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| Spring 2009 | Volume 83 | Issue 1 |
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Article Abstracts
"Scylla or Charybdis? Historical Reflections on Two Basic Problems of Corporate Governance" Shareholders in corporations face two very different types of governance problems: expropriation by controlling shareholders or managers; and expropriation by greedy rulers or, more generally, by the state. The problem is that the more successful investors are in protecting their capital from the grabbing hand of the state, the less they are able to call upon the state to protect it from the grabbing hand of corporate insiders. Conversely, the more investors are able to call upon government to restrain insiders, the more they are vulnerable to expropriation by the state. Although the terms of this tradeoff have changed over time as modern democratic polities replaced absolutist monarchies, both types of threats are still very much with us. "Business Failure and Civil Scandal in Early Modern Europe" The failure of one of the most prominent German merchant-banking houses of the early sixteenth century, Ambrosius and Hanns, the Brothers Höchstetter, and Associates, serves as the point of departure for an exploration of why early modern merchants failed and what the consequences of failure were. This single example illuminates a variety of issues: state engagement in commerce and finance; legal development of bankruptcy procedures; economic strategies against failure and scandal. It reveals the limits of modern economic theories of economic crisis and development. "Alexander Hamilton, Central Banker: Crisis Management during the U.S. Financial Panic of 1792" Most scholars know little about the panic of 1792, America's first financial market crash, during which securities prices dropped nearly 25 percent in two weeks. Treasury Secretary Alexander Hamilton adroitly intervened to stem the crisis, minimizing its effect on the nascent nation's fragile economic and political systems. U.S. policymakers soon forgot the crisis-management techniques Hamilton invented but failed to codify. Many of them were later rediscovered and became theoretical and practical standards of modern central-bank crisis management. Hamilton, for example, formulated and implemented "Bagehot's rules" for central-bank crisis management eight decades before Walter Bagehot wrote about them in Lombard Street. "Rogue Finance: The Life and Fire Insurance Company and the Panic of 1826" In July of 1826, a financial panic on Wall Street caused several companies to fail abruptly and precipitated runs on two of New York City's fifteen banks. Life and Fire Insurance became the largest of the bankruptcies. In violation of New York's banking statutes, the firm had engaged in lending on a massive scale during the speculative boom that prevailed in 1824-25. Innovative lending techniques had been developed outside the traditional banking sector--in this case, in the insurance industry. These lending practices, based on an instrument known as a post note, were initially sound, but were later extended to riskier borrowers and ultimately proved ruinous. In the credit crisis that began in late 1825, the value of the Life and Fire's assets fell dramatically, and in a desperate effort to raise cash, the directors resorted to fraud. "Private Cops on the Fraud Beat: The Limits of American Business Self-Regulation, 1895-1932" From the late 1890s through the 1920s, a new set of nonprofit, business-funded organizations spearheaded an American campaign against commercial duplicity. These new organizations shaped the legal terrain of fraud, built massive public-education campaigns, and created a private law-enforcement capacity to rival that of the federal government. Largely born out of a desire among business elites to fend off proposals for extensive regulatory oversight of commercial speech, the antifraud crusade grew into a social movement that was influenced by prevailing ideas about social hygiene and emerging techniques of private governance. This initiative highlighted some enduring strengths of business self-regulation, such as agility in responding to regulatory problems; it also revealed a key weakness, which was the tendency to overlook deceptive marketing when practiced by firms that were members of the business establishment. |
Selected Book Reviews *Adobe Acrobat Reader is required to view the book reviews. If you cannot open the files,
download Adobe Acrobat here for free! Innovation Corrupted: The Origins and Legacy of Enron's Collapse. By Malcolm S. Salter. Reviewed by Christopher Kobrak. The Microsoft Case: Antitrust, High Technology, and Consumer Welfare. By William H. Page and John E. Lopatka. Reviewed by Tony A. Freyer. The Dachser Logistics Company: Global Competition and the Strength of the Family Business. By Paul Erker. Reviewed by Gary Herrigel. China during the Great Depression: Market, State, and the World Economy, 1929-1937. By Tomoko Shiroyama. Reviewed by Tim Wright. Inventing the "American Way": The Politics of Consensus from the New Deal to the Civil Rights Movement. By Wendy L. Wall. Reviewed by Kim Phillips-Fein. |