Fraud: An American History from Barnum to Madoff

By Mehrotra, Ajay K. | Law & Society Review, January 1, 2019 | Go to article overview

Fraud: An American History from Barnum to Madoff


Mehrotra, Ajay K., Law & Society Review


Fraud: An American History from Barnum to Madoff. By Edward J. Balleisen. Princeton: Princeton University Press, 2018.

Sociolegal scholars of regulation have long observed the dialectic that exists between innovative types of fraudulent economic activities and the adoption of antifraud regulations and reforms. In the conventional narrative, the law is often depicted as a laggard: when the legal system does finally catch up to new forms of deception, the hucksters are usually on to their next scheme and their next mark. The law is hopelessly seen as one step behind.

With his outstanding new book, legal and business historian Ed Balleisen provides a broad cultural and new institutionalist perspective to this ongoing dynamic and standard story. Balleisen persuasively demonstrates that, from the early Republic to the present, Americans have been deeply ambivalent about economic guile. American business leaders and reformers alike have frequently acknowledged that economic duplicity is an endemic part of modern capitalism and that greater latitude for business innovations is often seen as necessary to provide the opportunities for both beneficial economic growth and deleterious creative deception.

Balleisen traces the development of this deep-seated ambivalence to show that regulatory responses to business fraud have generally shifted over time, reflecting changing attitudes toward business-state relations. During the nineteenth century, he shows that the common law tilted toward an ethos of individualism and commercial permissiveness, which made it difficult to sustain civil and criminal fraud allegations. By contrast, during the Progressive Era and the New Deal, Americans turned to the state to develop new types ofprotections to guard against the excesses ofcommercial and financial dishonesty. Since the 1970s, the pendulum has swung back, according to Balleisen, in favor of business, as lawmakers have contended that robust economic growth requires a lighter regulatory stance. Balleisen, in sum, masterfully chronicles the rise, decline, and re-emergence of a legal culture of caveat emptor.

In doing so, the book also sheds light on the conceptual foundations of fraud and the importance of trust for modern business transactions. In the first two chapters, Balleisen provides a succinct and useful summary of the social science literature on economic deception. Focusing mainly on the cognitive biases and heuristic devices analyzed by behavioral economics, he shows that business dishonesty has been undergirded mainly by an asymmetry of information between transacting parties. …

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