The Ã¢Â€Âœnew smooth sell,Ã¢Â€Â Ralph Lee Smith once pointed out in 1962, Ã¢Â€Âœoften consists of ancient gimmicks in shiny new packages, tailored to a modern age.Ã¢Â€Â
He was right, of course. Well before and long after P.T. BarnumÃ¢Â€Â™s (probably apocryphal) comment that Ã¢Â€ÂœthereÃ¢Â€Â™s a sucker born every minute,Ã¢Â€Â Americans of all socioeconomic classes have succumbed to the siren songs of lying promoters and cheating retailers.
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In Ã¢Â€ÂœFraud,Ã¢Â€Â Edward Balleisen, a professor of history and public policy at Duke University, provides a lively and informative account of chicanery in the United States in the past 200 years. His book illuminates how anti-fraud policies helped shape American business, as they transformed the relationship between the market and the regulatory bureaucracy of the government.
Balleisen demonstrates that markets and regulation have always been inter-connected. In the 19th century, judges often upheld mail fraud proceedings, state grain grading, fertilizer inspection, anti-adulteration laws and occupational licensing laws as constitutional exercises of state Ã¢Â€Âœpolice power.Ã¢Â€Â That said, he acknowledges that the philosophy of laissez-faire/caveat emptor translated into a small percentage of criminal convictions and penalties.
Nor was self-regulation all that effective. The Better Business Bureau, Balleisen writes, exposed con artists and small businesses that crossed the line with exaggerated or false claims, Ã¢Â€Âœbut left alone the big corporations whose executives sat on their boards of directors.Ã¢Â€Â In the 1920s, for example, the BBB did not investigate egregious conflicts of interest and misrepresentations used by investment banks to sell securities to clients ignorant of the risks.
Government regulation has ebbed and flowed. In the 1970s and Ã¢Â€Â™80s, Balleisen reminds us, critics gained the upper hand, many of them arguing that criminal prosecution, not costly and intrusive administrative rules and investigations, was the most appropriate and effective response to fraud. In response to the Great Recession of 2008, the pendulum swung back, with, for example, the establishment of the Consumer Financial Protection Bureau in the Dodd-Frank bill.
A Ã¢Â€Âœcentral rationale for deregulationÃ¢Â€Â in the 21st century has been a perceived need to spur technological, organizational and financial entrepreneurship. Proponents of this view, Balleisen points out, seem unaware of the enduring links throughout American history between innovation and fraud, in railroad-building, mail-order marketing, mutual stock funds, sub-prime mortgage loans and the dot-com bubble. Referring to the collapse of Enron, for example, economist Paul Krugman claimed that the uncertainty and fantasies associated with transformative innovations make it Ã¢Â€Âœspringtime for charlatans.Ã¢Â€Â
Too often, the message to business owners and managers is, Ã¢Â€Âœreaching objectives is what matters and how you get there isnÃ¢Â€Â™t that important.Ã¢Â€Â With deregulation about to become the order of the day amid renewed rhetoric in Washington, D.C., and many state capitols about the virtues of free enterprise, we are left to wonder, along with Balleisen, about what exceptions, if any, our legislators will make Ã¢Â€Âœfor consumers and investor whom they see as especially vulnerable to fraud.Ã¢Â€Â And about the role of Ã¢Â€Âœinventive governanceÃ¢Â€Â in building Ã¢Â€Âœthe social trust necessary for modern capitalism.Ã¢Â€Â
Glenn C. Altschuler is the Thomas and Dorothy Litwin Professor of American Studies at Cornell University.