Economic history brings out two broad types of development: the capitalist model exemplified by Adam Smith in the 18th century and the totalitarian model after the Soviet Revolution in the 20th century. Under the capitalist model, the industrial revolution brought unprecedented prosperity.
With advances in diverse fields such as industry, transport, shipping, power and consumer goods, the colonial powers reached a standard of living not seen before as the capitalist society developed. The capital markets grew rapidly, and brokers and capital market players emerged to support the growth of a capital-owning class.
At the same time, society felt the negative effects of unbridled capitalism. Various types of fraud came to light, as did social ills such as sweat labour. The word "scam" itself is of unknown origin and means a dishonest scheme or fraudulent practice. The earliest scam, recorded in 1720, was the South Sea Bubble in which large numbers of investors lost their money to scamsters. The British government finally had to intervene to save the exchequer.
Not just that. Shareholding in large companies led to cornering of shares by a few rich owners. Unethical practices were common and the class of robber barons began to emerge in the Western world.
The totalitarian system was not without blemish. There was the privileged leader class, whose lavish lifestyles matched those of the elite of the capitalist society. While the State took care of the basic needs of the people, there was no scope for private enterprise.
Soon, it was clear that both systems needed remedial action by the government. On the one hand, there was a need for the State to play a greater role to rein in profiteering. On the other, there was need to open up opportunities for private enterprise and for less State intervention in economic matters.
The recent scandals in the financial sector in the United States have caused many tremors round the globe. Even in the past, scams in the world's largest economy have arisen from the greed of a few, who bet the money of others on untenable schemes and systems. When these collapsed, the lives of thousands, if not millions, were affected. The list goes on: from junk bond creator Mike Milken to hedge fund Long Term Capital Management to Enron to Fannie Mae/Freddie Mac to the sub-prime bubble that led to the collapse of the likes of Lehman Brothers. This time, the problem was compounded affecting even whole economies - Ireland, Greece and Spain, for instance.