Wall Street: A Cultural History
By Steve Fraser
Faber & Faber
£25; 632pp
ISBN 0 571 21828 8
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In his first book, published over a decade ago, Paul Ormerod argued that many of the core elements of conventional economics had lost their power to explain the world we live in. The Phillips curve, for example, once persuasive in illustrating the trade-off between employment and inflation, no longer explains the way developed economies behave. With an eye to the club class airport bookshelf, he called this first blast at the profession The Death of Economics.

The second barrel, Butterfly Economics, which carried this analysis further, was fired a few years later. But, frustratingly to him, reports of the death of economics have been much exaggerated, and there remains life in the corpse at which Ormerod aims a third, knockout blow. His publisher’s facility with titles remains, as does Ormerod’s pungent yet carefully argued prose. The thesis this time round is that economics as it is now taught does not explain why so much human endeavour ends in failure.

As a convenient proxy for the more generalised failure he observes, Ormerod takes the incidence of corporate collapse. His most solid data come from the other side of the Atlantic. Only 33 of the top 100 firms in the US in 1919 were still in the list 60 years later. Taking the larger universe of all US firms, the rate of extinction averages 10 per cent a year over a long period. Some of these “extinctions” are not total — it is hard to disentangle bankruptcies from mergers — but as independent entities, firms regularly disappear at that rate.

How do we explain this high death rate, which may well have accelerated in recent years? Ormerod believes that economics has few answers. He argues that the pattern of corporate extinction is similar to the long experience of species failure in the natural world. The charts he includes, from the natural and corporate world, are remarkably similar in shape. From time to time the rate of collapse accelerates dramatically, then slows. None of the conventional theories of the firm, or of competition, he maintains, is useful in explaining the patterns of extinction we observe. The most powerful explanations arise in the natural sciences, which focus on the interactions between species. They demonstrate that systems may remain stable for a time, then suddenly slip out of balance, perhaps as a result of external shock or perhaps because the growing dominance of one species creates a systemic crisis.

This is a fascinating analysis, and Ormerod tells a complex tale with much lucidity, and little maths. Few economists have such a sure grasp of physics and biology. But where does it lead us, in policy terms? The last chapter “What is to be done” is something of a tease. He makes useful points about the right and wrong focus of competition policy, as he sees it, but then indulges himself with some sounding-off about the euro, which “has led to economic stagnation and the rise of far-right nationalist parties across Europe”. His political slip may be showing here. The link between this and what went before is a little obscure. But little else in Ormerod ’s challenging book is obscure. It deserves a wide readership.

Steve Fraser certainly is not writing for the senior common room, but if he is targeting the boardroom, I suspect he will miss his mark. Wall Street is, as the subtitle suggests, a cultural, not a business, history. We canter through a series of booms and crashes, and the stories of J. P. Morgan and other New York behemoths are reheated for our pleasure. But Fraser has little original to add on these subjects and Fraser’s own competitive advantage lies rather in his reading of the literature of American capitalism, from Daniel Defoe, through Dickens and Edith Wharton to Tom Wolfe and Jonathan Franzen.

The problem is that Fraser lacks a clear point of view or analytical frame of reference. He scores easy points off the scoundrels who have prospered on The Street, but beyond that all is hazy. His final sentence, “Those who can dream of a futures market in terrorism may one day wake up to a nightmare”, is solemn, pretentious and devoid of meaning. Those who can dream up such sentences may one day wake up to a nightmare review.

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