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