Fraud: An American History from Barnum to Madoff

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Fraud is endemic to capitalism. But to what extent should commercial and financial transactions be regulated to minimize its damage to society? Should the government try to protect investors and consumers through antifraud regulation or should caveat emptor rule the day?

In Fraud: An American History from Barnum to Madoff (Princeton University Press, 2017) Edward J. Balleisen explores regulatory cycles in the United States and how they affected business culture and society at large. In the process, he recalls some of the country’s most notorious scams and scammers.

Balleisen recognizes the difficult balancing act required to get regulation “just right,” neither too heavy-handed nor too light-handed. Regulators must understand, for instance, “the trade-offs between facilitating innovation and curbing deceit.” In the end, however, he believes that “inventive governance can stay abreast of all the new twists on old games, shut down the worst frauds, fortify consumers and investors against imposition, and sustain, at reasonable cost, the social trust necessary for modern capitalism.”

Since we may well be shifting to a new cycle, characterized by a lighter government hand, Balleisen’s book is especially timely.

More on the book below

he United States has always proved an inviting home for boosters, sharp dealers, and outright swindlers. Worship of entrepreneurial freedom has complicated the task of distinguishing aggressive salesmanship from unacceptable deceit, especially on the frontiers of innovation. At the same time, competitive pressures have often nudged respectable firms to embrace deception. As a result, fraud has been a key feature of American business since its beginnings. In this sweeping narrative, Edward Balleisen traces the history of fraud in America–and the evolving efforts to combat it–from the age of P. T. Barnum through the eras of Charles Ponzi and Bernie Madoff.

Starting with an early nineteenth-century American legal world of “buyer beware,” this unprecedented account describes the slow, piecemeal construction of modern regulatory institutions to protect consumers and investors, from the Gilded Age through the New Deal and the Great Society. It concludes with the more recent era of deregulation, which has brought with it a spate of costly frauds, including the savings and loan crisis, corporate accounting scandals, and the recent mortgage-marketing debacle.

By tracing how Americans have struggled to foster a vibrant economy without enabling a corrosive level of fraud, this book reminds us that American capitalism rests on an uneasy foundation of social trust.

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