32 SEPTEMBER 2019 THE ATLANTIC

BOOKS

How the Dismal Science

Broke America

What the rise, and wrong turns, of economists

and Wall Street dealmakers reveals about our future

BY SEBASTIAN MALLABY

A

LITTLE MORE THAN a generation ago, a stealthy revo-
lution swept America. It was a dual changing of the guard:
Two tribes, two attitudes, two approaches to a good soci-
ety were simultaneously displaced by upstart rivals. In
the world of business, the manufacturing bosses gave
way to Wall Street dealmakers, bent on breaking up their
empires. “Organization Man,” as the journalist William
H. Whyte had christened the corporate archetype in his 1956 book, was ousted
by “Transaction Man,” to cite Nicholas Lemann’s latest work of social history.
In the world of public policy, lawyers who counted on large institutions to deliver
prosperity and social harmony lost influence. In their place rose quantitative
thinkers who put their faith in markets. It was The Economists’ Hour, as the title
of the New York Times editorial writer Binyamin Appelbaum’s debut book has it.
Together, Lemann and Appelbaum contribute to the second wave of post-
2008 commentary. The first postmortems focused narrowly on the global
finan cial crisis, dissecting the distorted incentives, regulatory frailty, and
groupthink that caused bankers to blow up the world economy. The new round
of analysis broadens the lens, searching out larger political and intellectual
wrong turns, an expansion that reflects the morphing of the 2008 crash into a
general populist surge. By excavating history, Lemann and Appelbaum remind
us that Transaction Man and his economist allies were not always ascen-
dant, and that they won’t necessarily remain so. This frees both writers to ask
whether an alternative social contract might be imaginable, or preferable.
The first section of Lemann’s elegant history conjures up the corporatist
order that preceded Transaction Man’s arrival. The story is shaped around
Adolf Berle, a lawyer who, with the statistician Gardiner Means, wrote The
Modern Corporation and Private Property, a classic study of the concentra-
tion of power in the hands of company managers. Before the publication of
that masterpiece, in 1932, other authors had drawn attention to what one
of them called the “prestidigitation, double shuffling, honey- fugling, horn-
swaggling, and skullduggery” employed by corporate executives to dupe
their supposed masters, the shareholders. Berle went further. He laid out
in detail how shareholders, being so dispersed and numerous, could not
hope to restrain bosses—indeed, how nobody could do so. Enormous pow-
ers to shape society belonged to company chieftains who answered to no

one. Hence Berle’s prescription: The government

should regulate them.

Berle’s pro-regulatory stance won him an

introduction to Franklin D. Roosevelt, and he

became an influential New Dealer. But his vision

truly triumphed after World War II, when regula-

tion of corporate behavior was supplemented by

the rise of labor unions. In the winter of 1945–46,

more than 300,000 members of the United Auto

Workers union staged a successful strike at Gen-

eral Motors that lasted 113 days, and a few years

later, in 1950, the company resolved that further

confrontations would be too painful. In what

became known as “the Treaty of Detroit,” GM’s

bosses granted workers regular cost-of-living pay

increases, a measure of job security, health insur-

ance, and a pension— benefits that were almost

unheard-of. General Motors had “set itself up as

a comprehensive welfare state for its workers,” in

Lemann’s succinct formulation.

Berle celebrated the Treaty of Detroit by pro-

pounding a pro-corporate liberalism. The cor-

poration had become the “conscience-carrier of

twentieth- century American society,” he marveled.

Many contemporaries agreed. “The large mass-

production plant is our social reality, our represen-

tative institution, which has to carry the burden of

our dreams,” the rising management theorist Peter

Drucker wrote. Anticipating the “end of history”

triumphalism of a later era, the sociologist Daniel

Bell feted the corporatist order in a book titled The

End of Ideology.

Of course, corporatism proved less robust than

these writers expected. Berle’s “clash of the titans”

liberalism, built on checks and balances among big

corporations, big government, and big labor, fell

afoul of American individualism. Conservatives

railed against big government for stifling freedom.

Liberals denounced big corporations for reduc-

ing employees to automatons. Both sides came to

see big labor as the protector of special interests.

In 1965, as Lemann reminds us, the novelist Nor-

man Mailer had one of his characters interrupt

a lovemaking session to pluck out his partner’s

diaphragm— “a corporate rubbery obstruction.”

Yet the chief threat to Berle’s vision came not

from America’s suspicion of concentrated power.

It came from economics.

A

PPELBAUM OPENS HIS BOOK with

the observation that economics was not

always the imperial discipline. Roosevelt

was delighted to consult lawyers such as Berle, but

he dismissed John Maynard Keynes as an imprac-

tical “mathematician.” Regulatory agencies were

headed by lawyers, and courts dismissed economic

evidence as irrelevant. In 1963, President John

F. Kennedy’s Treasury secretary made a point of

excluding academic economists from a review of