The Modern Corporation and Private Property

The Modern Corporation and Private Property

"The Modern Corporation and Private Property" is a book written by Adolf Berle and Gardiner Means and published in 1932. It explores the evolution of big business through a legal and economic lens, and argues that in the modern world those who legally have ownership over companies have been separated from their control. The second, revised edition was released in 1967. It serves as a foundational text in corporate governance, company law and institutional economics.


Berle and Means argued that the structure of company law in the United States in the 1930s enforced the separation of ownership and control because the corporate person formally owns a corporate even while shareholders own shares in the corporate entity and elect corporate directors who control the company's activities. Compared to the traditional notion of property, say over one's laptop or bicycle, the functioning of modern company law “has destroyed the unity that we commonly call property”. This occurred for a number of reasons, foremost being the dispersal of shareholding ownership in big corporations: the typical shareholder is uninterested in the day to day affairs of the company, yet thousands of people like him or her make up the majority of owners throughout the economy. The result is that those who are directly interested in day to day affairs, the management and the directors, have the ability to manage the resources of companies to their own advantage without effective shareholder scrutiny.

“The property owner who invests in a modern corporation so far surrenders his wealth to those in control of the corporation that he has exchanged the position of independent owner for one in which he may become merely recipient of the wages of capital... [Such owners] have surrendered the right that the corporation should be operated in their sole interest...” [at p.355 of the 1932 edition]

Berle and Means researched the consequences of ownership and control being separate. As businesses grow and shareholders increase in number, any shareholdings that directors have will be a proportionally smaller capital stake. Directors' income will derive mostly from return on their labor as directors, not from their capital investment. If their motivation is purely pecuniary

“the owners most emphatically will not be served by a profit seeking controlling group”. [Berle (1967) p.114]

Although “self interest has long been regarded as the best guarantee of economic efficiency” by offering to the owner the full fruits of his or her property’s use, the effect of separating control from ownership, of property utilization from profit, is that “the incentive for property’s efficient use comes no longer from property.” [Berle (1967) p. 9]

The implications of their work was clear. Berle and Means advocated embedded voting rights for all shareholders, greater transparency, and accountability. However, with the release of the revised edition, Berle and Means also pointed to the disparity that existed between those who did have shareholdings and those that did not. They wrote in the preface,

“Stockholders toil not, neither do they spin, to earn [dividends and share price increases] . They are beneficiaries by position only. Justification for their inheritance... can be founded only upon social grounds... that justification turns on the distribution as well as the existence of wealth. Its force exists only in direct ratio to the number of individuals who hold such wealth. Justification for the stockholder's existence thus depends on increasing distribution within the American population. Ideally the stockholder's position will be impregnable only when every American family has its fragment of that position and of the wealth by which the opportunity to develop individuality becomes fully actualized.” [ Berle (1967) p. xxiii]

ee also

*History of economic thought



*Berle, Adolf; Means, Gardiner (1967) "The Modern Corporation and Private Property", New York : Harcourt, Brace and World , ISBN 0887388876

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