The LLC, Concrete, and the Index Fund: Fifty Things That Shaped the Modern Economy
Our American Stories
iHeartPodcasts
4.3 • 737 Ratings
🗓️ 25 September 2024
⏱️ 9 minutes
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Summary
On this episode of Our American Stories, Tim Harford, author of the bestselling book 50 Inventions That Shaped the Modern Economy, shares the stories of three inventions that changed the way we live today.
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| 0:00.0 | And we continue with our American stories. Our next storyteller is Tim Harford, an economist and best-selling author of 50 things that shape the modern economy. Here he is to tell the story |
| 0:22.6 | about three of those things, starting with the LLC. The limited liability company was very |
| 0:30.6 | important in allowing companies to raise money. What is essentially true about a limited liability |
| 0:36.1 | company is that if you and I say decide |
| 0:38.8 | we're going to invest in a company and we decide we're going to put $10,000 into a company and try and get |
| 0:43.8 | it all started, we may lose our $10,000. But we can't then be pursued for any more money. Like I've put my $10,000 in, you can't get $20,000 |
| 0:56.8 | out of me or $50,000 or a million dollars if the company does something wrong. My liability is |
| 1:02.7 | limited to the amount of money I originally put in. And so having this protection for investors |
| 1:09.4 | made it more attractive for investors to put money into |
| 1:13.2 | companies. It made it easier for companies to raise money because their investors knew there |
| 1:18.3 | was a limit to their downside. And that in turn was important because it meant that suddenly |
| 1:23.4 | you could raise money from people who didn't know you. Previously, you would only be able to |
| 1:27.6 | raise money from very close friends, from family. So limited liability enables companies to go out |
| 1:34.5 | and raise money from a large number of strangers. You think about companies such as General Electric, |
| 1:41.5 | trying to set up an entire electricity grid, where you think about the |
| 1:44.9 | railway companies. I mean, how is a railway company supposed to make money? You've got to build |
| 1:49.0 | an entire railway, and you've got to put the trains on it before you can collect a single dime |
| 1:54.7 | from any railway passenger. Clearly, you've got to raise a huge amount of money. So the limited |
| 1:59.8 | liability structure allowed that to be possible, and so you could got to raise a huge amount of money. So the limited liability structure allowed |
| 2:02.2 | that to be possible. And so you could have these huge infrastructure projects, water, railways, |
| 2:08.6 | electricity. There have been a lot of downsides. Of course, a lot of people have been ripped off |
| 2:13.1 | by limited liability companies. Companies have taken too much risk. But overall, I think you would say |
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