When Wall Street Met Main Street: The Quest for an Investors’ Democracy by Julia C. Ott (review)

Julia Ott’s adaptation of her doctoral thesis into book form is broad and ambitious. She charts the ideological roots of investor democracy in the United States, firmly locating the origins of the neoliberal attitudes which have dominated since the Reagan Revolution in the early decades of the twentieth century. She analyzes how Americans overcame their antipathy, or hostility, to finance, to embrace mass investment in financial securities, first in government debt during World War I, and then in corporate securities in the decade or so that followed.

The Harvard economist Thomas Nixon Carver provided the intellectual foundation for shareholder democracy with his theory of political economy, New Proprietorship. This was sufficiently appealing that it did not attract outright rejection even from liberal critics, the most articulate of whom was Carver’s Harvard colleague William Z. Ripley. Indeed, there were really variations of New Proprietorship, which ranged from free market conservatism to those which considered a regulatory framework essential. Ironically, the conservative form prevailed after World War I, thus contributing to Berle and Means’ divorce of ownership from control and delivering a result contrary to the maximization of shareholder value, one of the intended goals.

Wall Street, relatively unused by corporates other than railroads, complicit in the excesses of the Gilded Era, and virtually unregulated, saw potential salvation in an investor democracy which would frustrate calls for heavy regulation. Although New Proprietorship started to gain traction before World War I, the methods of war finance did much to legitimize postwar securities ownership and demonstrate how it could be popularized.

The political logic of universal ownership of War Loans, integral to citizenship, drew in all parts of American society including women and African Americans. In this country of immigrants, the wartime bond drives, through every type of social group and organization, gave ethnic communities an opportunity to assert loyalty to their adopted country and demand inclusion and fuller political rights. These bond drives succeeded through a mixture of opportunism and cynicism, with patriotic appeals, marketing which carefully tailored messages to different audiences to maximize the funds raised, and social and workplace ostracism, and occasionally outright coercion, for “dollar slackers.”

New Proprietorship advocates saw investor democracy as an antidote to the radicalism and socialism which threatened during and after World War I, and argued that it offered a more efficient and democratic alternative to the welfare state and encouraged macroeconomic, political, and social stability. Although ownership of corporate securities was never as extensive as that of federal government debt, it rose from a very low base to reach about one quarter of households by 1929. But the voluntary, self-regulatory nature of governance and disclosure practices ensured that investor democracy delivered less than it promised. Self-interest at least partly motivated some proponents, with customer and employee ownership schemes used as defense mechanisms to counter threats of federal ownership and price regulation and as anti-takeover devices. In the “Jazz era,” with both increasing mass consumption and income inequality, the New York Stock Exchange (NYSE) became the central institution through which New Proprietorship was advanced. The NYSE had begun to espouse investor democracy in 1913, but its highly effective propaganda and media management to counter regulatory threats achieved full momentum only after the war.

Ott’s elegantly written and reader-friendly text synthesizes a vast range of material from published and archival sources, the latter notably from the NYSE. The book consists of nine chapters plus an introduction and epilogue and follows a chronological arrangement. Its style downplays its depth of scholarship, with the valuable resource of seventy pages of notes, a ratio of about one page of notes to every three pages of text. A further twenty-four pages of illustrations, mainly cartoons and advertisements, demonstrate the marketing of New Proprietorship. A stricter editor could have squeezed out a significant number of words...