Reply To: Venture Capitalism


I don’t know the details of the cases you mention, but there are a few general principles involved. The bust is a process of liquidation of malinvested capital and reallocation of misallocated resources. These activities require entrepreneurial foresight. As with any exhibition of superior foresight, entrepreneurs earn profit. During the bust, the configuration of capital capacity controlled by various entrepreneurial groups within their own enterprises must be rearranged. Capitalist-entrepreneurs create value by appropriate downsizing of some firms as well as appropriate upsizing of others.