Capitalism and entrepreneurial capitalism

Capitalism, in the sense of wealth creating wealth, wage labor, power derived from wealth, and trade, is a bronze age social technology. “Capital” literally means “head” in the sense of “head of cattle”. Originally, the amount of capital one had was the number of beasts in one’s herds. The biblical bronze age patriarchs were capitalists, in that their wealth was their herds, and their power derived from their wealth, their power was their employees. The actual figures on whom the biblical patriarchs are based are probably considerably less ancient than they are depicted in the bible as being but since Moses dates from the collapse of bronze age civilization and he, or the people who wrote him up, are very early iron age, his predecessors have to have been at least late bronze age, possibly earlier. The biblical patriarchs are depicted as fighting, and winning, battles with kings, which would suggest that they were figures of the very late bronze age, since chances are that nomads only gave kings a hard time during the decline and collapse of the bronze age civilizations. The size of states, and the size of armies, declined during the collapse of bronze age civilization, to the point where the sword of a single hero could make a big difference, only to rise again in the early iron age.

But, obviously there is something importantly different about today’s capitalism, something that changed around the time of the restoration.

The phrase “Industrial Capitalism” is misleading, for it was this new form of capitalism that created industry, not the other way around.

The big difference, the social technologies that caused the big difference, were double entry accounting, which made the joint stock corporation possible, made it possible to separate ownership of capital from enterepreneurship. Investors could put an entrepreneur in charge of their capital, and use double entry accounting to keep an eye on him. This is the foundation of western civilization, which began to soar when Charles the Second cut joint stock corporations loose from strong government oversight.

This means that owners of capital can employ people smarter than themselves to manage their capital, increasing the effective intelligence applied to production.

Which caused productivity to consistently and substantially rise faster than population, for the first time in history.

Double entry accounting is a critical part of this system. Unfortunately, double entry accounting has been profoundly disrupted in America by Sarbanes-Oxley, making it impossible to tell how a business is doing. This ham fisted government intervention was officially intended to prevent businesses from misleading investors and creditors, but instead it has made it mandatory to mislead investors and creditors. Sarbanes-Oxley consists of thousands of pages of law, each page of law giving birth to thousands of pages of regulation. It is of course impossible to comply with all this, for if one was to comply with any one page of Sarbanes-Oxley, it would put you out of compliance with hundreds other pages of Sarbanes-Oxley, so what the big firms do instead is hire accountants sufficiently well connected with the government, accountants on the revolving door between regulators and regulated, so that any figures the accountant conjures up will be deemed compliant with Sarbanes-Oxley.

The practical effect of this became apparent in the financial crisis, when it became obvious that many banks simply had not been keeping track of their finances, and had no idea what assets they owned, what financial obligations others had to them, and what financial obligations they had to others. Sarbanes-Oxley replaced the intentionally misleading figures of Enron with fog, with meaningless figures.

Which brings us back to the old system, where rich people cannot, and do not, entrust their wealth to smart people.

14 Responses to “Capitalism and entrepreneurial capitalism”

  1. […] of its opponents, particularly the scientific socialists who prophesied its imminent demise. Jim points out that the very system usually referred to as “capitalist” – the ownership of private property […]

  2. […] of its opponents, particularly the scientific socialists who prophesied its imminent demise. Jim points out that the very system usually referred to as “capitalist” – the ownership of […]

  3. […] A round-up of the capitalism talks. Related: Capitalism and entrepreneurial capitalism. […]

  4. […] decided this was a teachable moment for us and provided some helpful notes on Capitalism and Entrepreneurial Capitalism in which we find “Capitalism”—a word whose wide usage in English seems to only […]

  5. Reader says:

    You have “entrepreneurial” misspelled in your post title. There’s supposed to be an “r” after “entrep”.

  6. […] aspect of this all, is that the central issue – capitalism, could be argued to not only have existed prior to the advent of modern capitalism (whatever that really is), but it could be argued to […]

  7. peppermint says:

    You don’t need to be Bronze Age to own capital, see the Maasai of Kenya. The Wikipedia article is strangely silent about what the status of warriors who do not own around 50 head of cattle, but does point out that the Massai are traditionally polygynous with a large age gap.

    • Alan J. Perrick says:

      You mean few cattle AND few children?

      Because “plenty of one but not the other is considered to be poor” is what I read…

  8. Alrenous says:

    +1, I’ll buy it.

    This ham fisted government intervention was intended to prevent businesses from misleading investors and creditors,

    This is the level of the mini-conspiracies that make up the prospiracy. The ‘intent’ is just a cover. Test: something like Moldbug’s “feel guilt and sorrow like nothing else.” (Sure there’s incentives to not flip-flop, but legislators never say a bill was a mistake. That’s not statistically possible, unless…)

    As anarcho-tyranny, it’s not ham-fisted at all. SarbOx is good at rewarding their friends and punishing their enemies. They will not admit it was a mistake. It really can’t be unintentional.

    • jim says:

      It is a monopoly privilege for accountants on the revolving door between regulators and regulated. In place of accurate accounts, some people are privileged to proclaim officially true accounts.

      Sarbanes-Oxley means that official truth about the company’s finances replaces the actual reality of the company’s finances. That is a good deal for those authorized to proclaim official truth.

  9. Dave says:

    When paper money is worthless and all trade is based on barter, precious metal, or Bitcoin, there will be no FDIC insurance or government bailouts. Perhaps we should then require all banks to be partnerships. All partners shall be liable for their share of the bank’s losses “to the last shilling and acre”, and no partner may sell more than 2% of all bank shares in a single year, so they can’t bail out quickly when a bank starts to fail.

    What do you think of this idea? Would it align the bankers’ incentives with the long-term welfare of depositors and the general economy?

    • jim says:

      That is roughly the Scottish free banking system, which worked pretty well. Fractional reserve based on gold, but if a banker ran out of gold, they took it out of the banker’s skin, so they did not run out of gold.

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