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Comment by ap22213 | Hacker News Reader

What would be the serious ramifications of vanishing corporate law and private equity?

Try running a company or doing a start up with out a supply of capital.

Is it really so difficult to allocate capital that just about every city needs skyscrapers full of finance people? I'm asking that as a completely legitimate question - I really have no idea of how much work is required to give my small business a line of credit.

For most of history there were not big companies allocating capital, and for most of history it was nearly impossible for most people to obtain capital to start or grow their own business.

Put another way--the modern financial system was created for a reason. The author supposes that it was a big conspiracy theory to give us all shitty jobs, but in counter I would point out that it has likely never been easier for people to start or grow businesses than it is today.

Well, that's not necessarily true (at least, in my case). I can't walk down to the local bank and be approved for a small amount of capital without providing equal collateral. Even with a strong business plan. I have to show quite a bit of history of revenue and cash flow for a minimal credit line.

On the other hand, it's relatively easy for me to ask a bunch of my friends to each lend me $10,000. And, that is more because of the cumulative result of decades and decades of productivity increases in addition to a society that values electronics and computers and the internet. Those factors give these software engineer friends the extra discretionary money to lend to me. It's not because of the magic of the financial system.

The author is saying that there's a huge excess of capital and productivity that could theoretically 'pay' for other types of work. But, instead, we as a society, decide to funnel most of our excess to people who push around accounts ledgers, ruminate on legal logic, generate sales ads, and do other sorts of 'educated' busy work.

One reason the modern financial system is so huge and complex is that so many of its features have been extended to individuals.

I, a rather average middle-aged dude, maintain 4 bank accounts, 6 lines of credit, 4 investment accounts, and 4 lines of insurance [1]. Think of the complexity involved in providing those services to me--now multiply by tens of millions of other people. This does not even get into the financial instruments of businesses and governments, which are far more complex.

The end result of all this complexity is that individuals like your friends can accumulate and access large sums of money to lend to you to start a business. Most new business financing does not come from banks, it comes from individuals, families, or alternate financial businesses like angel funds, venture capital, hedge funds, etc.

[1]

Bank accounts - 2 personal checking - 2 savings

Credit - 1 mortgage - 3 credit cards - 2 check cards

Investments - IRA - 401k - HSA - Brokerage (trading)

Insurance - Home - Auto - Life - Health

It's not that hard to imagine what will be like if there's no financial institution and corporate lawyers. The first is that the dollar you own will not be real money -- we have to go back to gold standard (even this requires certain level of financial institution to support). Also, say good by to bond and stock, or mortgage or student loan. or cheap airline tickets. I always find it like magic that you can just give somebody some money and then receive some bits of information that claims you own X% of certain company, without the need to actually know anything about said company(although it's not recommended to do so). Just think about if you have to design a system that can align other people's interest so they work for you WITHOUT you actively managing anything. How can it be possible?

Short answer: yes.

How would you build a skyscraper? That requires quite an investment of capital.

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