The Quarterly: Capitalism has just taken a beating. What will the future look like?
Richard Foster: The essence of capitalism is capitalizing—bringing forward the future value of cash to the present so that society can grow more quickly by taking risks. It goes back to the Dutchmen in the 16th century, sitting at their coffeehouses in Amsterdam and Leiden, loaning each other money for a guaranteed return. Someone said, “I’ll give you a little higher return if you give me a piece of the action”—and equity was invented. That had the effect of bringing forward, into real cash today, the net present value of future earnings. That levered society and allowed it to grow at a much higher rate than it would otherwise have. Equity was a very clever invention, and we are not going to give it up. This is the way people are. This is the way commerce works and will continue to work unless capitalism ends. And that won’t happen, regardless of what you read in the press.
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I see we're reading the same things! That phrase also stuck to me when I've read it! :) My thought was that this time we got a bit too leveraged. Everybody, including consumers, companies, banks. There has to be a way in which to ensure leveraged growth but to also balance the risks, so that we don't take on more and more and more and then expect the state to come and bail us out.
Fabulous picture! I'll wear it on a T-shirt when I come and visit France! :)
Well clearly the problem of today's crisis is leverage... and, in my view, the fact that so far we were in this incredible period of growth, led by the emergent economies, like China for instance. This is why even bad investments, with a very high degree of risk and not really backed up by assets, kept growing and growing, so eventually everybody wanted a piece of the pie. Even the more conservative banks. Of course sooner or later this had to crash, and this turned into a worldwide crisis and economic slowdown from the speed at which (at least some countries) were growing before. Now I understand why Doltu was telling us in macroeconomics that a GDP growth of 8-9% was dangerous and was somewhere on the verge between success and disaster :)
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