Transaction Man

1. The Post-War Era: Institutions Ruled

The United States looked like a country of big, powerful institutions that had more or less made peace with one another.

Era of stability. Following the New Deal and World War II, American society was dominated by large, stable institutions like corporations, labor unions, and government agencies. These entities, often seen as Organization Man strongholds, provided a sense of security and belonging, offering benefits, pensions, and long-term employment. This era contrasted sharply with the earlier period of unbridled capitalism and the later age of rapid transactions.

Corporations as bedrock. Major corporations like General Motors were central to this order, acting as de facto welfare states for millions of employees and their families. They were large, seemingly invulnerable, and expected to play a social role beyond just maximizing profits. This stability extended to related businesses, like auto dealerships, which were tied into the corporate ecosystem.

Managed tensions. While not without conflict, the relationship between these large institutions was characterized by managed tension and negotiation. Unions bargained for worker rights, government agencies regulated industries, and even smaller entities like local businesses and political machines found their place within this structured system, providing a degree of order and predictability.

2. Adolf Berle: Architect of the Institution Man Era

The Modern Corporation and Private Property, which became a classic almost instantly and still stands as the main intellectual achievement of Berle’s life.

Diagnosing corporate power. Adolf Berle, a lawyer and intellectual, identified the rise of the large, publicly owned corporation as the defining economic challenge of the 20th century. His seminal 1932 book, co-authored with Gardiner Means, argued that these corporations, controlled by managers rather than dispersed shareholders, wielded immense, unaccountable power, rivaling that of the state or church in earlier eras.

Advocating government control. Unlike those who wanted to break up big business (like Louis Brandeis), Berle believed large corporations were inevitable and could be a force for good if controlled by a powerful, centralized government. He was a key figure in Franklin Roosevelt's Brain Trust, advocating for New Deal policies that expanded federal power to regulate finance and industry, aiming for a "controlled capitalism" where government guided corporate behavior for the public good.

Vision of managed capitalism. Berle envisioned a society where big business and big government coexisted, with the state ensuring corporations served society's needs by providing economic benefits and stability. By the mid-20th century, he felt this vision had largely been realized, with corporations acting as social institutions, providing security and prosperity, seemingly immune to market whims and shareholder demands.

3. The Rise of Transaction Man: Finance Takes Over

Empowered by the advent of large, mobile pools of capital and freed by government from its old constraints, Wall Street established dominion over the corporation.

A new economic figure. The latter half of the 20th century saw the rise of "Transaction Man," a figure focused on fluid markets, disruption, and individual gain, often working in finance. This contrasted sharply with the Organization Man of the institutional era, who valued stability and corporate loyalty. Transaction Man saw institutions as stodgy obstacles to efficiency and innovation.

Capital gains power. Driven by new financial theories and increasing pools of mobile capital (like pension and mutual funds), the financial world began to assert dominance over traditional corporations. Investment banks like Morgan Stanley, once focused on stable underwriting, shifted towards riskier, more profitable activities like mergers, acquisitions, and trading, demanding higher returns and faster action.

Markets over management. This shift was fueled by the idea that markets, not corporate managers, were best equipped to determine economic value. Techniques like hostile takeovers and leveraged buyouts, championed by figures like Michael Jensen, aimed to force corporations to prioritize shareholder value, often leading to restructuring, job cuts, and the dismantling of the old corporate social contract.

4. Michael Jensen: Theorist of the Transactional Revolution

The way to fix the corporation was not to regulate it in order to curb its untrammeled power, as Berle and his followers had believed, but to get rid of the “agency problem” by figuring out ways to make the chief executive behave more like a shareholder.

Critiquing the corporation. Michael Jensen, a University of Chicago economist, provided the intellectual framework for the transactional era. His "Theory of the Firm" argued that the separation of ownership (shareholders) and control (managers) in large corporations created an "agency problem," where managers pursued their own interests (empire-building, perks) instead of maximizing profits for owners.

Championing market discipline. Jensen believed the solution was to subject corporations to the relentless discipline of the financial markets. He advocated for mechanisms like:

• Hostile takeovers and leveraged buyouts
• Increased corporate debt
• Executive compensation tied to stock performance

These tools, he argued, would force managers to focus on shareholder value and eliminate inefficiencies, unleashing economic potential and preventing the stagnation he saw in the post-war corporate world.

From theory to practice. Jensen became a vocal public advocate for the financial revolution of the 1980s, seeing it as a necessary correction to decades of corporate complacency and government overreach. He believed the market for corporate control was a healthy force, driving efficiency and creating value, despite public backlash against job losses and perceived greed.

5. The Impact on Main Street: Chicago Lawn's Story

They and Amy had the feeling that they were tiny, inconsequential specks swept away in a vast catastrophe they couldn’t comprehend.

Erosion of local stability. The shift from an institution-based to a transaction-based economy had devastating effects on places like Chicago Lawn, a working-class neighborhood built on the stability of local institutions and connections to large corporations. Factories closed due to mergers and acquisitions, long-standing businesses like auto dealerships were terminated, and local banks were absorbed into national giants.

Mortgage crisis epicenter. The deregulation of finance led to the proliferation of predatory mortgage brokers in the neighborhood, targeting financially unsophisticated residents with complex, unaffordable loans. This created "Mortgage Row" and fueled a wave of foreclosures, leaving behind abandoned houses that destabilized blocks and increased crime, unraveling the social fabric.

Local fightback. Residents and community organizers, like Nick D'Andrea and Ann Neal, found themselves fighting against distant, impersonal forces they couldn't understand. Their struggle involved local organizing, lobbying politicians, and negotiating with large banks, demonstrating that even in a transactional world, local action and political engagement remained essential, though often insufficient against overwhelming systemic forces.

