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Selected by Raghuram Rajan:
One of the books that has influenced my thinking on business is Religion and the Rise of Capitalism (1926) by R.H. Tawney, the British economic historian and social critic, whose most important work was done in the inter-war period. In this book, perhaps his most famous work, he traces the church’s attitude towards profit, and how that changed over time – how we moved from an environment when even the morality of a small amount of profit was questioned to one where the unbridled pursuit of profits, if legally obtained, is celebrated.
The larger point he makes is that the complex forces that led to the separation of church and commerce, of social responsibility and shareholder value maximisation, while beneficial in many ways, may have gone too far.
Shareholder value maximisation is mistakenly caricatured today as naked greed – in fact, much of what passes as corporate social responsibility, such as doing good for the community in which you do business, could be seen as part of long-run shareholder value maximisation.
Nevertheless, the principle of shareholder value maximisation does encourage management to leave issues of morality and politics to the shareholders, while keeping management’s focus on making money. Is this always an appropriate separation of realms? The appropriate dictum for management will be debated vigorously in coming years, and this book offers a good starting point for reflection.
The writer is professor of finance
at the University of Chicago Booth School of Business.