Will Humans Flourish if Easements Restrict How Inherited Property Is Used?

My mentor at Wabash College, Ben Rogge, was a friend of Pierre Goodrich, the founder of Liberty Fund. They both were great admirers of Adam Smith. Adam Smith believed that inherited property should not be encumbered with restrictions on how future generations used the property. The practice is sometimes called ‘ruling with a dead hand.’ When Liberty Fund was proposed, Rogge suggested that it be set up so that all of the funds would be exhausted at some pre-established time after Goodrich’s death. On this one proposal, Rogge failed to convince Goodrich of the wisdom of Adam Smith’s advice.

Rogge was a supporter of Schumpeter’s idea that we flourish through creative destruction. Progress through creative destruction is harder to accomplish if inherited property is encumbered by ‘ruling with a dead hand.’ Rogge feared that as the decades passed, the inheritors of Liberty Fund would eventually, and substantially, diverge from Goodrich’s original values and hopes. Liberty Fund money helped Rogge make a movie on Adam Smith. Rogge sadly joked that eventually the inheritors of Liberty Fund would probably support making a movie on a famous socialist.

(I can’t remember the name of the socialist who Rogge jokingly mentioned, but I vaguely, vaguely think it might have been Ethel Rosenberg.)

(I base the lines above on my memories of comments by Ben Rogge in conversations and lectures.)

(p. M1) “After me, there won’t be any others,” says Roland Reisley, absorbing what it means to be the last original occupant of a Frank Lloyd Wright house. Reisley is sitting in his hexagonal living room on a rocky hill near Pleasantville, N.Y.

. . .

(p. M4) Despite the house’s pristine condition, the one thing he can’t do is turn it into a museum. It is part of a Westchester County neighborhood laid out by Wright himself in the late 1940s. The community, which Wright named Usonia, never achieved its founders’ ambitions—to become a kind of exurban co-op where everything was owned in common—but it is still a tightly knit community of 47 homes with shared amenities such as a pool and tennis courts. “The residents would not agree to a museum,” Reisley says.

. . .

But if he can’t turn it into a museum, he can execute a preservation easement, a legal document that will prevent future owners from making changes to the house.

. . .

Asked why he hasn’t executed an easement yet, after talking about doing so for years, Reisley says he is “trying to find language that protects what’s important but allows for some reasonable changes to be made. I am going to do it,” Reisley says. “I just haven’t gotten around to doing it. I’m a procrastinator.”

Then, too, his only living child has expressed concerns. Robert Reisley, a 65-year-old entrepreneur and private-equity investor in Philadelphia, says, “I don’t have an issue with a preservation easement on the exterior of the house.” But he says it’s possible he and his wife, or one of their adult children, might want to live in the house. “We might need to make a few necessary changes to the interior. And we might not be able to get permission. That’s my hesitation.”

For example, he says, “The hallway to the bedrooms is very dark. Wright was practical. If we’d asked him, he would have said, ‘Put a skylight there.’ But Wright’s not around, and the conservancy might not allow it.”

. . .

In Minneapolis, the Olfelt house was on the market for two years before a local couple with grown children bought it for $1.2 million in the Spring of 2018. Several months later, they filed plans with the city to add a 1,500-square-foot, $2 million wing to the original 2,600-square-foot house and alter some of the original interiors.

. . .

The Juneks created a website, olfelthouse.info, to explain their intentions. “The impetus for the addition and the minimal interior renovations,” they wrote, “is to address the meager space allocated to the master bedroom, to expand the kitchen to accommodate a large multi-generation family, and to ensure that the home be comfortable, accessible, and safe for aging in place.” The renovation was designed by the New York architecture firm Thread Collective. Photos on the firm’s website show a dining room in a space that used to contain Wright’s tiny galley kitchen, and a spacious new kitchen in what used to be two children’s bedrooms. The addition, which contains a master-bedroom suite over a new garage, is visible mainly from the back of the house. “We have now been living in the house for three years, are very happy with the results of the project,” John Junek wrote in an email.

. . .

Robert and Mary Walton chose not to burden their six children with a preservation easement, the same choice made by Gerte Shavin, Bette Pappas, and the Olfelts. All of them died knowing they had no control over the future of their houses. “Its fate is entirely in the hands of the next owner,” Paul Olfelt told me in a phone message after vacating his house in 2017. Sounding emotional, he added, “I think we were good stewards of the house, and we assume that anyone who buys it will be the same.”

Reisley still has a chance to execute an easement. Will he? The easement would operate in perpetuity, and perpetuity, the 99-year-old homeowner says, “is a very long time.”

For the full story, see:

Fred A. Bernstein. “The Last Original Owner of a Frank Lloyd Wright House.” The Wall Street Journal (Wednesday, June 30, 2023): M1 & M4.

(Note: ellipses added.)

(Note: the online version of the story was updated June 27, 2023, and has the title “Frank Lloyd Wright Built 120 Homes Near the End of His Life. Just One Original Owner Remains.”)

