Gotham Diary:
Business and Capital
15 May 2015

Before I get going, I want to make it clear that, as a retired lawyer, I am perfectly well aware of the legal definitions of the words that I’m going to compare and contrast in what follows — especially when, as with “businessman,” they have no legal meaning at all. I’m going to ignore all that legal and economic jargon, and use words as people do in everyday life. The difference between a business and a corporation, then, is a degree of remoteness and consolidation. A businessman runs a business in a specific location or area, where he is generally known, while corporations run many businesses remotely. The fact that there is no legal difference between a corporation owned by a businessman who (or whose family) is its principal shareholder and a corporation whose shareholders number in the tens of thousands is merely an instance of the poverty of the law.

Of course, businessmen require access to accumulations of money. There is no way to inch your way up to the amount of money required to start a business. If you don’t have it yourself, you must borrow it from investors. Down the road, you may see an opportunity that can be taken advantage of only if you can get your hands on another pile of money. For several centuries, it has been fashionable, but nonetheless misleading, to call these piles of money “capital.”

The businessman’s money is intended to launch a business operation. Capital, properly speaking, is deployed only to increase itself.

A businessman has to make a profit — that’s his living. A successful businessman makes more money than he needs, but making money is only part of his overall objective. A businessman — how often this is overlooked! — is somebody who wants to run a business. Being a businessman is his occupation. As such, he has all sorts of purely personal investments in the business. He has relationships with his employees, which may be good or bad. He has goals, such as extending a service business into a new territory. He may simply want to pay off his investors, and be the sole owner of his enterprise. The excellence of his product or services is unlikely to be a matter of indifference to him. Of course there are businessmen who are “all business” — that is, all about the money. But that doesn’t mean that they’re not businessmen. So long as they show up at work every day, they’re just stunted businessmen.

I repeat: profit is vital to any business. Businesses are not charities. But the men and women who run businesses are usually involved with them beyond the scope of a balance sheet. That’s simple human nature. Economists have been trying to tell us to ignore this non-financial involvement, or at least to regard it as superfluous to economic considerations, because it doesn’t mean anything to them. We ought to ignore them, and look at the businessmen we know. Businesses are intensely social. In addition to employees, there are contacts, and there are (of course!) customers. There are other people everywhere you look. It can be gritty and sloppy and nasty — occasionally. My bet, though, is that any business that has operated along much the same lines for ten or fifteen years is a viable social organization.

Economists much prefer capitalists, because capitalists have none of this engagement. Their concern stops at the balance sheet. They do not show up for work every day. Sometimes, they are immense humbugs, like Andrew Carnegie, who pretended to care about his steelworkers. They prefer to regard the people who do things for them as independent contractors, not employees. The capitalist’s ideal number of employees is zero.

A capitalist has no reason to consider the welfare of any workers. The businessman has every reason. The capitalist is a ghost. The businessman is a pillar of the community, or at least a contributor to the local police and fire charities.

It’s precisely this personal nature of business that produces great instability when the businessman dies, or retires and cannot sell his business or give it to a family member. This is when businesses, if they are successful, go “corporate.” Corporations are by nature capitalist entities, intended to maximize return on investment whatever it takes, but in reality corporations are run by people who, as often as not, operate as businessmen. The managers of a corporation are more like well-paid businessmen than capitalists. Like the businessman, they, too, have their employees and their contacts. They may even deal with customers, although isolation from customers is one of the key features that distinguish a business from a corporation. In my admittedly limited experience, managers talk like capitalists when they must but behave like businessmen when they can.

Am I suggesting that a businessman would never replace his employees with robots? Let’s not say “never.” But it’s my belief that a businessmen will be far more likely to equip his employees with semi-autonomous robots, especially as cost comes down (which of course it will), than to replace them with fully-autonomous robots. He may shave his payroll a bit here and there, but he is unlikely to want to be the only person who shows up for work everyday.

All of this is written with the assumption that any businessman would make a good capitalist, that businessmen have a choice to make. In most cases, I don’t think that they do, anymore than a gifted pianist can simply choose to be a concert artist. We applaud the concert artist and back away from the capitalist, but the fact is that both make tremendous sacrifices to focus.

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I wrote this shortly before reading Tad Friend’s profile of Marc Andreessen in the current issue of The New Yorker. You could read the piece as making complete hash of the distinctions that I’ve been working through. What does Andreessen sound like if not a capitalist who wants to make the world a better place by getting rich (very rich, “1000x”)? It also appears to me that these paragraphs belong to the vanished world of my youth, before the financialization of everything. My belief in the humanism of commerce nevertheless persists, and I know a humbug, even a self-deceiving humbug, when I see one.

Bon weekend à tous!