Book Review: White Collar Crime In Modern England

The disappointing news is that, according to the author of White Collar Crime In Modern England, modernity ended in 1929.¹ So if you’re looking to hear about Nick Leeson or LIBOR I can’t help you. But the good news is that the Victorian British were the most enthusiastic, fecund, and amoral fraudsters of any society that has ever existed.

As one example, the Stock Exchange explicitly forbade reporting crimes committed on the Exchange to the police, for fear that awareness of the rampant criminality going on there would harm the Exchange’s reputation. For another, after 1866, bankers began to professionalize, keep standard books, diversify their holdings, and keep financial reserves—and the rate of bank fraud increased. Before, bank fraud was kept under control because the fraudsters kept going bankrupt. But if banks didn’t fail, the frauds could just keep going!

The basic problem is that the Victorians had invented the publicly traded company,² which is to say that they had invented the concept of getting your money from a large number of strangers who aren’t paying very much attention. But they had yet to invent regulation of publicly traded companies. Indeed, they had failed to invent such concepts as:

• Auditors.

• Dedicated, professional auditors who aren’t just the director’s friend who takes a casual look at the books once a year.

• Reports to shareholders.

• Letting shareholders look at the account books.

• Standardized bookkeeping practices.

• Insider trading laws.

• Any punishment of any sort for lying to shareholders about topics like:

  • The amount of capital the company has.

  • What is in the account books.

  • The content and indeed existence of shareholder meetings.

  • When your company was founded.

  • Whether you are paying dividends out of capital.

  • Whether the famous people listed in your advertisement actually endorse the company, or have even heard of it.

• Allowing women to attend shareholder meetings if they own stock in the company.

The author writes:

Even many honest directors believed that shareholders, like children, should know no more than is good for them, and, like children, should be deceived for their own good.