Langlois’s Entrepreneurs Allowed the Masses to Flourish in Spite of Chandler’s Corporatism

(p. D7)Students of business have long argued about why managerial capitalism arose and what led to its demise. At the heart of this debate is an age-old conundrum: What should the boundaries of a corporation be? What goods and services should it produce and which should it buy from others? Executives stake careers on such questions, but economists, historians and social critics have tried to answer them as well.

It is in such a context that Richard Langlois offers “The Corporation and the Twentieth Century,” a monumental history of American business during the eventful decades when managers ruled. Among much else, he makes the argument that firms embraced managerial capitalism in response to the century’s cataclysmic events and the heavy-handed government intercessions they prompted. When the crises and related policies finally fell away, we saw the resurgence of the focused, entrepreneurial enterprise that predominates today.

Mr. Langlois, an economics professor at the University of Connecticut, pushes back in particular against the explanation laid out by Alfred Chandler, the father of American business history, in his great work, “The Visible Hand” (1977).

. . .

Once established, managerial capitalism took on a life of its own. “The hierarchy itself,” Chandler wrote, “became a source of permanence, power, and continued growth.”

But Mr. Langlois tells a different story, contending that managerial capitalism didn’t truly flourish until later. He notes that, despite a wave of mergers, most large firms in the early 20th century were still controlled by their owners, thanks to the extensive shareholdings of financiers such as John D. Rockefeller or investment banks such as J.P. Morgan—owners not especially known as silent partners. The real heyday of the managers was yet to come.

Enter the reform-minded Progressive movement, which aimed to curtail the excesses of just such tycoons. Easily distinguished from today’s progressives by their capital letter and lack of stated pronouns, the Progressives held that scientific techniques had solved the problems of industrial management and would do likewise for those of government administration, which was to be entrusted to “experts.”

These Progressives brought with them a hubristic “managerial model of the world” that called forth a managerial form of capitalism, one designed to clasp the meddlesome hand of government. The ensuing era of federal regulation offered big business relief from haphazard and potentially more radical state regulation, but it also shifted power over firms toward Washington and the federal judiciary.

The ground was thus laid for managerial capitalism to be turbocharged by “the great catastrophes” of World War I, the Depression and World War II.

. . .

(p. D8) Mr. Langlois recognizes that the deregulating spirit of the 1970s was part of a change in the Zeitgeist. He describes, for example, how the Bay Area’s hippie ethos intersected with the rise of the personal computer. The resulting digital revolution upended corporate hierarchies and changed much of America’s output from the physical to the intangible. Ascendant tech firms ushered in a new entrepreneurial paradigm. The center of business gravity shifted from Manhattan boardrooms and Midwestern factories to the freewheeling West Coast.

Vietnam and inflation, meanwhile, sapped faith in government as well as in the dollar, and a series of countries (lately China) would soon replace the U.S. as the world’s factory. The unbundling of corporations was accelerated by low-cost overseas manufacturing and by the new “barbarians at the gate” from Wall Street.

. . .

The questions at the heart of “The Corporation and the Twentieth Century” . . . serve as the engine of a remarkable alternative history of what Henry Luce famously called the American Century. It’s a work propelled by vast learning, a focus on business and a consistent point of view in favor of free markets.

For the full review see:

Daniel Akst. “BOOKSHELF; The Rise and Fall of Managers.” The Wall Street Journal (Saturday, July 1, 2023): C7-C8.

(Note: ellipses added.)

(Note: the online version of the review has the date June 30, 2023, and has the title “BOOKSHELF; ‘The Corporation and the Twentieth Century’ Review: The Rise and Fall of Managers.”)

The book under review is:

Langlois, Richard N. The Corporation and the Twentieth Century: The History of American Business Enterprise. Princeton: Princeton University Press, 2023.

See also:

Diamond, Arthur M., Jr. “Review of Richard N. Langlois, the Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.” EH.Net Economic History Services (2009).

Are We “Made of Sugar Candy”?

(p. 11) Less a conventional history than an extended polemic, “Capitalism in America: A History,” by Greenspan and Adrian Wooldridge, a columnist and editor for The Economist, explores and ultimately celebrates the Austrian economist Joseph Schumpeter’s concept of “creative destruction,” which the authors describe as a “perennial gale” that “uproots businesses — and lives — but that, in the process, creates a more productive economy.”

. . .

. . . , Greenspan’s admiration for the rugged individualists who populate the novels of Ayn Rand (who merits a nod in this history) and the frontier spirit that animated America’s early development shows no sign of weakening as Greenspan has aged. He and Wooldridge lament that Americans are “losing the rugged pioneering spirit” that once defined them and mock the “trigger warnings” and “safe spaces” that now obsess academia.

The authors quote Winston Churchill: “We have not journeyed across the centuries, across the oceans, across the mountains, across the prairies, because we are made of sugar candy.” But now, they conclude, “sugar candy people are everywhere.”

