Meet the Visionary Venture Capitalist Who's Inspired by Marx and Keynes

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http://www.alternet.org/economy/meet-visionary-venture-capitalist-whos-inspired-marx-and-keynes



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Lynn Parramore: What does it mean to be a venture capitalist inspired by figures like Marx, Keynes, Schumpeter and Minsky?

William Janeway: My professional maturation came from a somewhat distinctive educational background. I left Princeton in 1965 with a Marshall scholarship to Cambridge University in Britain because I had been enormously influenced by reading Keynes – not just the General Theory, but other writings. What I took from Keynes was a broad vision of an economy in which people who knew they couldn’t know enough had to make decisions, and they would be held responsible for the consequences.

Keynes pointed out that knowing they couldn’t know enough, people would necessarily seek to respond to uncertainty in a variety of ways which most economists would have thought of as being irrational or self-destructive, when, in fact, they were doing the best they could in a world in which we spend half our time arguing about the meaning of the past that we’ve experienced, and the other half speculating about a future which we cannot know.

Perhaps the best-known aspect of Keynes’s work was his invocation of government as a necessary institution for offsetting and counterbalancing the instability inherent in the market economy. So you have the integration of money and finance, the role of liquidity, a necessary and occasionally positive role for government, and all of that in the context of inescapable uncertainty. You roll that into how venture capital actually emerged and has been practiced in the United States, and there is a remarkable resonance. First, venture capitalists are investing in ignorance. They cannot know the expected future cash flow from the start-ups that they’re funding. Second, it turns out on examination that the returns that venture capitalists have earned have been very directly correlated with performance of the stock market in general and, in fact, were dominated by the extraordinary speculative excess of the great dot.com/telecom bubble. One way to put it is that far from being an independent, distinct asset class, let alone a transformational instrument of policy, venture capitalists a whole have spent 25 years riding on the back of the greatest bull market in the history of capitalism. So Keynes’s understanding of the dependence of investment returns on speculative energy has proved to have been a critical lesson.

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1. Here's more on Keynes and Economic Uncertainty and Decision Theory

http://spectator.org/archives/2009/10/06/keynes-uncertainty-principle

neoclassical economics, ascendant since the early 1980s under the leadership of economists at the University of Chicago, bears most of the responsibility for the financial crash and economic recession. He pinpoints three neoclassical concepts that led academics and policymakers astray: the rational expectations hypothesis, the real business cycle theory, and the efficient financial market theory. The misguided conclusion yielded from these premises is that “all risk can be correctly priced and that therefore financial markets are optimally self-regulating,” Skidelsky writes. He believes that Keynes, on the other hand, adequately incorporated the effects of uncertainty into his models.

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2. +1

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3. 5th rec

for those who escape easy classification