July 16, 2025 • 9 mins
On this episode of Our American Stories, Tim Harford, author of the bestselling book Fifty Inventions That Shaped the Modern Economy, shares the stories behind three transformative innovations: concrete, the LLC (limited liability company), and the index fund. From the concrete that built our cities, to the LLC that revolutionized business ownership, to the index fund that reshaped investing, these inventions changed the way we build, do business, and grow our wealth today.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
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. Here he 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
were 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,
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 passenger. Clearly, you've got to
(01:57):
raise a huge amount of money. So limited line ability
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 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
(02:39):
than anything else, with the exception of water. 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
(02:59):
structure engineer, for an architect, it's a very very robust,
flexible and inexpensive material, and so we pour a lot
of it. Concrete bridges, concrete schiscrappers, 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,
(03:20):
and so they fact checked me, and they came back
and said that you were right or along tim 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
(03:41):
material is. Where did it come from. We've had 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, the parthen Then.
It's made of concrete, and if you go in and
(04:03):
you look up, it is recognizably concrete. It 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.
(04:26):
The steel and the concrete, as it happens, 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.
(04:46):
It makes the concrete vastly stronger under certain kinds of stress,
and it means you can make concrete skyscrapers, concrete bridges,
which would have been impossible. We are maybe storing up
trouble for ourselves because some of 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
(05:10):
see these dreadful bridge collapses that happen from time to time.
That's catching up with us, and 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
(05:30):
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 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
(05:51):
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, 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 stock pickers to do much better than just whatever
(06:12):
the market is doing. So this was observed by Paul Samuelson,
this Nobel Prize winning economist, and he wrote an essay saying,
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
(06:33):
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
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. Other Wall Street funds criticized him,
(06:57):
scorned him, accused him of being a communistccused him of
being unpatriotic because you know Americans, Americans aren't willing to
settle for the average. They want to do better, And
initially nobody invested. Nobody showed up that slowly, slowly, slowly,
his fund got more and more investors, and the company
(07:18):
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
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
(07:40):
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,
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 Vanguard index funds. They seem as good as any
(08:02):
and it's the same performance but for lower fees. So
if a Financial Times columnist and professional economist is saying
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 on the production, editing and storytelling
by our own Greg Engler. 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 HRFO r D. And my goodness, what we learned
(08:43):
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 concrete 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. Here he 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
were 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,
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 passenger. Clearly, you've got to
(01:57):
raise a huge amount of money. So limited line ability
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 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
(02:39):
than anything else, with the exception of water. 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
(02:59):
structure engineer, for an architect, it's a very very robust,
flexible and inexpensive material, and so we pour a lot
of it. Concrete bridges, concrete schiscrappers, 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,
(03:20):
and so they fact checked me, and they came back
and said that you were right or along tim 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
(03:41):
material is. Where did it come from. We've had 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, the parthen Then.
It's made of concrete, and if you go in and
(04:03):
you look up, it is recognizably concrete. It 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.
(04:26):
The steel and the concrete, as it happens, 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.
(04:46):
It makes the concrete vastly stronger under certain kinds of stress,
and it means you can make concrete skyscrapers, concrete bridges,
which would have been impossible. We are maybe storing up
trouble for ourselves because some of 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
(05:10):
see these dreadful bridge collapses that happen from time to time.
That's catching up with us, and 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
(05:30):
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 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
(05:51):
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, 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 stock pickers to do much better than just whatever
(06:12):
the market is doing. So this was observed by Paul Samuelson,
this Nobel Prize winning economist, and he wrote an essay saying,
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
(06:33):
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
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. Other Wall Street funds criticized him,
(06:57):
scorned him, accused him of being a communistccused him of
being unpatriotic because you know Americans, Americans aren't willing to
settle for the average. They want to do better, And
initially nobody invested. Nobody showed up that slowly, slowly, slowly,
his fund got more and more investors, and the company
(07:18):
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
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
(07:40):
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,
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 Vanguard index funds. They seem as good as any
(08:02):
and it's the same performance but for lower fees. So
if a Financial Times columnist and professional economist is saying
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 on the production, editing and storytelling
by our own Greg Engler. 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 HRFO r D. And my goodness, what we learned
(08:43):
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 concrete 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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