September 25, 2024 • 9 mins
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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Speaker 1 (00:10):
And we continue with our American stories. Our next storyteller
is Tim Harford, an economist and best selling author of
Fifty Things That Shape the Modern Economy. You're used to
tell the story about three of those things. Starting with
the LLC.
Speaker 2 (00:28):
The limited liability company was very important in allowing companies
to raise money. What is essentially true about a limited
liability company is that if you and I say decide
we're going to invest in a company, and we decide
we're going to put ten thousand dollars into a company
and try and get it all started, we may lose
our ten thousand dollars, but we can't then be pursued
(00:52):
for any more money. Like I've put my ten thousand
dollars in, you can't get twenty thousand dollars out of me,
or fifty thousand dollars or a million dollars if the
company does something wrong. My liability is limited to the
amount of money I originally put in. And so having
this protection for investors made it more attractive for investors
to put money into companies. They made it easier for
(01:15):
companies to raise money because their investors knew there was
a limit to their downside, and that in turn, was
important because it meant that suddenly you could raise money
from people who didn't know you. Previously, you would only
be able to raise money from very close friends from family.
So limited liability enables companies to go out and raise
(01:35):
money from a large number of strangers. You think about
companies such as General Electric trying to set up an
entire electricity grid. Where you think about the railway companies.
I mean, how is a railway company supposed to make money.
You've got to build an entire railway and you've got
to put the trains on it Before you can collect
a single dime from any railway Passengerlearly, you've got to
(01:57):
raise a huge amount of money. So limited life liability
structure allowed that to be possible, and so you could
have these huge infrastructure projects water, railways, electricity. There have
been a lot of downsides, of course, a lot of
people have been ripped off by limited liability companies, companies
has taken too much risk, But overall, I think you
(02:18):
would say that this was a very important step in
the creation of a major multinational companies. They really couldn't
exist without limited liability. There's a lot of concrete in
the world it's probably the substance that we humans use
more of than anything else, with the exception of water.
(02:41):
It's a very very flexible, very versatile building material from
the point of view of an engineer or an architect. Actually,
the trouble with concrete is once it's built, there's nothing
you can do with it. You can't change it. It's
not like bricks bricks. You can take down a brick
wall or a brick house and reuse the bricks. But
for a structure engineer, for an architect, it's a very
(03:03):
very robust, flexible and inexpensive material, and so we pour
a lot of it. Concrete, bridges, concrete, schiscrape prints, it's everywhere.
There is an amazing fact that I checked three times
and then some colleagues of mine at the BBC said
they didn't believe, and so they fact checked me, and
they came back and said that you were right all along, Tim,
(03:24):
And that fact is that in three recent years China
poured more concrete than the United States did in the
entire twentieth century. It gives you a sense of the
building boom going on in China and how incredibly important
this material is. Where did it come from? We've had
(03:45):
concrete for a very long time. That's been discovered in
settlements in Turkey eight ten maybe twelve thousand years ago.
The Romans used a lot of it the Parthenon. If
you ever have the chance to go to Rome, there's
this ancient church it's nearly two thousand years old, called
the Parthenon. It's made of concrete, and if you go
in and you look up, it is recognizably concrete. It
(04:05):
reminds me a little bit of the Washington DC metro system.
It's quite striking. And the big leap forward was in
the eighteen hundreds a French gardener called Joseph Mernier was
trying to make concrete flower pots, and they didn't really
work until he realized he could reinforce them with the
steel mesh. The steel and the concrete, as it happens,
(04:29):
expand and contract when they get hotter and colder at
almost exactly the same rate. This is very unusual for
two materials, but it means you can put steel reinforcement
inside concrete and it won't instantly crack when the concrete
heats up. It makes the concrete vastly stronger under certain
kinds of stress. And it means you can make concrete skyscrapers,
(04:53):
concrete bridges which would have been impossible. We are maybe
storing up trouble for ourselves because some of the those
reinforcements are starting to get exposed to the elements. They're
starting to rust. That makes the concrete way way weaker,
and so you see these dreadful bridge collapses that happen
from time to time. That's catching up with us, and
(05:15):
it's probably going to catch up with China too. Paul Simuelson,
who won the Nobel Prize for Economics, so a few
decades ago, Paul Samuelson said that the index fund ranks
alongside wine, cheese, and the wheel as an invention of
human history. I mean that maybe slightly exaggerating things, but
the index funders saved a lot of people a lot
of money. The basic idea of an index fund is
(05:38):
you want to invest in the stock market. Rather than
pay some experts to pick stocks for you, for which
they will charge you handsomely, why not just invest in
the market as a whole. Just say, well, if the
market as a whole goes up, I make money. If
the market as a whole goes down, I make the money,
but I'm not going to worry too much about picking stocks,
(05:59):
and perhaps surprisingly that turns out to be really just
as good as paying an expert and cheaper. There's lots
of lots of evidence that suggests that it's very hard
for expert stockpickers to do much better than just whatever
the market is doing. So this was observed by Paul Samuelson,
this Nobel Prize winning economist, and he wrote an essay saying,
(06:22):
somebody should invent a kind of fund that just invests
in the index. This is probably the first time in
human history this has ever happened. Is somebody paid attention
to something that an academic economist said and said, you
know what, this is a good idea. His name was
John Bogel, and Bogel had just set up his own
investment company and he was looking for low cost investment
(06:44):
strategies and he came across Samuelson's challenge and he said, well,
I'm going to develop an index fund. And at first
he was a laughing stock who other Wall Street funds
criticized him, scorned him, accused him of being a communist,
accused him of being unpatriotic because you know, Americans Americans
aren't willing to settle for the average. They want to
(07:06):
do better. And initially nobody invested. Nobody showed up that slowly, slowly, slowly,
his fund got more and more investors, and the company
is called Vanguard. It is one of the largest fund
managers on the planet. And this strategy now of just
passively investing in the market is hugely popular. It's all
(07:30):
down to Bogel and Samuelson. And I saw an estimate
that something like a trillion dollars, if I remember rightly,
something like a trillion dollars of investors' money has been
saved that would otherwise have been paid in fees to
Wall Street over the last forty years. And it's how
I do it. I mean, I write for the Financial Times.
