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The Speculation Economy

Book Description

American companies once focused exclusively on providing the best products and services. But today, most corporations are obsessed with maximizing their stock prices, resulting in short-term thinking and the kind of cook-the-books corruption seen in the Enron and WorldCom scandals. How did this happen? In this groundbreaking book, Lawrence E. Mitchell traces the origins of the problem to the first decade of the 20th century, when industrialists and bankers began merging existing companies into huge “combines”—today’s giant corporations—so they could profit by manufacturing and selling stock in these new entities. He describes and analyzes the legal changes that made this possible, the federal regulatory efforts that missed the significance of this transforming development, and the changes in American society and culture that led more and more Americans to enter the market, turning from relatively safe bonds to riskier common stock in the hopes of becoming rich. Financiers and the corporations they controlled encouraged this trend, but as stock ownership expanded and businesses were increasingly forced to cater to stockholders’ “get rich quick” expectations, a subtle but revolutionary shift in the nature of the American economy occurred: finance no longer served industry; instead, industry began to serve finance. The Speculation Economy analyzes the history behind the opening of this economic Pandora’s box, the root cause of so many modern acts of corporate malfeasance.

Table of Contents

  1. COVER PAGE
  2. TITLE PAGE
  3. COPYRIGHT PAGE
  4. PREFACE
  5. PROLOGUE
  6. ONE: THE PRINCIPLE OF COOPERATION
    1. THE GIANT MODERN CORPORATION
    2. THE RISE OF FINANCE
    3. “INDUSTRY IS CARRIED ON FOR THE SAKE OF BUSINESS”
    4. LAISSEZ-FAIRE
    5. THE RISE OF INDUSTRIAL COMPETITION
    6. THE PRINCIPLE OF COOPERATION
    7. THE NEED FOR COOPERATION
    8. THE LIMITS OF COOPERATION
    9. STANDARD OIL AND THE TRUST
  7. TWO: SANCTUARY
    1. THE POWER OF THE STATES
    2. WHY NEW JERSEY?
    3. THE LEGAL FOUNDATION OF THE GIANT CORPORATION
    4. THE NEW JERSEY COURTS —A FUTILE ATTEMPT TO MAINTAIN INTEGRITY
    5. YOU NEVER HAVE TO LIVE IN JERSEY AND OTHER FEATURES
    6. WHERE WERE THE OTHER STATES?
  8. THREE: TRANSCENDENTAL VALUE
    1. OVERCAPITALIZATION
    2. A QUESTION OF VALUE
    3. THE LEGAL BACKGROUND OF WATERED STOCK: THE CONCEPT OF PAR VALUE
    4. WATERING STOCK
    5. WATERED STOCK IN ACTION: THE CASE OF U.S. STEEL
    6. DEFENDING OVERCAPITALIZATION
    7. THE WATER WAS DEEP
    8. CAPITALIZATION VERSUS REAL CAPITAL
    9. WHAT WAS THE PROBLEM?
    10. TRANSCENDENTAL VALUE
  9. FOUR: THE NEW PROPERTY
    1. FROM DEPRESSION TO PROSPERITY
    2. THE MODERN MARKET
    3. SOCIALIZING THE MARKET
    4. SPECULATION —A MATTER OF KNOWLEDGE
  10. FIVE: THE COMPLEX WHOLE
    1. THE FAILURE OF FEDERAL INCORPORATION
    2. A PRELUDE TO FEDERAL INCORPORATION — THE CHICAGO CONFERENCE ON TRUSTS
    3. FROM ANTITRUST TO FEDERAL INCORPORATION
    4. ROOSEVELT DISCOVERS THE TRUSTS
  11. SIX: MUCH ADO ABOUT NOTHING
    1. THE FEDERAL INCORPORATION ERA
    2. THE LITTLEFIELD BILL OF 1903
    3. THE FAILURE OF THE LITTLEFIELD BILL
    4. SOUND AND FURY —THE FIRST REPORT OF THE BUREAU OF CORPORATIONS
  12. SEVEN: PANIC AND PROGRESS
    1. THE PANIC OF 1907
    2. ROOSEVELT’S LAST CHANCE —FEDERAL INCORPORATION, THE HEPBURN BILL AND THE FAINT BEGINNINGS OF INVESTOR PROTECTION
    3. THE ROOTS OF SECURITIES REGULATION
    4. CAPITAL VERSUS THE CONSUMER: SECURITIES REGULATION THROUGH THE RAILROADS
  13. EIGHT: THE SPECULATION ECONOMY
    1. THE NEW SPECULATION
    2. THE NEW SPECULATION TAKES ROOT
    3. THE NEW COMMON STOCKHOLDER
    4. OLD-FASHIONED SPECULATION AND THE SECOND NEW ERA
  14. NINE: THE END OF REFORM
    1. THE DEMOCRATS RETURN
    2. WILSON AND BUSINESS
    3. THE COLLECTIVE SOCIETY
    4. THE FEDERAL RESERVE
    5. THE PUJO COMMITTEE
    6. THE OWEN BILL
    7. INCORPORATING THE EXCHANGES — THE PATH TO ENFORCEMENT
    8. THE END OF BUSINESS PROGRESSIVISM
    9. JUST BELIEVE
    10. PROPHET OF PROSPERITY
  15. TEN: MMUFACTURIIVG SECURITIES
    1. WALL STREET IN A TIME OF WAR
    2. THE CAPITAL ISSUES COMMITTEE
    3. THREE WAVES OF MARKET DEVELOPMENT AND THE RISE OF MODERN SECURITIES REGULATION
    4. MODERN SECURITIES REGULATION: THE LEGAL ACCEPTANCE OF THE SPECULATION ECONOMY
  16. EPILOGUE
    1. THE MANAGERIAL ERA
    2. SEPARATING STOCK FROM BUSINESS
    3. THE RELEASE OF THE SPECULATION ECONOMY
  17. NOTES
  18. SELECT BIBLIOGRAPHY
  19. INDEX
  20. ABOUT THE AUTHOR
  21. ABOUT BERRETT-KOEHLER PUBLISHERS
  22. BE CONNECTED