The Speculation Economy: How Finance Triumphed Over Industry - Softcover

Mitchell, Lawrence E.

Softcover

ISBN 10: 1576756289 ISBN 13: 9781576756287

Publisher: Berrett-Koehler Publishers, 2008

Synopsis

The consequences of even a modest decrease in a business’s stock price have become so dire that some executives would rather damage their corporation’s long-term health than allow quarterly returns to fall below projections. How did this situation come about? Lawrence E. Mitchell shows that the tipping point came in the first years of the 20th century. He explores the legal, financial, economic, and social transformations that led to the birth of the giant modern corporation and how this in turn spurred the rise of the stock market. Mitchell identifies what made traditionally cautious Americans become eager stock speculators, and why the federal government’s attempts to regulate finance completely missed the mark. By the dawn of the 1920s, the stock market had left behind its business origins to become the very reason for the creation of business itself.

About this title

From the Back Cover:

American industry once focused on providing the best goods and services. Business success today is measured almost exclusively by the price of a company's stock. Even a modest decrease can mean adverse publicity, shareholder revolts, lawsuits, pay cuts, firings, and maybe the invasion of activist hedge funds or the sale of the company. So executives focus obsessively on keeping the share price as high as possible, neglecting long-term strategic planning and sometimes engaging in the kind of cook-the-books corruption seen in the Enron and World Com scandals.

How did this happen? When and why did the stock market become the driving force of the American economy?

In this groundbreaking book, 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.

The Speculation Economy is a thoroughly researched, elegant, and compellingly written look at the roots of one of the most critical flaws in modern American capitalism. It is a flaw we can fix, but only if we understand how it came to be.

About the Author:

Lawrence E. Mitchell is Theodore Rinehart Professor of Business Law at The George Washington University Law School. After practicing corporate law for several years in New York, he entered academia and has been a leading corporate and business law scholar for twenty years. One of the founders of the progressive corporate law movement, named after his 1995 edited collection, Progressive Corporate Law, Mitchell has written extensively on a variety of topics ranging from corporate governance and the stock market to the history of anti-Semitism in the New York bar. His books include Stacked Deck: A Story of Selfishness in America and Corporate Irresponsibility: America’s Newest Export, as well as casebooks on corporate law and corporate finance. At George Washington, Mitchell created the Sloan Program for the Study of Business in Society to support multidisciplinary research in corporate law, and the Institute for International Corporate Governance and Accountability to explore a range of issues arising from globalizing capitalism. He is a sought-after speaker in academic and nonacademic settings, and a frequent commentator in the news media. Mitchell holds a B.A. from Williams College and a J.D. from Columbia Law School.

About this edition

• Publisher: Berrett-Koehler Publishers
• Publication date: 2008
• ISBN 10: 1576756289
• ISBN 13: 9781576756287
• Binding: Paperback
• Edition number: 2
• Number of pages: 416