- Columbia professor Nicholas Lemann chronicles the evolution of the American corporation in his new book "Transaction Man."
- He shared with Business Insider a list of books he used in his research that he considers essential to understanding American capitalism, but that many readers today overlook.
- They track the evolution of finance and the role of business in society from the 1920s to today, covering topics like the ebb and flow of regulation and deregulation, the savings and loan crisis of the 1980s, and the causes and ramifications of the 2007-08 financial crisis.
- This article is part of Business Insider's ongoing series on Better Capitalism.
- Visit BI Prime for more stories.
We're at the start of a new decade and election year in the United States, and one of the defining conversations of both is the future of capitalism.
Americans have long taken for granted the influence of massive corporations and Wall Street on all aspects of society. The world we live in today, however, is the result of ideas and policies put in practice 40 or so years ago, which were in turn a reaction to the preceding era, and so on.
We are at another inflection point, where voters, politicians, and CEOs are reconsidering the role of business in society.
To get to an understanding of how we got to where we are, Columbia Journalism School professor Nicholas Lemann researched the evolution of the modern American financial system, from around 1920 to today, and his work resulted in "Transaction Man," which we selected as one of 2019's best business books.
For further insight into defining episodes in American financial and economic history, Lemann provided us with a reading list he used for his research. Some of these books were bestsellers upon publication, but all have been overlooked in recent years.
We'll include Lemann's comments on each book in italics, before further description.
SEE ALSO: The best books of 2019 on how we can rethink today's capitalism and improve the economy
'Main Street and Wall Street' by William Zebina Ripley (1927)
"Ripley, a professor at Harvard Business School in its early days, helped set the stage for New Deal regulation of finance with this funny, foul-tempered exposé of financial practices in the 'Great Gatsby' era."
Ripley was a member of President Theodore Roosevelt's administration and later a prominent academic whose writings on finance and, unfortunately, racial anthropology pseudoscience, were quite influential. As for the former, Ripley pushed hard against Wall Street's speculation and lack of transparency in the 1920s through early 1930s, and the New York Times declared, "When Ripley Speaks, Wall Street Heeds."
This particular book offers insight into what corporate titans and financiers were able to get away with before sweeping new regulations.
Find it here »
'The Modern Corporation and Private Property' by Adolf Berle and Gardiner Means (1932)
"A long attack on the industrial corporation for being unaccountable to any other element of society, because of the disempowerment of its shareholders. Once considered a classic, it has been out of print for decades."
Berle (pronounced "burly") is one of the main characters in "Transaction Man," and shaped finance as a member of President Franklin Roosevelt's Brain Trust. He and Means, who would also become a member of the Roosevelt administration, used their book to show that corporations had become as influential as political administrations in the US.
To them, that was the new normal, and could indeed be leveraged for the benefit of society through regulations that brought more transparency and accountability to shareholders.
Find it here »
'Concept of the Corporation' by Peter Drucker (1946)
"The second of many books by the legendary management consultant, this one is the result of first-hand research on the inner workings of General Motors, then in its heyday. Drucker proposes a new American social and economic order with the corporation at its center."
Drucker's career began with his writings against the rise of fascism in his birthplace of Austria, and these analyses of how power and administration worked caught the attention of GM. CEO Alfred Sloan hired him for two full years, 1943-44, to audit the company.
This book was the result, and it established Drucker as a pioneer in the study of management. Sloan hated that Drucker would dare suggest ways GM could improve, but Drucker's advocacy of a corporation with more freedom given to a CEO's deputies, and in turn their managers, took hold. Further, Drucker believed that a well-running corporation could be the vehicle for a prosperous and well-running American society.
Find it here »
'American Capitalism: The Concept of Countervailing Power' by John Kenneth Galbraith (1952)
"The first and least well known of Galbraith's important books, this one treats the corporation as the dominant economic institution, but as one whose power must be curbed by other elements in society."
Galbraith was an economist who managed to serve in the presidential administrations of FDR, Harry Truman, John F. Kennedy, and Lyndon Johnson. His most influential work is a trio of economic books that started with this one.
