Tuesday, May 26, 2009

The leverage of capitalism….

“The essence of capitalism is capitalizing—bringing forward the future value of cash to the present so that society can grow more quickly taking risks. It goes back to the Dutchmen in the 16th century, sitting in 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 that it would otherwise have.”

Richard Foster, “Creative destruction and financial crisis: An interview with Richard Foster (co-author of Creative Destruction), December 2008, McKinsey Quarterly

Thanks David Haarmeyer

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