RECOMMENDED READING
A perplexingly common mistake among market evangelists is the assumption that wealth amassed represents value created. “There is one sort of labour,” wrote Adam Smith in The Wealth of Nations, “which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour.”
Wealth can be a sign that tremendous value has been created for investors, customers and society more broadly. But wealth can also be captured rather than created. And while that works well for the capturer, the game is zero-sum, or even value-destroying, in aggregate. The private equity industry offers a fascinating case study in the importance of distinguishing between these scenarios.
Recommended Reading
Coin-Flip Capitalism
Coin-Flip Capitalism aims to help policymakers and the public better understand how the hedge fund, private equity, and venture capital industries function, what social and economic value they create or destroy, and how policy should respond.
The “Enormous Social Value” of Private-Equity Fees
The Wall Street Journalâs defense of private equity (âPopulists Donât Know Much About Private Equityâ) is an impressionist masterpiece of market fundamentalism, relying on the unexamined assumption that fees paid to private-equity partners represent “social value.” One can simply step back and gawk in amazement, but true appreciation requires poring over each brushstroke.
Critics Corner with Steven Kaplan
Oren Cass is joined by private equity expert Steven Kaplan to discuss leveraged buyouts, bankruptcy, and the effects on workers.
