The Revolution in Corporate Finance
Classical political economy tied value to the amount that had been historically invested in something or the labor expended on it. By contrast, the most distinctive feature of marginalism was its forward-looking theory of value based on reasonable expectations. Under classical theory the legal value of a corporation was tied to its paid-in capital as manifested in the “par” value of its stock. By contrast, under neoclassical theory paid-in capital and the “par” concept became virtually meaningless. One significant difference between the two theories was that the classical one could be administered by common law judges with a general knowledge of commercial law. By contrast, forward-looking value theory encompassed greater speculation and more room for abuse. The result was increased demand for regulatory oversight, manifested first in state “blue sky” laws and later federal regulation.
corporation, “par” value, “blue sky” laws, paid-in capital, regulatory oversight
The Opening of American Law: Neoclassical Legal Thought, 1870-1970
Hovenkamp, Herbert, "The Revolution in Corporate Finance" (2014). Book Chapters. 67.