The other day, on a whim, I wondered what William Blackstone wrote about joint-stock companies. Blackstone wrote his thorough and erudite Commentaries on the laws of England between 1765 and 1769. His presentation of English common law as a coherent system of justice resting on natural law dynamics inherent in human nature solidified the intellectual framework for constitutional democracy under the rule of law ideal, a great boon to humankind as we have seen over the last 250 years.

Somewhat to my surprise, I did not find any reference to joint-stock companies in his index.

But I did find a reference to “partnerships.” Turning to page 437 in Volume 3 in my copy of his Commentaries, I made (to me at least) an exciting discovery overlooked all these years of legal study.

Blackstone commented on partnerships – a form of business enterprise with shared ownership and responsibilities – in his chapter on the courts of equity. In addition to partnerships, it turns out he put most activities in what we would consider business or capitalism under the jurisdiction of courts of equity and not courts of law.

Equity, he said, had jurisdiction of all matters where an accounting is required: partnerships, personal assets, debts, estate gifts and bequests, distribution of the residue of holdings, of deposits of goods for security, holders of goods on behalf of others, “factors” or wholesalers and agents.

Courts of Equity also had jurisdiction of cases of “security” where money was lent on the pledge of property as a security for re-payment, such as a mortgage. The pledge on oath created a moral obligation to perform. Thus, the basis for modern finance was put under the supervision of equity.

Any property put in trust for management by a trustee of some kind – a corporate director for example – was also under the jurisdiction of equity.

He wrote “It would be endless to point out all the several avenues in human affairs and in this commercial age, which lead to or end in accounts.”

Now, contracts, both express and implied, so necessary for finance and commerce were under the jurisdiction of courts of law unless some fraud or misrepresentation or other malfeasance was the cause of the dispute over performance by one party or the other to a contract. Then, the aggrieved party could move the litigation to a court of equity.

For centuries, the English lived under and argued their disputes with each other in two different systems of court procedure. One was law and the other equity. To oversimplify, law was based on rules allocating rights and powers, while equity was based on good morals to prevent abuse of powers given by the law. The combined system, we could say, attempted to integrate law with morals.

In the U.S. today, there is no longer such a distinction between two kinds of courts or two different procedures. In 1938, the federal courts combined law and equity in one system of procedure. Equitable doctrines can be applied by any court if relevant to the case before it. Thus, for decades, American law schools have not taught separate courses on equity and only a few have courses on English legal history.

But there is support for the Caux Round Table for Moral Capitalism’s mission of promoting moral capitalism in Blackstone’s discussion of equity.

Intuitive resistance to both the ideal and the practicality of moral capitalism arises from marginalization of the moral sense as a factor in human affairs. Giving up on the moral sense condemns capitalism to a brutish form of competition. With a conviction more in keeping with Herbert Spencer’s social darwinism and its modern progeny, the agency problem, many think of business as purely immediate selfish exploitation of opportunity without regard for good faith, proportionality, stakeholders or long-term consequences.

Law would be enough for such enterprise. There is no need for equity.

Moral capitalism, however, requires equity. Moral capitalism posits that “moral” factors not only should be applied in business but that doing so can predictably lead to better outcomes.

Blackstone’s commentary demonstrates that in his time, moral factors (equity) were required as a part of doing business in a “commercial” society. His presentation of the laws of England is proof that moral capitalism has a claim to legitimacy before the law.

Is the CRT a New Republic of Letters?

I am often asked “What is the Caux Round Table for Moral Capitalism (CRT)?” I don’t really have a ready answer. Usually, to make it short, I say something like: “We advocate principled business leadership” or “We are a global network of individuals who seek to promote goodwill and develop good ideas for a better, more moral, capitalism.”

But calling the CRT an advocacy network doesn’t quite reveal how we go about our work or how we’ve evolved. We are not an academic body. We are not a foundation. We do not lobby, per se, in politics. We are in the public domain open to everyone. We trade in ideas. We bring people together for discussion, reflection and intellectual development. We do best when insights are put on the table.