Their prescription for American renewal — reining in entitlements, instituting fiscal responsibility and limited government, deregulating, focusing on education and opportunity, and above all fostering a fierceness in the face of creative destruction — was Republican orthodoxy not so long ago. Before the Great Recession it was embraced by most Democrats as well, and more recently by President Bill Clinton, the recipient of glowing praise in these pages.

No longer. “Capitalism in America,” in both its interpretation of economic history and its recipe for revival, is likely to offend the dominant Trump wing of the Republican Party and the resurgent left among Democrats. It’s not clear who, if anyone, will pick up the Greenspan torch.

For the full review, see:

James B. Stewart. “Creative Destruction.” The New York Times Book Review (Sunday, Nov. 4, 2018): 11.

(Note: ellipses added.)

(Note: the online version of the review has the date Nov. 2, 2018, and has the title “Alan Greenspan’s Ode to Creative Destruction.”)

The book under review, is:

Greenspan, Alan, and Adrian Wooldridge. Capitalism in America: A History. New York: Penguin Press, 2018.

Innovative Entrepreneurs Bring Prosperity to the Poor

(p. A17) As the economist Joseph Schumpeter observed: “The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”

For Schumpeter, entrepreneurs and the companies they found are the engines of wealth creation. This is what distinguishes capitalism from all previous forms of economic society and turned Marxism on its head, the parasitic capitalist becoming the innovative and beneficent entrepreneur. Since the 2008 crash, Schumpeter’s lessons have been overshadowed by Keynesian macroeconomics, in which the entrepreneurial function is reduced to a ghostly presence. As Schumpeter commented on John Maynard Keynes’s “General Theory” (1936), change–the outstanding feature of capitalism–was, in Keynes’s analysis, “assumed away.”

Progressive, ameliorative change is what poor people in poor countries need most of all. In “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty,” Harvard Business School’s Clayton Christensen and co-authors Efosa Ojomo and Karen Dillon return the entrepreneur and innovation to the center stage of economic development and prosperity. The authors overturn the current foreign-aid development paradigm of externally imposed, predominantly government funded capital- and institution-building programs and replace it with a model of entrepreneur-led innovation. “It may sound counterintuitive,” the authors write, but “enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This is the paradox of the book’s title.

Continue reading “Innovative Entrepreneurs Bring Prosperity to the Poor”

Bruce Yandle Offers Advance Praise for Openness to Creative Destruction

In writing Openness to Creative Destruction, Art Diamond has penned a timely and compelling discussion of innovative dynamism, words he chooses to describe the vital wealth-creating features of the US economy. As the book’s title suggests, Diamond, like Joseph Schumpeter before him, using lots of data and strong anecdotes, explains how innovation–the discovery and implementation of new products, services, and processes for providing them–drives prosperity. Dynamism, though not automatic but sometimes constrained by government regulation, relates to how growth, change and search for future equilibriums are features of US markets. A strongly written and deeply documented book, Openness deserves to be read by all who want a better understanding of how the US economy is performing now and how future performance can be improved.

Bruce Yandle, Dean Emeritus, Clemson University College of Business & Behavioral Science and Distinguished Adjunct Fellow, Mercatus Center at George Mason University.

Yandle’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

Michael C. Munger Offers Advance Praise for Openness to Creative Destruction

Creative destruction is the mainspring that animates growth and prosperity. Few people fully understand creative destruction; fewer still can explain it. In this remarkable book, Diamond uses compelling stories and plain English to construct the case for creative destruction, extending Schumpeter’s deep insights into the 21st century.

Michael C. Munger, Professor of Political Science, and Director, PPE Program, Duke University. Author of Tomorrow 3.0: Transaction Costs and the Sharing Economy, and other works.

Munger’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

Emmanuel Macron Invokes the Spirit of Joseph Schumpeter

(p. A7) PARIS–Speaking at the annual gathering of the business and political elite in Davos earlier this year, French President Emmanuel Macron invoked the spirit of one of his favorite early-20th-century thinkers, Joseph Schumpeter.
The economist is the father of “creative destruction,” the theory that innovation sustains growth by destroying old business models. The embrace of such thinking has made Mr. Macron, an investment banker turned head-of-state, a darling of the globalist set. But this time, Mr. Macron warned that disruption was descending into a battle for the survival of the fittest.
“Schumpeter is very soon going to look like Darwin. And living in a completely Darwinian world is not good,” Mr. Macron said.
France’s president is on a mission to save globalism from itself and, lately, that has become a lonely road.

For the full story, see:
Stacy Meichtry and William Horobin. “Macron Walks a Line on Globalism.” The Wall Street Journal (Saturday, April 21, 2018): A7.
(Note: the online version of the story has the date April 20, 2018, and has the title “Macron’s Lonely Road: Saving Globalism From Itself.” In the last couple of sentences quoted, the wording follows the online version rather than the slightly different print version.)