Lawrence Mitchell’s The Speculation Economy
My colleague, Professor Lawrence Mitchell (GW Law School) has just published The Speculation Economy: How Finance Triumphed Over Industry (October 2007).
Larry’s book examines the question: “How did the stock market become the center of the American economy?”
The book description begins:
American businesses today are obsessed with the price of their stock, and no wonder. The consequences of even a modest decrease can be so dire that some executives would rather damage their corporation’s long-term health than allow quarterly returns to fall below projections. But how did this situation come about? When did the stock market become the driver of the American economy?
Lawrence E. Mitchell shows that the tipping point was reached in the first decade of the 20th century as a result of the birth of the giant modern corporation. He tells the story of the legal, financial, economic and social transformations that allowed financiers to collect companies and combine them together into huge new corporations for the main purpose of manufacturing stock and dumping it on the market. Businessmen started to make more money from legal and financial manipulation than from practical business improvements like innovations in technology, management, distribution, and marketing.
Selling this stock was the tricky part. In 1899 even the Wall Street Journal advised its readers that buying stock was simply too risky, not an investment appropriate for ordinary Americans. Mitchell identifies how and why, over the course of the next two decades, attitudes shifted and Americans changed from cautious bond buyers into eager stock speculators. At the same time, he shows how a federal government wedded to an outdated economic model and struggling to expand its own power failed to regulate finance and thus missed the chance to control corporations. While politicians argued, finance came to dominate industry, and as stock ownership spread widely throughout society, the stock market came to dominate finance.
Larry’s writing is very clear, smart, and engaging. This looks like a great book, and I’ve already ordered my copy.