Keith Roberts

 

On his book The Origins of Business, Money, and Markets

Cover Interview of August 17, 2011

Lastly

In describing the driving forces of an earlier, simpler time, this book provides a relatively simple and comprehensible model of business today.

Sure, there are important differences, but most of what business now does was also done in ancient times.  And most of the management techniques and operational methods today are either similar to those of ancient times, or logical extensions of prior practices.  As a result, the relatively simple historical model developed in this book offers a good understanding of what business does, what nurtures or harms it, and what dangers it holds for society at large.

The primary example I would offer, of how the ancient history provides an instructive model today, is the role of finance. Even though I have spent much of my life working in investment, accounting, venture capital, and other financial roles, I didn’t actually know much about it until researching and writing this book.

Because of what I learned, and what readers will learn from the book, I would summarize the role in business of finance in the following way:

(1) desire combined with purchasing power equals demand;

(2) by stimulating demand, business creates wealth;

(3) purchasing power is the key limitation on the amount of demand and wealth that business can stimulate;

(4) the main type of purchasing power is credit; and

(5) the main variable that determines the amount of credit available is trust in the borrower’s promise of repayment.

All this explains the importance to business of finance, and the importance to finance of trust.

I do not wish to overstate the case. There are obvious differences between ancient and modern business. In my opinion, the chief difference is very beneficial: the important role that modern business plays in creating wealth. Ancient business worked with wealth that came primarily from agricultural surpluses. Most of today’s wealth, by contrast, comes from the purposeful innovation and marketing efforts of business, which were largely unknown in ancient times.  As a result, modern business creates most of today’s wealth.

This is largely a blessing, but it has also created a grave danger.  Rome was nearly destroyed when its major businesses briefly took control of Rome’s foreign policy and pursued such short-sighted and selfish goals that Rome’s very existence became seriously jeopardized.

Modern business has gained a similarly outsized and self-interested voice in public policy.  We can see it in Europe, where the banks, trying to get taxpayers and public employees to absorb all the losses that the banks foolishly incurred in 2007-10, are pushing people to the brink of revolt.  The banks’ greed is threatening the destruction of the entire Euro system.  And, of course, we can see it in the United States, where big business similarly pursues selfish goals at the cost of the social fabric that ultimately sustains it.


© 2011 Keith Roberts