So how come we all hear "entrepreneurs take risks"? At the risk of achieving sic passim, believe it or not the idea only got started with, guess what, ex nihilo credit in the 1970s. How come? Well, once you set up an ex nihilo credit regime, there is no rational limit to what can be lent, because literally nothing is being lent. Only debt is being agreed to... well, with a limitless supply of debt on offer, at zero cost to the lenders, well, how do you lend all of it out?
First you must socially condition people to borrow more than they need, and to do so you must overcome their natural prudence and common human sympathies. What worked was to socially condition through media, schools, entertainment and government the idea that entrepreneurs take risks. Borrowing from banks (who had "risk capital") was step one in an entrepreneurs saga.
According to Merriam Webster, the term "risk capital" first shows up in 1944. Since business start-up has been around since Cain settled down after bumping off Abel, is it not a little odd the idea of "risk capital' does not show up until 1944? These are early abuses of the term, and meanings change as people grab an emerging use to apply to an urgent need.
Let's look at some etymologies -
So the word risk itself is fairly new, in light of how long we've been doing business on earth.
The word is a good one, but notice it has more to do with logistics than with business dealings; as to the soldier taking risks, well, war is hardly business, and from the beginning soldiers have had to over run their opponents to gain the necessities to fight. Rebels assault the armory. Again an ancient idea, but not business, not trade. In logistics, oh yes indeed, there are risks, but here again, and expressly, entrepreneurs since the Phoenicians ruled the waves have mitigated risks. Marine insurance is arguably charity, not insurance, since those whose goods go overboard are made whole by those whose goods did not, thus arguably even halal, especially since the relationship ends with the docking of the vessel.
So to move from risk in logistics, the problems of time space and matter and botlenecks, and move the idea over to human action took some doing. But they did it. How? Social conditioning, just like today when your smart phone tells you what to think, what to like, where to go, what to do. (Yesterday a cabbie became perplexed when google maps told him to go one way, and Garmin another...)
Check this bit of research out...
A look at Google Ngram – a search engine tool that allows you to see how often a given word is used across books, newspapers and magazines through time – shows that the usage of “Risk” was fairly stagnant from 1800 to the early 1960s. The frequency with which it appeared during this 160 year stretch ran from 0.002% to 0.004%, about as often as words like “Poverty” or “dog”. Starting in 1970, however, “Risk” became a hot topic. The frequency of its usage increased by over 3.5x, peaking in 2006 at 0.015%. That may not sound like a lot, but the word “Risk” now appears in print four times more often in English-language press than the word “Weather”, according to Ngram. And you know how popular the weather is…Source:Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York.Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.Well, there it is. After 1971, when Nixon went off the gold standard (lite), the hegemon got to work flogging the idea of risk as central to business. We've always had fake news and state controlled press, and they did their work. A term normally associated with logistics is hijacked and applied to human action, business, in order to get their cannon fodder to soak up as much of this ex nihilo credit as possible, and enslave them.
Terms do not just show up universally adopted one day. They need time to incubate. You can study such incubation of any given word at the Oxford English Dictionary site, and see how at high levels (academia) the idea of risk and investment begins to emerge even 100 years ago or more, with the dates and works in which a term was used. This demonstrates how slowly a critical mass forms as more an more people address the idea in their own works. Certainly before Nixon's move there were people referring to risk in investing. There had also began the implicit criticism of NOT taking risks, with the term risk-averse first showing up in 1961, and the illiterate version of risk-adverse showing up in 1969.
Just as it takes time for a term to solidify, and the idea behind it, it takes time for the idea to have its intended effect. The point of misinforming entrepreneurs was to get them to take risk in the form of borrowing ex nihilo credit. Although it was in 1971 that Nixon made lending ex nihilo credit lending possible, bankers needed proof this would not backfire on them. Two entities that massively borrowed ex nihilo credit when Nixon changed the rules, Chrysler and Penn Central, went bankrupt, Uncle Sam bailed them out. Bankers then understood. In the ex nihilo credit regime, profits are privatized and the losses are socialized. All that was left was how to carry ex nihilo credit loans on the books?
I have in hand a 1983 seminar manual for bankers, "conducted throughout the country", in which bankers are instructed to lend credit instead of money. (Note bankers know the difference, even if you are not allowed to know the difference.) How? There is the problem for bankers of reserve requirement and the bank balance sheet liability of such action. The solution is clever. Put the ex nihilo credit loans under Standby Letters of Credit, which at once have no reserve requirement and is off balance-sheet financial statement category. Sound familiar? The idea was so evil and contrary to sound banking, that the manual carried a sign letter of endorsement from a regulator for the Governors of the Federal Reserve System.
(As a side note, this scam is also the basis for gold leasing, specifically mentioned in the manual, and a matter of great concern worldwide, with Germans and Italians, etc, demanding that gold supposedly in USA for safekeeping be sent back to Germany, Italy etc.. Problem is, the gold may be in China, and legally so, for apparently people did rash things under "gold leasing.")
As each banking disaster occurred, and taxpayers picked up the tab, the practice got worse. S&L Crisis in the early 80s, the the 87 crash, the 97 crash, the dot com bust, 2008... not to mention the countless individual disasters. In every instance, the banks get bailed out. We are now at total saturation. When Boeing builds a jet, ExImBank creates ex nihilo credit for India to buy it, it costs nothing for India to be a customer of Boeing. The USA taxpayer is on the hook for any default. Boeing takes the profits. When an unemployed 18 year old stops off at a gas station and pays for two corn dogs and a supersize drink with his EBT card, the ex nihilo credit is created at that moment. Again, it it added to the taxpayers tab. What appears to be happening is this regime is over. The beneficiaries of this boom can no longer get any benefit.
Airlines are dying for too many airplanes. I flew Seattle Paris round trip at Christmas holidays, $650 (about $400 taxes, $250 to the airlines). McDonalds can't find anymore victims. Sorts Authority cannot find enough people who want more junk. The dinosaurs are dying.
We all love a system that works for us, even if it doesn't. What Busby Berkeley learned in the 1930s is you could make a lot of money showing unemployed people movies about rich people living it up (We're in the money!) Hope is a theological virtue, but it can be hijacked by bankers, and affixed to nothing, giving false hopes. It is cruel, but the victims are all willing accomplices.
By the way, tell me, what is the primary job of the United States Secret Service? Do you know?
Here is some more reading, which only bolsters my argument. These open as .pdfs, and here. That last one, if viewed in terms of promotion of ex nihilo credit, is devastating to modern economics. Out of the mouth of babes!
Entrepreneurs do not take risks. The regime that was based on that is dying off. What always was and will always be is customers. You need customers, not finance. Find customers, and you'll succeed. And I teach how to find customers first.