued highly the productive vitality of capitalism, and at the same time, he noted that “the socialist movement is one of the dynamic forces in the present body politic with which everyone must count who seeks to know what is and forecast what will be.”18

Earlier, in 1896, Henry Carter Adams, the American statistician, economist, and ICC official, wrote: “Certain it is that association is responsible for an increment of product peculiarly its own. . . . These suggestions are not new. They are, on the contrary, the common thought of socialist writers. . . . To deny the fact of social production, and thus preclude the possibility of a development in the idea of property, is not only unfortunate, but there is no justification for it . . . Individualism does not consist in living in isolation, but rather dwelling in a society of recognized interdependencies. Its development is marked by the regress of self-sufficiency and the progress of association.” Adams accordingly noted that, although “The modern productive process is undoubtedly a highly socialized process,” this did not mean that “each individual must be swallowed up in society.” In modern society, individualism and associationalism went hand in hand. It followed that John Stuart Mill had brought political economy, in Adams’s words, “as far as it was capable of being brought under the eighteenth century concept of property, and the further evolution of industrial theory, as well as the reconstruction of the legal framework of industrial society, must begin with the modification of the concept of property. . . .” Significantly, Adams observed that “It is a common law development and not a constitutional change, or a statutory enactment, that is needed.”19

It tends to be forgotten that the U.S. historian Frederick Jackson Turner, writing much of his most influential work in the period 1890-1916, directed his thinking, including his “frontier thesis,” not only to explaining the United States’s difference from European societies, but also to explaining the passing of that difference, and the development of the United States, from the closing years of the 19th century onward, along lines very much similar to those of other industrializing countries, especially those of western Europe, and in particular to explaining why in the United States, no less than in Europe, as he wrote in 1891, “The age of machinery, of the factory system, is also the age of socialistic inquiry. . . . we are approaching a pivotal point in our country’s history.” Twenty years later, Turner found in the nation’s further historical development strong reinforcement of this view. In 1911, he wrote, “The present finds itself engaged in the task of readjusting its old ideals to new conditions and is turning increasingly to government to preserve its traditional democracy. It is not surprising that socialism shows noteworthy gains as elections continue.” It may be that Clark, Mitchell, Adams, and Turner understood the United States and its modern course of development better than Werner Sombart, who thought there was “No Socialism in the United States,” and better than many professing socialists then and since.20

The foregoing essay is a revised and expanded version of a paper presented under the title, “Making Corporations Accountable in a Liberal Democracy: The United States in the Modern Formative Era, 1890s-1916,” at the Fifth International Week on the History of the Enterprise: Hierarchies, Markets, Power in the Economy: Theories and Lessons from History. Libero Istituto Universitario Carlo Cattaneo, Castellanza, Italy, 15, 16, 17 December 1993.

1See, e. g., Alfred D. Chandler, Jr.’s reference to this matter in his book, The Visible Hand: The Managerial Revolution in American Business_ _ (Cambridge, Mass.: Harvard University Press, 1977), p. 6.

2See, e. g., Alfred D. Chandler, Jr. and Herman Daems, eds., Managerial Hierarchies (Cambridge, Mass.: Harvard University Press, 1980); Louis Galambos, “What Makes Us Think We Can Put Business History Back into History?” Business and Economic History, 2d ser., Vol. 21, 1992, pp. 1-11; William Lazonick, Business Organization and the Myth of the Market Economy (Cambridge: Cambridge University Press, 1991); Leslie Hannah, The Rise of the Corporate Economy: The British Experience (London: Methuen, 1983); Michael E. Porter, The Competitive Advantage of Nations (N.Y.: Free Press, 1990); Oliver Williamson, The Economic Institutions of Capitalism (N.Y.: Free Press, 1985).

3See William A. Williams, The Contours of American History (Cleveland: World, 1961); W. A. Williams, The Great Evasion (Chicago: Quadrangle, 1968).

4See the classic work, Richard Hofstadter, The Age of Reform: From Bryan to F.D.R. (N.Y.: Vintage Books, 1955); for some of my own views on this, see M. J. Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, the Law, and Politics (Cambridge: Cambridge University Press, 1988), especially ch. 1, and M. J. Sklar, The United States as a Developing Country: Studies in U.S. History in the Progressive Era and the 1920s (Cambridge: Cambridge University Press, 1999), esp. chs. 1, 2, and 7.

