“Our country is now taking so steady a course as to show by what road it will pass to destruction, to wit: by consolidation of power first, and then corruption, its necessary consequence”*…

Scheduling Note: as a consequence of long meetings scheduled to start very early, (Roughly) Daily will be off tomorrow/Monday and Wednesday. There should be a post on Tuesday, and regular service should resume on Thursday…

Corruption in the U.S. has a long and costly history, intertwining both government and corporations. Our current moment is feeling especially “dirty“– and disfunctional— at both levels.

Eric Ries was a founder of the Lean Start-Up movement and the founder of the Long-Term Stock Exchange. His new book, Incorruptible: Why Good Companies Go Bad (highly recommended), tackles the issue head-on. Here, a short excerpt, explaining why…

Not all forms of making money are equal. Some create wealth; others destroy it. Over the centuries, when people have gone searching for the moral logic of capitalism, they always hit this same bedrock principle: Fully informed, uncoerced, voluntary transactions create surplus value because both parties end up better off.

Think about your last genuinely good purchase. You valued the product more than the price you paid, so you are better off. But the seller, too, is better off (otherwise they would not have sold). Both parties are wealthier. When this happens, it’s a bit of a magic trick. In an instant, new value exists that did not a moment before. This wealth was not stolen; it was generated.

But this only works when the exchange is truly voluntary and informed. Remove any of these conditions and the mechanism breaks.

This is why embezzlement, coercion, fraud, bribery, and deception are wrong. It’s not only because they are illegal or even immoral. It’s because they corrupt the fundamental premise of our entire economic system. They transform transactions meant to create value into ones that destroy it.

This trajectory is so common these days that we hardly know what to call it. The answer is simple. Since every version of it shares the same value-destroying logic, regardless of whether the violation is illegal or even immoral, we should use the same word to describe them all: corruption.

Our modern sense of “corruption” has become catastrophically narrow. What I’m talking about is something much broader than bribery or embezzlement. (After all, the Latin corrumpere means “to break completely.”) Corruption breaks the logic of capitalism itself.

Every Ponzi scheme, every hidden externality, every unit of extracted value is a drag on our whole economy’s potential. These corruptions don’t just harm their immediate victim; they erode trust, increase transaction costs, and destroy the civic infrastructure that makes efficient markets possible. The hidden economic costs are staggering. The truth is that capitalism succeeds not because of these widespread violations but despite them…

As the “father of capitalism” himself, Adam Smith, said: “Justice… is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society… must in a moment crumble into atoms.” (Theory of Moral Sentiments, Chapter III)

Diagnosing the disease that threatens us: “Corruption, Defined,” from @ericries.bsky.social.

* Thomas Jefferson

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As we grapple with graft, we might recall that on this date in 2002, three days after being found guilty of obstruction of justice for shredding the thousands of documents and deleting emails and company files that tied the firm to its audit of Enron, accounting firm Arthur Andersen was preparing its appeal.

Legal department member Nancy Temple and David Duncan, the lead partner for the Enron account, were cited in the legal action as the responsible managers in the scandal because they ordered subordinates to shred relevant documents. Duncan himself pleaded guilty in federal court in Houston to obstruction of justice on April 10, 2002, saying that he had ordered the destruction of documents and also personally destroyed documents.

The conviction was later overturned by the U.S. Supreme Court (on the grounds that the jury had not been properly instructed on the charge against Andersen). The Supreme Court ruling theoretically left Andersen free to resume operations. However, the damage done to the Andersen name was so great (not just from the Enron scandal but also from others involving Andersen accounting malpractice, such as WorldCom a year after Enron) that it did not return as a viable business even on a limited scale in the years after the ruling.

Although only a small number of Arthur Andersen’s employees were involved with the scandal, the firm was effectively put out of business; the SEC is not allowed to accept audits from convicted felons. The company surrendered its CPA license and 85,000 employees lost their jobs.

#ArthurAndersen #buiness #capitalism #corruption #culture #Enron #graft #history #justice #politics #trust #Worldcom