I haven't read Stout's book, so I'm not sure what it says. Maybe James has. I appreciate his comments about Smith, but I'm not quite sure what it has to do with Stout's book as described on this list. My impression she gives an argument that pursuing shareholders' profit or wealth is not mandated by law or in the interest of the corporation or its value. The book seems to be based on empirical work that looks at corporations that try to maximize shareholder's value and the consequence.  She then provides an alternative model that makes more sense and might even follow the principles of Smith for all I know. It's clear she believes such a mandate doesn't make economic sense or show good corporate stewardship. I look forward to reading the book to see what she has to say. 
Ric Holt




On Sun, Jan 16, 2022 at 2:29 PM James Ahiakpor <[log in to unmask]> wrote:
Stout’s book, according to the summary posted by David, is in the nature of social activists who disdain the pursuit of profits. They however would not dissuade those who would seek the highest wages or salaries possible nor the highest interest or rents for their properties. It seems as though they also fail to recognize that the highest profits are indications of the highest satisfaction to a community that a business confers on its customers. Thus, it would appear that whether corporate law demands that shareholder wealth is maximized or not is beside the point Friedman makes in the tradition of Adam Smith. 

Smith also makes the point that profit is more than the wages of “inspection and direction” for the work of a firm. It rewards the “hazards” or “adventure” in employing “capital” or funds often acquired at interest. Most buyers of stocks sell them to acquire alternatives paying higher dividends. Thus, to keep stockholders and be able to issue some more in the future, a firm’s management seeks to run it as profitably as possible. Thus, the marketplace, both capital and products, enforces the wealth maximization principle, whether some social activists like it or not.

 As Smith explains the point, “In exchanging the complete manufacture either for money, for labour, or other goods, over and above what may be sufficient to pay the price of the materials, and the wages of the workmen, something must be given for the profits of the undertaker of the work who hazards his stock in this adventure. … He could have no interest to employ [workmen], unless he expected from the sale of their work something more than what was sufficient to replace his stock to him.” And yes, profits are a residual of revenue over costs or what Roni Hirsch calls the “remainder.”

James Ahiakpor 
Professor Emeritus 

Sent from my iPhone

On Jan 16, 2022, at 8:14 AM, Steven Medema <[log in to unmask]> wrote:


Three cheers to David for pointing to Lynn Stout’s work. She was a terrific scholar who left us far too soon.

Her law & economics casebook, with David Barnes, was also a pioneering work in L&E pedagogy.

Steve 

Steven G. Medema, Ph.D.
George Family Research Professor of Economics
Associate Director, Center for the History of Political Economy
Research Associate. School of Law
Duke University
From: Societies for the History of Economics <[log in to unmask]> on behalf of Colander, David C. <[log in to unmask]>
Sent: Friday, January 14, 2022 11:10:26 AM
To: [log in to unmask] <[log in to unmask]>
Subject: Re: [SHOE] Origins of the Shareholder Wealth Maximization Norm
 

You might want to take a look at Lynn Stout’s work if you haven’t already.

 

https://ruleschange.org/book-the-myth-of-shareholder-primacy-stands-at-the-brink-of-intellectual-failure-stout-writes/

 

From: Societies for the History of Economics <[log in to unmask]> On Behalf Of Rafael Galvão
Sent: Friday, January 14, 2022 7:49 AM
To: [log in to unmask]
Subject: Re: [SHOE] Origins of the Shareholder Wealth Maximization Norm

 

I have a reference. In his 1953's article "The business leader as a 'daimonic' figure", Fritz Redlich - who was one of the greatest economic historians and entrepreneurship scholars of the 1940s-1950s - called it the "irresponsibility of the businessman". He links it to the French laissez-faire tradition as old as Colbert and identifying Adam Smith's invisible hand and William Paley's natural theology. Let me copy paste a few excerpts:

 

"But in fact  this way of  thinking  must  have been much  older. As early as 1732 the thought be found expressed in an American sermon in which  the  preacher stated: 'A rich man is a great friend to the public while he aims at nothing but serving himself. God will have us live by helping one another, and since Love will not do it, Covetousness shall."

 

" In 1877, one hundred and fifty years after the above-quoted sermon, Samuel Tilden addressed a gathering of New York businessmen as follows: 'You are, doubtless in some degree, clinging to the illusion that you are working for yourselves, but it is my pleasure to claim that you are working for the public. While you are scheming for your own selfish ends, there is an overruling and wise Providence directing that the most of  all you do should inure to the benefit of the people. Men of colossal fortunes are in effect, if not in fact, trustees for the public."

 

"It goes without saying that if a man honestly believes in the harmony of the social universe, if he honestly believes that God will take care that public interest evolves from the prosecution of private interests, he must not only believe in laissez-faire, but also has no reason to feel social or national
responsibility for his actions"

 

So, if this is correct, the question is how the "irresponsibility of the business" or "Friedman doctrine" emerged from the general laissez-faire doctrines. The earliest reference Redlich used is from a book titled "The House of Morgan", by Lewis Corey, published in 1930, in page 20 - it's available in the Internet Archive (https://archive.org/details/houseofmorgansoc00core). What Redlich omitted was that the pastor who said that above was Rev. Joseph Morgan, of Puritan theology, an ancestor of J. P. Morgan (according to this biography, it might be better to compare with a recent one). The sermon was even called "The Nature of Riches", but there's no reference to its edition.

 

Em qui., 13 de jan. de 2022 às 18:04, Holden Fitzgerald <[log in to unmask]> escreveu:

Hello all, 

 

I am working with Professor Dalia Tsuk Mitchell, corporate law professor at the George Washington University Law School, on a project that involves exploring the origins of the norm of shareholder wealth maximization in the legal domain. At a glance it seems that the norm bleeds into the corporate law from academic and popular economists in the 1970s. Milton Friedman’s famous essay in the NY Times on the social responsibility of corporations being to maximize shareholder value seems like a great starting point, of course, but I wonder if anyone on this list can point me to work that precedes that essay, upon which he may have drawn. Or does this essay mark the foundation of the norm of shareholder wealth maximization? 

 

Thanks in advance for any leads you can provide.

 

Best,  

Holden Fitzgerald 

J.D. Candidate | 2023

The George Washington University Law School