To understand how modern markets operate, one must look past contemporary assumptions and examine how corporate power has evolved over the past century. For the majority of the twentieth century, American corporations were operated according to the principle of managerial capitalism, a form of capital accumulation and organizational control in which managers were the central agents of power. This was the era of the "Organization Man," when the control of a company was distinctly decoupled from its ownership. Professional administrators during this period considered themselves stewards of permanent institutions, charged with the responsibility of balancing the interests of a broad array of stakeholders rather than serving shareholders alone.
Often, the most favored stakeholders during this era of managerial discretion were the executives themselves. In the classic business chronicle Barbarians at the Gate, the tendency for corporate self-dealing was vividly illustrated by the "RJR Air Force"—a fleet of private planes that the chief executive officer of R.J. Reynolds used freely for weekend golf outings and personal trips to his vacation home. In one particularly memorable instance, the sole passenger on a corporate flight was the CEO’s German Shepherd, which was flown home early from a weekend trip specifically to avoid the consequences of the animal biting someone.
The excesses of managerial capitalism were also famously dramatized in popular culture, most notably in the movie Wall Street. In one scene, the corporate raider Gordon Gekko tells the shareholders of Teldar Paper that they are being exploited by the company’s management. Gekko famously declares to the room, "You are all being royally screwed over by these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets, and golden parachutes."
Gekko’s core message to Teldar’s shareholders—that they owned the company and that executives should therefore work exclusively for them—was deeply rooted in the economic philosophy of Milton Friedman. In a influential 1970 op-ed published in The New York Times, Friedman argued that in his capacity as a corporate executive, the manager is fundamentally the agent of the individuals who own the corporation. Friedman asserted that in a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business, bearing a direct responsibility to conduct operations in accordance with their exact desires. In the context of publicly traded companies, he reasoned that because shareholders owned the business, they were the ultimate employers whom executives were bound to serve.
While that premise feels intuitive to modern observers, late legal scholar Lynn Stout argued that the entire framework is fundamentally incorrect. In her influential work, Stout maintained that corporations own themselves, just as human entities own themselves. What shareholders actually own, she explained, are shares—a specific type of legal contract between the individual shareholder and the legal entity that grants investors limited legal rights. Nowhere within that foundational contract is it stipulated that executives work for shareholders, nor does it mandate that management should favor investors over any other corporate stakeholder, whether those are employees, customers, suppliers, society at large, or the environment. Stout maintained that the idea corporations should be managed to maximize shareholder value is based on factually mistaken claims about the law.
Nevertheless, that shareholder-primacy model is precisely how United States corporations have been run, almost universally, for the past three or four decades, an era ushered in culturally and economically by the philosophy championed by figures like Gordon Gekko. Stout lamented the short-termism she believed this system produced, arguing that a cult of shareholder primacy has caused modern corporations to relentlessly pursue near-term profits at the expense of necessary long-term capital investments. However, market observers might counter that the massive, forward-looking boom in artificial intelligence investment seen today likely serves as a real-world counterweight to that critique.
Instead of shareholder primacy, Stout advocated for a return to the kind of managerial capitalism that, in her historical analysis, successfully built heavy infrastructure like railroads and canals with less regard for the immediate profits they would produce and a much stronger focus on their utility. Investors in these early nineteenth-century corporations were frequently also the customers using the infrastructure. They intentionally structured their companies to ensure the business would provide reliable service at a reasonable price rather than focusing strictly on maximizing investment returns.
This historical economic design raises a vital question for the modern digital economy: Is that how crypto protocols should be structured as well?
The central debate unfolding within the crypto industry today revolves around how to grant token holders the kinds of governance and economic rights that traditional finance shareholders think they possess. Yet, if Stout’s legal analysis of traditional corporations is correct, chasing that traditional corporate model may be the entirely wrong goal for decentralized networks. Without formal ownership rights, cryptographic tokens might attract a different breed of investor—participants less like the profit-obsessed Gordon Gekko and more like the nineteenth-century shareholders who eagerly funded societally beneficial railroads and canals.
Railroads and canals were, at their core, foundational networks—networks that likely never would have been built if nineteenth-century companies had been operated strictly to maximize short-term profits for external shareholders. Blockchain protocols are networks, too. Even though these protocols are frequently operated and discussed much like traditional technology companies, Stout’s work demonstrates that there is more than one valid way to conceptualize the rights that financial backers should hold.
If crypto protocols are intended solely to maximize financial returns for outside investors, then token holders should indeed be granted rights that formally establish them as Gordon Gekko-like owners. However, if crypto finance is truly meant to pioneer a new kind of participatory capital, it might prove far more productive to grant token holders fewer rights—or perhaps even none at all.
Rather than offering the kind of traditional legal protections that inevitably attract profit-maximizing speculators, protocols could instead rely directly on their actual users to fund and sustain their development. This strategy could allow them to evolve into something fundamentally different from standard, profit-maximizing corporations.
Conceivably, that approach could turn out to provide the most reliable guarantee for token holders as well. Investors who are simultaneously active users are often treated far better than investors who act solely as detached owners. When the customer and the capitalist are one and the same entity, the only viable way to maximize value for both investors and users is to build a system that genuinely works.
Comments (0)