Financial History Issue 119 (Fall 2016) - Page 38

BOOK REVIEW
BY MICHAEL A . MARTORELLI
Makers and Takers : The Rise of Finance and the Fall of American Business
By Rana Foroohar Penguin Random House , 2015 400 pages , $ 30.00
The subtitles tell the rationale for this joint review . Makers and Takers and Money Changes Everything give only slight hints about their respective books ’ contents . But you know what to expect after noting that Rana Foroohar will be describing “ The Rise of Finance and the Fall of American Business .” And you know where William Goetzmann is coming from as he discusses “ How Finance Made Civilization Possible .”
Both journalist Foroohar and Professor Goetzmann have produced fact-laden volumes they had been researching for more than 20 years . But can either justify their provocative subtitle ? Both volumes offer thoughtful and credible commentary about historic events . And as is often the case , it is quite possible to learn a lot from
Money Changes Everything : How Finance Made Civilization Possible
By William Goetzmann Princeton University Press , 2016 600 pages , $ 35.95
the authors ’ narratives without necessarily agreeing with any of their sometimes controversial conclusions .
The key passages of Makers and Takers consist of long-time financial journalist Foroohar ’ s description of the tremendous growth this country ’ s financial sector has experienced during the past few decades . It ’ s hard to argue with the statistics she cites to quantify that growth . Indeed , many writers have noted the increasing importance of the financial industry as measured by its share of the GDP , the quantity of its assets or the size of its employment base .
But this version of that growth acknowledges only in passing how many separate businesses comprise the complex financial segment of the domestic economy . In their own comments on the financialization of America , a few academic authors have disentangled the growth that has occurred across the multiple subcomponents of the separate securities , insurance and credit intermediation industries . For instance , those studies have noted the increased importance of household credit and the declining importance of commissions from stock trading . Further , the author doesn ’ t seem to appreciate many decades-long evolutionary changes in our financial practices that have been shifting the importance and influence of finance since before she was born ; these include the changing definitions of the money supply , the long-term growth of stock prices and the creation of new products and services for both households and institutions .
In documenting her view of the finance industry ’ s recent outsized growth , Foroohar correctly implicates the controversial activities by proponents of shareholder value , the shadow banking system , financial derivatives and private equity . She accurately notes Corporate America ’ s addition of financial engineering and other banking activities to its core manufacturing endeavors . But she makes the less persuasive arguments that Robert McNamara ’ s statistical management techniques , various graduate schools ’ MBA programs and the democratization of the investment industry were also important miscreants . And she fails to acknowledge the historical evidence that the United States has experienced the growth of financialization in other time periods , especially the first two decades of the 20th century .
The book ’ s most compelling chapters are not those making specific indictments of individual financial players , but the ones chronicling the revolving door between Wall Street and Washington , and the concomitant influence of lobbyists on the legislators who create both the laws and the regulatory schemes that frequently enable bad actors to persist in their destructive behavior . ( One of the most surprising , yet generally acknowledged , findings in the analyses of the Great Recession was the range of financial activities that lay beyond the regulatory
36 FINANCIAL HISTORY | Fall 2016 | www . MoAF . org
BOOK REVIEW  BY MICHAEL A. MARTORELLI Makers and Takers: The Rise of Finance and the Fall of American Business Money Changes Everything: How Finance Made Civilization Possible By Rana Foroohar Penguin Random House, 2015 400 pages, $30.00 By William Goetzmann Princeton University Press, 2016 600 pages, $35.95 The subtitles tell the rationale for this joint review. Makers and Takers and Money Changes Everything give only slight hints about their respective books’ contents. But you know what to expect after noting that Rana Foroohar will be describing “The Rise of Finance and the Fall of American Business.” And you know where William Goetzmann is coming from as he discusses “How Finance Made Civilization Possible.” Both journal 7Bf&"B&fW76"vWGfR&GV6VBf7BFVfVW2FWB&VV&W6V&6rf &RF#V'2'WB6VFW"W7FgFV"&f6FfR7V'FFS&FfVW0ffW"FVvFgVB7&VF&R6VF'&WB7F&2WfVG2B22gFVFP66RB2VFR76&RFV&Bg&РFRWF'>( '&FfW2vFWBV6W76&ǒw&VVrvFbFV"6WFW06G&fW'666W62FRW76vW2bW'2BFW'0667BbrFRf6W&Ɨ7@f&.( 2FW67&FbFRG&VVFW0w&wFF26VG'( 2f66V7F"0WW&V6VBGW&rFR7BfWrFV6FW2गN( 2&BF&wVRvFFR7FF7F726P6FW2FVFgFBw&wFFVVBw&FW'2fRFVBFR7&V6p'F6RbFRf6GW7G'0V7W&VB'G26&RbFRtEFPVFGbG276WG2"FR6RbG0VVB&6R'WBF2fW'6bFBw&wF6vVFvW2ǒ76rr6W&FP'W6W76W26&6RFR6Wf66VvVBbFRFW7F2V6גࠣ3n("(2d45D%("("f#n("('wwrb&pFV"v6VG2FRf6ƗFbW&6fWr6FV֖2WF'0fRF6VFvVBFRw&wFFB067W'&VB7&72FRVFR7V&6VG2bFR6W&FR6V7W&FW27W&6PB7&VFBFW&VFFGW7G&W2f 7F6RF6R7GVFW2fRFVBFP7&V6VB'F6RbW6VB7&VF@BFRFV6Ɩr'F6Rb6֗762g&7F6G&FrgW'FW"FPWF"FW6( B6VVF&V6FR琦FV6FW2rWfWF'6vW2W f6&7F6W2FBfR&VV6gFpFR'F6RBfVV6Rbf6P66R&Vf&R6Rv2&&FW6R6VFPFR6vrFVfF2bFRW7WǒFRrFW&w&wFb7F6&6W2BFR7&VFbWr&GV7G0B6W'f6W2f"&FW6VG2@7FGWF2खF7VVFrW"fWrbFRf6PGW7G'( 2&V6VBWG6VBw&wFf&"6'&V7FǒƖ6FW2FR6G&fW'67FfFW2'&VG2b6&VFW fVRFR6Fr&涖r77FVf6FW&fFfW2B&fFRWVG6P67W&FVǒFW26'&FRW&6( 0FFFbf6VvVW&rBFW &涖r7FfFW2FG26&RVf7GW&rVFVf'2'WB6RW2FRW70W'7V6fR&wVVG2FB&&W'B4&( 27FF7F6vVVBFV6VW2f&W2w&GVFR66>( $&w&0BFRFV7&FFbFRfW7FV@GW7G'vW&R6'FB֗67&VG2B6Rf2F6vVFvRFR7F&6WfFV6RFBFRVFVB7FFW22WW&V6VBFRw&wFbf6ƗFFW"FRW&G2W7V6ǒFRf'7BGvFV6FW2bFR#F6VGW'FR&( 27B6VƖr6FW'0&RBF6Rr7V6f2F7FVG2bFfGVf6W'2'W@FRW26&6ƖrFR&WffrF &WGvVVv7G&VWBBv6wF@FR66֗FBfVV6Rb&'7G0FRVv6F'2v7&VFR&FFPw2BFR&VwVF'66VW2FBg&WVVFǒV&R&B7F'2FW'67BFV"FW7G'V7FfR&Vf"RbFP7B7W'&6rWBvVW&ǒ6vVFvVBfFw2FRǗ6W2bFPw&VB&V6W76v2FR&vRbf67FfFW2FB&WBFR&VwVF'