Recently, on a whim, I picked up a book with the title The Republic of Letters. It was originally written in French by Marc Fumaroli and gives us a history of the evolution of an advocacy network which started the Renaissance and then provided momentum for the Enlightenment.

The so-called “Republic” defined itself by the practice of reading and discussing written texts. The Republic was anywhere such reading and discussion took place. It was a transnational cultural territory inhabited by vibrant minds engaging one another with ideas drawn from reading and circulated by spoken or written word.

It was self-consciously animated as being different from the “Republic of Christians” seeking to recover classic thought of Greece and Rome, especially the polymorphous discourse of rhetoric (Aristotle, Cicero, and Quintilian) as a basis for intellectual community and the pursuit of knowledge and truth.

Rhetoric is about persuasion, not compulsion, in thought and faith. It presumes the worth of the audience and seeks their understanding and assent. It is fundamentally pluralistic and democratic.

But in the wrong hands or stimulated by the wrong ideas, rhetoric can easily sink into sophistry and demagogy. Only the character of the speaker can forestall that degradation of discourse.

Rhetoric requires ethics to keep it away from the dark side of human desiring. Quintilian defined excellence in oratory as “A good man speaking well.” Such a persuader needed to be educated but first, had to be good. In that same way of leading others, the Republic of Letters was a psycho-social sphere promoting personal excellence.

Where the Republic of Christians was religious and circled around the exclusive truth of Christian scripture, the Republic of Letters was secular and saw itself freely open to principles of natural law.

The original Republic of Letters – Res Publica Litteraria – was stimulated by Petrarch (1304-1374) due to his “contagious passion for unearthing and reconstructing the scattered and buried treasures of the classical humanitas (the value and potency of being human) and its urbanitas (urbane sophistication).”

Later, Erasmus was its chair. One of his compatriots in the Republic called it “That ocean of antiquity which by natural law is common to all.”

Later, another member called it “This society of savants, fully occupied with cultivating, promoting and propagating the sciences and the arts, which is dispersed across all regions of this universe.”

The Republic had no law, no structure, no budget, no governance and no imposed authority. It saw itself as someplace outside the controversies between Roman Catholics and Protestants as to scripture, authority to speak for God and other asserted certainties.

It described itself as a society of minds with no citizenship subject to the strictures of any particular religion or state, a pedagogical and erudite province of culture – existing in books and in the minds of those who read them. Perhaps something like a chivalrous, semi monastic religious order of thinkers.

The Republic of Letters was a network of volunteers only. Its territory was the mind. Its governance was by letters and discussion groups. It had no power to coerce. It could only invite participation. Many names of such Republicans discussed in Fumaroli’s book were new to me and many were Italian, especially from Venice.

But such a Republic made our world better.

Could it be that the CRT is a nascent, new Republic of Letters?

The Way to Wealth in the Opinion of Benjamin Franklin

In 1757, the American businessman Benjamin Franklin wrote a small pamphlet which he called The Way to Wealth. It was widely read and its maxims were assiduously followed.

Franklin thought of wealth as an asset, not as making a profit today but maybe tomorrow. Today, the Caux Round Table for Moral Capitalism seeks to draw attention to assets as the engines of market capitalism, including intangible assets such as personal character and social capital.

Wealth was capital for Franklin, that which made income possible. Thus, to enjoy lots of income in the future required first building up assets and sustaining their value. The most important assets for him were personal, readily at hand for every right-minded person.

His advice was:

1) Avoid bad habits: idleness; sloth; pride; folly; for God helps those who help themselves; want of care does us more damage than want of knowledge; a little neglect may breed great mischief

2) Be industrious day in and day out: many words won’t fill a bushel; do not squander time for that’s the stuff life is made of; the sleeping fox catches no poultry; there will be sleeping enough in the grave; lost time is never found again; one day is worth two tomorrows; early to bed and early to rise makes a man healthy, wealthy and wise; he that lives upon hope will die fasting; there are no gains without pains; diligence is the mother of good luck; little strokes fell great oaks; keep your nose to the grindstone