In it, he fleshes out the theory of "Countervailing Power" as the defining, and sustaining, feature of modern American society. The rise of giant, powerful corporations that classical economists could not have dreamed about destroyed the notion of free markets self-correcting without interference, he argued. It's why corporate power needed to occasionally be corrected by external forces like government regulation or unions, and this constant tension would be beneficial to society.
Find it here »
'The Antitrust Paradox' by Robert Bork (1978)
"This isn't what Bork is mainly remembered for — that would be his shot-down nomination to the Supreme Court — but it was enormously influential in reframing antitrust policy. Bork's argument was that as long as consumers' interests were being served, there was no justification for breaking up large, even monopolistic, economic entities."
There are two schools of antitrust in America: one in service of protecting consumers and one in service of protecting competitors. Bork, a Yale law professor and former solicitor general of the US, was firmly in the former. He believed that the latter approach was unintentionally hurting American business by hampering the growth of successful companies.
It was this book that put the country on a path to embracing consumer benefits as the defining goal of antitrust law, from the Supreme Court on down. It is only in recent years that there has been a formidable pushback against this ideology, kicking off the debate once again.
Find it here »
Inside Job: The Looting of America's Savings and Loans' by Stephen Pizzo, Mary Fricker, and Paul Muolo (1989)
"The story of the savings and loans crisis of the 1980s, harbinger of the financial crisis of 2008, told by three superb investigative reporters, two of them from a trade paper called National Thrift News."
Though rarely referenced anymore, the savings and loans (S&L) crisis of the '80s and '90s resulted in almost 1,000 S&L associations failing in the US, about a third of them total, between 1986 and 1995.
After the stagflation of the '70s, the government eased regulation on the industry, and S&L associations responded by engaging in increasingly risky behavior without enough capital to offset the risk. This book explains how it all unfolded.
Find it here »
'Capital Ideas: The Improbable Origins of Modern Wall Street' by Peter L. Bernstein (1992)
"A group portrait of the inventors of the modern quantitative financial techniques that underlie the derivatives markets. It's wholly admiring, but a clear and understandable treatment of a daunting topic."
Bernstein was an economist and financial historian with a knack for breaking down the complexities of Wall Street for a general audience, and he's best known for his history of risk as a means of advancing society, "Against the Gods."
This book serves as an introduction to the mathematicians and theorists who provided the financial foundation for Wall Street throughout the 20th century, as others mentioned in our list debated the right philosophy to guide it.
Find it here »
'A Demon of our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation' by Richard Bookstaber (2007)
"A practitioner-turned-scholar's uncannily prescient warning of instability in the financial markets."
Today, Bookstaber's book, published in April 2007, seems like an eerie prediction of the financial crisis that would hit just over a year later, yet shock the vast majority of the world.
He had a long career as a risk manager at financial firms like Morgan Stanley, Salomon Brothers, and Bridgewater and founded his own investment fund before entering academia. His book was a declaration that all he had seen over the past few decades proved to him that Wall Street was increasingly less able to deal with inevitable crashes.
Find it here »
'Managed by the Markets: How Finance Reshaped America' by Gerald F. Davis (2009)
"A careful, impassioned accounting of how the social system envisioned by Peter Drucker came apart, thanks to the 'shareholder revolution.'"
Davis, a University of Michigan professor, published his book at the end of the Great Recession, as many Americans were struggling to still process what had just happened.
As Davis saw it, the roots were in the financialization of Wall Street since the 1980s, in which debt grew exponentially and seemingly all assets became tradable securities.
This, in turn, was the consequence of the rise of the shareholder primacy movement, which said public corporations existed solely for the benefit of shareholders.
Find it here »
'The Financial Crisis Inquiry Report' by the Financial Crisis Inquiry Commission (2011)
"This is a report by the government commission assigned to explain why the financial crisis happened. Clear, complete, and well-written, it's the best available single volume that explains the crisis."
Congress created the 10-person commission in May 2009 to study the financial crisis in as much detail as possible, and it produced this report in Jan. 2011.
If you don't want a print copy, you can read a digital version at this link — and if you're not in the mood for a 500-page read, the opening "Conclusions" section is an enlightening executive summary.
Find it here »
Disclosure: Lemann was the graduate school dean for this article's author.
This is an updated version of a story that ran on Oct. 31
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