This PDF is a selection from an out-of-print volume from the.pdfVIP

This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Inside the Business Enterprise: Historical Perspectives on the Use of Information Volume Author/Editor: Peter Temin, editor Volume Publisher: University of Chicago Press, 1991 Volume ISBN: 0-226-79202-1 Volume URL: /books/temi91-1 Conference Date: October 26-27, 1990 Publication Date: January 1991 Chapter Title: Did J. P. Morgans Men Add Value? An Economists Perspective on Financial Capitalism Chapter Author: J. Bradford DeLong Chapter URL: /chapters/c7182 Chapter pages in book: (p. 205 - 250) 6 Did J. P. Morgan’s Men Add Value? An Economist’s Perspective on Financial Capitalism J. Bradford De Long 6.1 Introduction The pre-World War I period saw the heyday of “financial capitalism” in the United States: securities issues in particular and the investment banking busi- ness in general were concentrated in the hands of a very few investment bank- ers-of which the partnership of J. P. Morgan and Company was by far the largest and most prominent-who played substantial roles on corporate boards of directors. This form of association between finance and industry had costs: it created conflicts of interest that investment bankers could exploit for their own profit. It also had benefits, at least from the owners’ perspective:’ investment banker representation on boards allowed bankers to assess the per- formance of firm managers, quickly replace managers whose performance was unsatisfactory, and signal to investors that a company was fundamentally sound. The Morgan-dominated “money trust” thus filled an important monitoring role in the years before World War I. In 1910-12 the presence on one’s board of directors of a partner in J. P. Morgan and Company added about 30 perc