3) Our wealth is ourselves: trusting too much to others’ care is the ruin of many; he that by the plough would thrive, himself must either hold or drive; if you would have a faithful servant and one that you like, serve yourself

4) Keep what we have: get what you can and what you get, hold; be frugal; for age and want, save while you may for no morning sun lasts a whole day; a penny saved is a penny earned; think of saving as well as getting; a small leak will sink a great ship; fools make feasts, wise men eat them; silks and satins, scarlet and velvets, put out the kitchen fire; when the well’s dry, they know the worth of water; a ploughman on his legs is higher than a gentleman on his knees

For Franklin then, the way to wealth must run through character, an intangible capital of great value.

Financialism Round Table – May 24th

The 2020 presidential campaign is now underway.  The big issue shaping up for the American people seems to be “capitalism.”

Do we want to keep “it” or should we go for “socialism?”

What is our capitalism anyway?  Certainly not what it once was in the age of steam power now that we are in the age of the internet with Hydra-headed AI heading our way to revolutionize our lives yet again.

Heraclitus had a point: “Things always change.  You can’t step into the same stream twice.”

Yet, some things about capitalism seem to be the same: the rich have it better than the poor and those with assets get more assets.  Those with capital do better than those who only bring labor to the economy.  A few companies still dominate market segments.  The middle class does not have enough savings for retirement.  Those dissatisfied call on the state to make things right.

The share of our economy which is finance has grown as never before in history.  Returns to liquidity outpace wage increases.  It was unbalanced financialism which brought on the collapse of credit markets in 2008.  Companies set their courses to influence stock markets which have attention deficit disorder.  Is this wise?

Please join us and John Taft, Vice Chairman of Baird, for a round table discussion on financialism at 9:00 am on Friday, May 24th at the Minneapolis Club.

John has been Chairman of the Securities Industry and Financial Markets Association.  He’s also the author of two well-received books on finance, Stewardship: Lessons Learned from the Lost Culture of Wall Street and A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism.  He is the great grandson of U.S. President William Howard Taft.

Registration and a light breakfast will begin at 8:30 am and the event at 9:00 am.

Cost to attend is $15 for Business and Public Policy Round Table members and $35 for non-members.  Payment will be accepted at the door.

Space is limited.

To register, please email Jed at or call (651) 223-2863.

The Minneapolis Club is located at 729 2nd Ave South in downtown Minneapolis.

Parking will be available in the Club’s parking ramp.  The entrance to the ramp is on 8th Street.

The event will conclude at 11:00 am.

Merit Goods

One of the most pervasive critiques of capitalism is its stubborn persistence in producing goods and services having little or no merit in the eyes of its critics.

Those determined to reverse global warming blame capitalism, its markets, its consumers and its governance, for creating and thriving on a hydro-carbon energy system.

Other critics bemoan “affluenza” and “consumerism” as almost an intentional capitalist conspiracy to undermine humanity’s moral nobility with cheapness of things and vulgar materialism.  Capitalism is said to be a system made by and for a “nouveau riche” sensibility, a deplorable middle class, middlebrow indulgence in trivial pursuits and enjoyments lacking any redemptive meaning in our cosmos.

Welfare economists have come up with a notion of “merit” goods which speaks to the value of what is either produced and sold through markets or provided by the state to the deserving as welfare goods and services.

I very much agree that the categories of merit goods and services and un-meritorious goods and services are sound and important for us to keep in mind.  Un-meritorious goods are not really needed in a good society or a wholesome culture.

But my problem with these two categories is my problem with any ethic or morality or with the legitimacy of any authority: “Who says?”

Should we listen to a pope or a tzar to learn what has merit and what must be shunned and excluded from our purchases?  What about following the opinions of bad people?  Or of stupid people who can’t see the consequences for the immediacy of their pleasurable satisfaction in consuming whatever it is they salivate for?

Or just look to good people and ape their consumption patterns?

Who is a good person anyway?  They don’t come from the womb having that label branded on their foreheads for all of us to see.