5See my discussion of this at The United States as a Developing Country, pp. 20-30.

6Karl Marx, Capital (Moscow: Foreign Languages Publishing House, 1959), Vol. III, pp. 427-432; M.J. Sklar, United States as a Developing Country, pp. 30-34.

7See Scott R. Bowman’s invaluable work, The Modern Corporation and American Political Thought: Law, Power, and Ideology (University Park, Pa.: Pennsylvania State University Press, 1996), esp. ch. 4, pp. 125-184.

8See, e. g., Charles A. Conant, “Crises and Their Management,” Yale Review, 9 (Feb. 1901), pp. 374-398; George W. Perkins, “The Modern Corporation,” in E. R. A. Seligman, ea., The Currency Problem and the Present Financial Situation (N.Y.: Columbia University Press, 1908), pp. 155-170. For the classic formulation and explication of administered markets under corporate capitalism, see Gardiner C. Means, The Corporate Revolution in America: Economic Reality vs. Economic Theory (N.Y.: Collier BooXs Edition, 1964), which presented in one volume various essays written by Means over a period from the 1930s to the 1960s.

9See, e. g., Chandler, Visible Hand, esp. pp. 1-12 for summary statement, and Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass.: Harvard University Press, 1990), esp. chs. 1, 2, for overview; Lazonick, Business Organization and the Myth of the Market Economy.

10See M. J. Sklar, United States as a Developing Country, chs. 1, 5, and 7.

11Woodrow Wilson, The State (Boston: D. C. Heath, 1906), p. 625.

12For cases and discussion, see M. J. Sklar, Corporate Reconstruction, pp. 49-51; John R. Commons, Legal Foundations of Capitalism (1924; Madison: University of Wisconsin Press, 1957), pp. 6-7, ll-46; J. Willard Hurst, The Legitimacy of the Business Corporation in the Law of the United States, 1780-1970 (Charlottesville: University Press of Virginia, 1970), pp. 65, 68-71; Morton J. Horwitz, “Santa Clara Revisited: The Development of Corporate Theory,” in Warren J. Samuels and Arthur S. Miller, eds., Corporations and Society: Power and Responsibility (N.Y.: Greenwood Press, 1987), pp. 1363.

13The leading cases were: U. S. v. Trans-Missouri Freight Association, 166 U.S. 290 (1897); U. S. v. Joint Traffic Association, 171 U.S. 505 (1898); U. S. v. Addyston Pipe & Steel Co. et al., 175 U.S. 211 (1899).

14See discussion of T. Roosevelt’s position at M. J. Sklar, Corporate Reconstruction, pp. 184-203, 228-285, 334-364; also, T. Roosevelt, “The Trusts, the People, and the Square Deal,” Outlook, 99 (18 Nov. 1911), pp. 649-656; T. Roosevelt, “. . . Where We Cannot Work with Socialists,” and “Where We Can Work with Socialists,” Outlook, 91 (20, 27 March 1909), pp. 619-623, 662-664.

15Standard Oil Co. of New Jersey v. U. S., 221 U.S. 1; American Tobacco Co. v. U. S., 221 U.S. esp. pp. l79-l80.

16M. J. Sklar, Corporate Reconstruction, pp. 166-175.

17Emphasis added. John Bates Clark, “Reform or Revolution,” 27 Jan. 1913, J. B. Clark, Papers, Rare Books and Manuscript Library, Butler Library, Columbia University, N.Y.C.

18Emphasis added. Wesley Clair Mitchell, “Reasons for Studying Socialism,” 17 April 1916, and “Money Economy and Economic Efficiency,” W. C. Mitchell Papers, Rare Books and Manuscript Library, Butler Library, Columbia University, N.Y.C.

19Emphasis added. Henry Carter Adams, “Economics and Jurisprudence” (1896), in Henry C. Adams, Two Essays, ea., Joseph Dorfman (N.Y.: Augustus M. Kelley, 1969), pp. 152, 159-160.

20Frederick Jackson Turner, “The Significance of History” (Nov. 1891), and “Social Forces in American History” (Jan. 1911), in Frontier and Section: Selected Essays _ Frederick Jackson Turner, ea., Ray A. Billington (Englewood Cliffs, N.J.: Prentice-Hall, 1961), pp. 17, 21, 161; Werner Sombart, Why Is There No Socialism in the United States? (1906; White Plains, N.Y.: International Arts and Sciences Press, 1976).


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