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Investment Banking

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Investment Banking

Institutions, Politics, and Law

Oxford UP,

15 min read
10 take-aways
Audio & text

What's inside?

Investment banking and capitalism grew up hand in hand.

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Editorial Rating

6

Qualities

  • Innovative

Recommendation

This history recounts the development of investment banking from its 17th-century origins to the present. Along the way, professors Alan D. Morrison and William J. Wilhelm Jr. offer readers an introduction to institutional theory and hazard a guess at the future evolution of what is essentially an information business. This is not a how-to, nor is it a survey of the present competitive landscape, but getAbstract believes that readers interested in a concise presentation of the historical, economic and institutional forces that shaped the investment banking industry will find this book fits the bill. The authors have organized their presentation remarkably well, a noteworthy achievement given the breadth of philosophical, legal, financial and commercial information on which they draw.

Summary

Capitalism Versus State Planning

In capitalism, individuals make decisions about resource allocation; the state plays a secondary role. This decentralization is superior to central planning for four reasons:

  1. Individuals are in a better position to make decisions about the resources they need.
  2. Individuals who reap the reward of their work try harder.
  3. In central planning, politics may be more important than efficiency or welfare.
  4. Central planners cannot process the voluminous information necessary to make decisions about allocating all resources.

However, for economic self-determination to work, institutions must enable establishing and monetizing property rights. The right to property allows the owner to use or sell an asset. The strength of the state and the strength of property rights are in inverse proportion. To secure property rights, state power must diminish. An independent judiciary can help curb state power.

While the state should not be too strong, it must have the power to enforce contracts and laws. Yet technological and economic factors limit the ability of the state...

About the Authors

Alan D. Morrison is a lecturer at the Saïd Business School and a fellow of Merton College, University of Oxford. William J. Wilhelm Jr. was chair of Management Studies at the Saïd Business School before joining the McIntire School of Commerce at the University of Virginia in 2002.

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