The free markets of capitalism can’t solve this justification conundrum.  Markets are value-neutral; they facilitate production of what people want.  If there are customers with ready money who know what they want, the history of our species suggests that someone will step forward to meet that demand, be it for guns, sex, drugs, pornography, stolen goods, ad infinitum.

Providing only merit goods is a great challenge to free societies.  We need to do a better job but there seems to be no way to easily and correctly cut the Gordian Knot of convoluted, intertwining, human desiring and free us from sin in demanding that which has no merit.

I recently saw an article for parents on what watching video games does to a child’s brain.  The article makes clear that video games, as intentionally designed by sellers, are not merit goods.

Video games cause the mind to release dopamine which is pleasurable.  The level of dopamine released – the pleasure experienced – rose with a progression of success at the game.  The more difficult the challenges, the better the scores, the better the players got vis-à-vis themselves and others, the more dopamine was released and the less homework got done.  Game designers excel intentionally in arranging for the release of lots of dopamine to keep the gamers at their consoles.

Requests, escalating into demands from parents to stop playing and eat dinner or do homework triggered anger in the child, confrontation with the parents, rejection of authority and a deterioration in the child’s emotional well-being and sociability.

Children give up playing with Legos when asked much more easily.

Then, I saw an article in our local paper here in St. Paul that Creative Kidstuff is going out of business.  There, we bought toys – old fashion toys – which require imagination and creative play – for our grandchildren.  The owner gave as a principal reason for giving up the business that now “children are more likely to play games on electronic devices.”  Can’t buy Legos there anymore but they can still be ordered on Amazon.

A 2017 study found that children and young adults who played video games four or more hours a day for six or seven days a week showed more symptoms of depression than those who put in less time in such self-entertainment.  Now, to me, becoming depressed as the result of using a consumer purchase is not a merit good for anyone.

So, should we outlaw video games?

Secondly, the American drug store chain Walgreens is testing tobacco-free stores under pressure from government health regulators but has no plans to give up selling cigarettes.  But the chain is trying to sell more smoking cessation products and has reduced the visibility of tobacco products to customers.

In a report on Juul, the maker of an alternative to cigarettes, it was said that: “Just two months after agreeing to no longer sell its flavored pods in stores, e-cigarette company Juul is planning to launch its first television ad campaign.  The ads, which are expected to air this summer, will feature testimonials from adults who have used Juul to help them stop smoking cigarettes,” Business Insider reports.  Juul removed its flavored pods from stores amid criticism that the pods specifically target teens.  It also deleted its Facebook and Instagram accounts promoting the flavored pods and has asked Twitter to “police” its posts so they’re not shown to underage users.  The television ads will reportedly cost Juul $10 million and will air on national cable channels after 10:00 pm.  According to executives, the ads are targeted at adults 35 and older and include testimonials from smokers between the ages of 37 and 54.

Thirdly, Big Data, soon to be put on steroids by artificial intelligence, brings to us many benefits, including social media, lower costs, more knowledge of what’s going on, quicker response times, etc.  But in the wrong hands, is it still a merit service?

Micro-targeting of customers by analysis of Big Data memory banks enables companies to enhance their return on advertising, politicians to adroitly stoke the emotions of their followers and autocrats to summon forth willing obedience from citizens.

Today, Facebook is trying to minimize the ability of its WhatsApp communications system in India to contaminate the forthcoming election with falsehoods and demagogic, divisive emotionalism.

Facebook founder and CEO Mark Zuckerberg has now called for government regulation of social media, dependent on Big Data for its ability to sell ads to companies.  He wants government to set rules for the restriction of free speech, the freedom of his suppliers to say whatever they want on his internet platforms, to prevent un-meritorious communications with harmful content, endangering election integrity, abusing privacy and misusing data portability.

The Wall Street Journal, in an editorial, wryly suggested: “Before he invites the protection of the political class, Mr. Zuckerberg should have Facebook fix Facebook.”

In other words, providing merit goods is part of corporate social responsibility.

Another commentator pointed out that once complex regulation is in force, only the big companies like Facebook will have the money to hire the lawyers and technicians to work in and around the rules and regulations and appeal process.  Small, innovative upstart companies will encounter barriers to entry as competitors of Facebook, to the great profit advantage of Mark Zuckerberg.

