Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar
My rating: 4 of 5 stars

The Ideology of Corporate Finance

Around the turn of the 20th century the economic power of the world shifted from capitalists who made things to capitalists who made money. The source of the change was the mid-19th century discovery of limited liability and its rapid dissemination into the corporate legal systems of Europe and North America.

Limited liability, the obligation of corporate shareholders only for their investment in a company and not for further debts of the company, is the foundation of financial power. Ultimately it is what allowed the great robber barons - Frick, Carnegie, Rockefeller - to control enormous corporate resources with very little of their own money.

This sort of control demands some sort of ideology in order to justify itself to those who are essentially its victims. Marx of course wouldn't do. But neither would the theories of liberal economics that presume intense competition among numerous more or less equal adversaries. During the first twenty years or so of the 20th century, just such an ideology began to be formulated. The American economist, Irving Fischer, is its Karl Marx. This is the ideology is Corporate Finance

The point of the new ideology was to provide a socially acceptable rationale for the power exercised by financial interests: commercial banks, merchant banks, insurance companies, but mostly corporate executives of non-financial companies who could personally benefit more from making money than from making things, even if the companies they ran were run into the ground.

The ideology of Corporate Finance got an enormous boost in its credibility after WW II when it became 'mathematicised' as a pseudo-scientific exposition which neatly disguised its purpose. By the 1970's Corporate Finance had escaped from its academic hot house and began infecting all business with its message that economic well-being depended on the "efficiency of capital". And this of course depended entirely on the financial expertise which was only available to those intimately knowledgeable in the ideology.

Makers and Takers is a documentary of the latest triumphs of Corporate Finance. It is depressing reading. Corporate Finance has coopted the entire world, even the Chinese Communist Peoples Republic subscribes to its insane principles under the tutelage of Goldman Sachs and Morgan Stanley [See: https://www.goodreads.com/review/show...].

It has become such a powerful mode of thinking that we no longer notice that it is just that, a way of thinking [See: https://www.goodreads.com/review/show...]. But it is a way of thinking which is explicitly and irrationally meant to benefit just that segment of society against which the electorate has recently rebelled in the USA and Britain. Perhaps there is hope after all.

View all my reviews