I'm an economist. I have quite a keen interest in markets,
(07:52):
but I know enough to know I don't think I
can beat the market. So I use as it happens.
I'm not paid to endorse them as it happens. I
use Vanger index funds. They seem as good as any
and it's the same performance but for lower fees. So
if a Financial Times columnist and professional economist is saying
(08:14):
I can't do better than a passive Index fund. I
think the same is true of most of the people
listening to this program.
Speaker 1 (08:23):
And a terrific job by the production, editing and storytelling
by our own Greg Hengler. And a special thanks to
Tim Harford. And he's the author of fifty Things that
Shaped the Modern Economy. By the way, you can hear
more of these from Tim. Go to our American Stories
in the search bar and just type his name, Tim
Harford hr FO r D. And my goodness, what we
(08:43):
learned about the LLC, the limited liability company and this
limits the liability of investors, which then allows more money
to be raised. And yeah, there's some downsides, there can
be some fraud, and there can be some other problems,
but the upside there's just so much more consequential. My goodness,
the amount of crete that was poured in China, in
America and around the world. It's unimaginable the world without concrete.
(09:07):
And then of course the Index Fund, John Vogel being
laughed at and ridiculed in the early days as he
started the Vanguard Funds. And now, of course, well I
don't know many Americans who aren't a part of Index Funds,
the story of Index Funds, the LLC, and Concrete. Here
on our American stories.
And we continue with our American stories. Our next storyteller
is Tim Harford, an economist and best selling author of
Fifty Things That Shape the Modern Economy. You're used to
tell the story about three of those things. Starting with
the LLC.
Speaker 2 (00:28):
The limited liability company was very important in allowing companies
to raise money. What is essentially true about a limited
liability company is that if you and I say decide
we're going to invest in a company, and we decide
we're going to put ten thousand dollars into a company
and try and get it all started, we may lose
our ten thousand dollars, but we can't then be pursued
(00:52):
for any more money. Like I've put my ten thousand
dollars in, you can't get twenty thousand dollars out of me,
or fifty thousand dollars or a million dollars if the
company does something wrong. My liability is limited to the
amount of money I originally put in. And so having
this protection for investors made it more attractive for investors
to put money into companies. They made it easier for
(01:15):
companies to raise money because their investors knew there was
a limit to their downside, and that in turn, was
important because it meant that suddenly you could raise money
from people who didn't know you. Previously, you would only
be able to raise money from very close friends from family.
So limited liability enables companies to go out and raise
(01:35):
money from a large number of strangers. You think about
companies such as General Electric trying to set up an
entire electricity grid. Where you think about the railway companies.
I mean, how is a railway company supposed to make money.
You've got to build an entire railway and you've got
to put the trains on it Before you can collect
a single dime from any railway Passengerlearly, you've got to
(01:57):
raise a huge amount of money. So limited life liability
structure allowed that to be possible, and so you could
have these huge infrastructure projects water, railways, electricity. There have
been a lot of downsides, of course, a lot of
people have been ripped off by limited liability companies, companies
has taken too much risk, But overall, I think you
(02:18):
would say that this was a very important step in
the creation of a major multinational companies. They really couldn't
exist without limited liability. There's a lot of concrete in
the world it's probably the substance that we humans use
more of than anything else, with the exception of water.
(02:41):
It's a very very flexible, very versatile building material from
the point of view of an engineer or an architect. Actually,
the trouble with concrete is once it's built, there's nothing
you can do with it. You can't change it. It's
not like bricks bricks. You can take down a brick
wall or a brick house and reuse the bricks. But
for a structure engineer, for an architect, it's a very
(03:03):
very robust, flexible and inexpensive material, and so we pour
a lot of it. Concrete, bridges, concrete, schiscrape prints, it's everywhere.