6. The Political Shift: Deregulation Enables Transactions

Taken together, they profoundly changed not only finance but American society and the world—both economically and politically.

Liberalism's changing focus. The political environment shifted dramatically, enabling the rise of the transactional economy. Liberalism moved away from its historical focus on taming economic power and towards consumer rights and market efficiency. Figures like Edward Kennedy and Stephen Breyer championed deregulation in industries like airlines, believing it would benefit consumers through lower prices and increased choice.

Finance deregulation. This new consensus, shared by both Democrats and Republicans, led to decades of financial deregulation. Laws like the Financial Services Modernization Act of 1999 (ending Glass-Steagall) and the Commodity Futures Modernization Act of 2000 removed constraints on banks and investment firms, allowing them to grow larger, merge, and engage in riskier activities like derivatives trading.

Unintended consequences. Policymakers, often influenced by financial industry lobbying and the belief that markets were self-correcting, underestimated the risks. They failed to foresee how deregulation, combined with new financial instruments and increased leverage, would create a fragile system vulnerable to collapse, ultimately requiring massive government intervention to prevent economic catastrophe.

7. The Network Era Emerges: Silicon Valley's Vision

Silicon Valley was primarily a business site, but—just as the people who built the great industrial corporations of the early twentieth century also had a social vision in which they themselves occupied a central position—the leaders of Silicon Valley considered themselves to be far more than merely economically successful.

A new center of power. As the transactional era matured, a new organizing principle emerged from Silicon Valley: networks. Companies like Google, Facebook, and LinkedIn built massive online platforms connecting users, leveraging technology to create value through interactions rather than physical production or complex financial engineering.

Disruption as ethos. Silicon Valley's culture celebrated disruption, aiming to dismantle older, less efficient institutions (newspapers, taxis, hotels) and replace them with fluid, network-based models. This ethos extended beyond business, with a belief that technology and entrepreneurialism could solve large societal problems, often viewing traditional government and institutions as obstacles.

Scale and concentration. Despite the rhetoric of empowerment and decentralization, the network era has also led to extreme concentration of power and wealth in a few dominant companies. These firms, often structured to maintain founder control and less burdened by traditional employee obligations, resemble the powerful corporations of the early 20th century, albeit operating in a digital realm.

8. Reid Hoffman: Prophet of the Network Society

Hoffman’s dream was that the entire white-collar population of the world would join LinkedIn, making LinkedIn the new psychic center of the white-collar world, the replacement for the corporation.

Building online communities. Reid Hoffman, co-founder of LinkedIn, embodied the network era's vision. Influenced by gaming and a desire for scale, he focused on creating large online communities centered around fundamental human needs, shifting from dating (SocialNet) to professional life (LinkedIn).

Redefining work. Hoffman saw LinkedIn as replacing the corporation as the organizing principle for white-collar careers. In a world of declining job security and pensions, he envisioned individuals managing their own careers through their online networks, constantly "on the market," piecing together "portfolio lives" rather than relying on a single employer.

Network power and politics. Hoffman became a major figure in Silicon Valley and national politics, leveraging his network and wealth. He saw online networks as tools for political disruption and social change, believing they could create a better, more fluid, and less institutionalized world, often clashing with traditional political structures and figures.

9. The Financial Crisis: A Reckoning for Transactions

The financial system had the potential to take down the economy, throwing millions of people all over the world out of work for year after painful year—often the same people who’d been the victims of high-pressure mortgage brokers in the first place.

Systemic collapse. The transactional system, built on deregulation, complex derivatives, and high leverage, proved catastrophically fragile. The collapse of the subprime mortgage market, fueled by predatory lending and lax standards, triggered a cascade of failures among financial institutions heavily invested in mortgage-backed securities and related derivatives.

Government rescue. Investment banks like Morgan Stanley, once symbols of market triumph, faced instantaneous collapse due to their reliance on short-term borrowing and exposure to toxic assets. The government, despite decades of anti-regulation rhetoric, was forced to intervene with trillions in bailouts and emergency loans to prevent a total financial and economic meltdown.

Consequences and questions. The crisis exposed the severe human cost of the transactional era, from foreclosures in Chicago Lawn to global job losses. It challenged the core tenets of market efficiency and self-regulation, leading to some re-regulation and a public backlash against finance, but the fundamental shift in power towards capital and transactions remained largely intact.

10. Beyond Grand Ideas: The Case for Pluralism

It’s called pluralism, and it deserves a revival.

Critique of grand systems. The book argues that relying on single, all-encompassing principles—whether institutions (Berle), transactions (Jensen), or networks (Hoffman)—to organize society inevitably fails because they ignore the messy reality of human interests and power dynamics. Each grand vision, despite its utopian aims, led to new forms of concentration and exclusion.

Embracing managed conflict. The alternative proposed is pluralism, a forgotten concept championed by Arthur Bentley. Pluralism accepts that society is composed of diverse groups with competing interests, and that healthy politics involves constant, vigorous, non-violent contention and bargaining among these groups, rather than seeking a single "public interest" or allowing one principle to dominate.

Honoring local action. Pluralism mistrusts concentrated power and values the ability of diverse groups, including local communities and interest groups (like the Chicago Lawn organizers or terminated auto dealers), to organize and advocate for their needs. It suggests that building a better society requires working through existing, imperfect institutions and empowering diverse voices, rather than waiting for a perfect system or a benevolent elite to solve problems from above.

Last updated: May 26, 2025