I note in this connection with a call for Facebook to be more socially responsible that Facebook paid App developers to secretly include Facebook software in their Apps so that users of the Apps unknowingly were sending very personal data to Facebook for the company to sell.  One App, Flo Period and Ovulation tracker with 25 million users, obtained the most intimate information on women’s menstruation cycles on behalf of Facebook.

With respect to free and fair elections, the problem is not the ads which partisans pay to display on Facebook but the very essence of Facebook – exacerbating “poisonous politics by creating filter bubbles of like-minded partisans, spreading hoaxes and inaccuracies, inducing anxiety and paranoia and rewarding clickbait and outrage.”  In other words, it is the Facebook service itself which lacks merit, in many respects.

When we start to think about what to do to promote merit goods and discourage un-meritorious goods, we are on the edge of important innovation.

Low Prices and…

I recently sent you some thoughts on low prices and the irreversible dynamics of capitalism and then came across some “case studies” of this fact-of-life in the news.

First, Amazon, an engorging presence in American life, recently bought a retail grocery chain of brick and mortar stores – Whole Foods. But there is great competition in selling groceries to American consumers, whose tastes are changing by the day. Whole Foods has a brand image of high cost. Amazon is working hard to change that image by lowering costs to attract more customers. To compete with the high-tech Amazon/low-tech Whole Foods amalgam, Walmart, for example, has been lowering its already low prices.

At Whole Foods internal meetings, it was reported that store managers predicted that lower prices could boost traffic to their stores but others voiced concern that lower prices will hurt their operating margins, pressuring them to find more ways to cut costs.

Another story reported that to save money, large American banks are cutting back on their local branch offices. But they are closing branches more in poor neighborhoods. These closings will make it harder for small businesses in poor neighborhoods to access credit to sustain and grow their operations. From 2014 to 2018, banks shut 1,915 more branches in lower-income neighborhoods than they opened.

Third, caviar prices are sinking thanks to an increase in production. China has become one of the largest producers of caviar through fish farming and is driving prices down. Farms have been able to produce large volumes of fish eggs for very low cost.

Prices for caviar have been cut in half since 2012. Sales rose. The U.S. imported $17.8 million of caviar in 2018, up from $7.6 million in 2014.

American farmers of such fish eggs can’t compete. Their labor costs are higher and American regulation limits the use of preservatives which extend the shelf life of caviar. American caviar farmers are trying to maintain sales and so their income, through differentiation of their products in price and taste, appealing more to high end consumers.

Fourth, the increasing selling of generic drugs is lowering profits for Walgreens Boots Alliance, Inc. and CVS Health Corporation. Walgreens has come off its worst quarter for earnings since 2014. Consumers – and health care providers – like lower prices. They are a boon for these stakeholders provided by volume purchasing on the part of insurers and government and by the lack of intellectual property protection for the drugs. But it will change the future for the stores and the makers of drugs.

It seems that prices really do matter to customers but low prices bring about winners and losers.

What is the Problem?

In the news today, Gordon Caplan, former Co-Chairman of the prestigious U.S. law firm Willkie Farr & Gallagher, pleaded guilty in federal court to cheating to get his daughter accepted for admission to a “prestigious” college. He paid $75,000 to have his daughter’s test score corrected and raised.

Then, it was reported that Boeing will cut production of its 737 Max aircraft by one fifth and constitute a special committee of the board to examine its development of new planes. This as a result of past design decisions which may have contributed to recent crashes of 737 MAX aircraft.

In both cases, remediation was necessary to offset harm that could have been prevented had better judgment been used by the decision-makers.

Systems did not cause these two shortfalls in judgment; lack of individual reflection did. The one who broke the law was a lawyer. Senior Boeing officers were well-trained and highly paid not to subject their company to long-term risk.

The failures in both cases ultimately were personal.

As Walt Kelley’s cartoon character Pogo said so many years ago now: “We have met the enemy and he is us.”