There is an amazing fact that I checked three times
and then some colleagues of mine at the BBC said
they didn't believe, and so they fact checked me, and
they came back and said that you were right all along, Tim,
(03:24):
And that fact is that in three recent years China
poured more concrete than the United States did in the
entire twentieth century. It gives you a sense of the
building boom going on in China and how incredibly important
this material is. Where did it come from? We've had
(03:45):
concrete for a very long time. That's been discovered in
settlements in Turkey eight ten maybe twelve thousand years ago.
The Romans used a lot of it the Parthenon. If
you ever have the chance to go to Rome, there's
this ancient church it's nearly two thousand years old, called
the Parthenon. It's made of concrete, and if you go
in and you look up, it is recognizably concrete. It
(04:05):
reminds me a little bit of the Washington DC metro system.
It's quite striking. And the big leap forward was in
the eighteen hundreds a French gardener called Joseph Mernier was
trying to make concrete flower pots, and they didn't really
work until he realized he could reinforce them with the
steel mesh. The steel and the concrete, as it happens,
(04:29):
expand and contract when they get hotter and colder at
almost exactly the same rate. This is very unusual for
two materials, but it means you can put steel reinforcement
inside concrete and it won't instantly crack when the concrete
heats up. It makes the concrete vastly stronger under certain
kinds of stress. And it means you can make concrete skyscrapers,
(04:53):
concrete bridges which would have been impossible. We are maybe
storing up trouble for ourselves because some of the those
reinforcements are starting to get exposed to the elements. They're
starting to rust. That makes the concrete way way weaker,
and so you see these dreadful bridge collapses that happen
from time to time. That's catching up with us, and
(05:15):
it's probably going to catch up with China too. Paul Simuelson,
who won the Nobel Prize for Economics, so a few
decades ago, Paul Samuelson said that the index fund ranks
alongside wine, cheese, and the wheel as an invention of
human history. I mean that maybe slightly exaggerating things, but
the index funders saved a lot of people a lot
of money. The basic idea of an index fund is
(05:38):
you want to invest in the stock market. Rather than
pay some experts to pick stocks for you, for which
they will charge you handsomely, why not just invest in
the market as a whole. Just say, well, if the
market as a whole goes up, I make money. If
the market as a whole goes down, I make the money,
but I'm not going to worry too much about picking stocks,
(05:59):
and perhaps surprisingly that turns out to be really just
as good as paying an expert and cheaper. There's lots
of lots of evidence that suggests that it's very hard
for expert stockpickers to do much better than just whatever
the market is doing. So this was observed by Paul Samuelson,
this Nobel Prize winning economist, and he wrote an essay saying,
(06:22):
somebody should invent a kind of fund that just invests
in the index. This is probably the first time in
human history this has ever happened. Is somebody paid attention
to something that an academic economist said and said, you
know what, this is a good idea. His name was
John Bogel, and Bogel had just set up his own
investment company and he was looking for low cost investment
(06:44):
strategies and he came across Samuelson's challenge and he said, well,
I'm going to develop an index fund. And at first
he was a laughing stock who other Wall Street funds
criticized him, scorned him, accused him of being a communist,
accused him of being unpatriotic because you know, Americans Americans
aren't willing to settle for the average. They want to
(07:06):
do better. And initially nobody invested. Nobody showed up that slowly, slowly, slowly,
his fund got more and more investors, and the company
is called Vanguard. It is one of the largest fund
managers on the planet. And this strategy now of just
passively investing in the market is hugely popular. It's all
(07:30):
down to Bogel and Samuelson. And I saw an estimate
that something like a trillion dollars, if I remember rightly,
something like a trillion dollars of investors' money has been
saved that would otherwise have been paid in fees to
Wall Street over the last forty years. And it's how
I do it. I mean, I write for the Financial Times.
I'm an economist. I have quite a keen interest in markets,
(07:52):
but I know enough to know I don't think I
can beat the market. So I use as it happens.
I'm not paid to endorse them as it happens. I
use Vanger index funds. They seem as good as any
and it's the same performance but for lower fees. So
if a Financial Times columnist and professional economist is saying
(08:14):
I can't do better than a passive Index fund. I
think the same is true of most of the people
listening to this program.
Speaker 1 (08:23):
And a terrific job by the production, editing and storytelling
by our own Greg Hengler. And a special thanks to
Tim Harford. And he's the author of fifty Things that
Shaped the Modern Economy. By the way, you can hear
more of these from Tim. Go to our American Stories
in the search bar and just type his name, Tim
Harford hr FO r D. And my goodness, what we
(08:43):
learned about the LLC, the limited liability company and this
limits the liability of investors, which then allows more money
to be raised. And yeah, there's some downsides, there can
be some fraud, and there can be some other problems,
but the upside there's just so much more consequential. My goodness,
the amount of crete that was poured in China, in
America and around the world. It's unimaginable the world without concrete.
(09:07):
And then of course the Index Fund, John Vogel being
laughed at and ridiculed in the early days as he
started the Vanguard Funds. And now, of course, well I
don't know many Americans who aren't a part of Index Funds,
the story of Index Funds, the LLC, and Concrete. Here
on our American stories.
Host
Lee Habeeb
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