Embezzle

Embezzle (pronounced em-bez-uhl)

In law, fraudulently to appropriate or convert (money or property entrusted to one's care) for one's own use (applied especially to fraud committed by an employee).

1375–1425: From the late Middle English embesilen, from the fourteenth century Anglo-French embesiler, embesillier & embeseillier (to destroy, make away with; to steal, cause to disappear), the construct being em- + beseiller, from the Old French beseiller (to torment, destroy, gouge) of uncertain origin.  The sense of “dispose of fraudulently to one's own use” dates from the 1580s.  The earliest known use of the noun embezzler (one who embezzles) was in the 1660s but it may pre-date that because the noun embezzlement was known in the 1540s while the noun embezzling dates from the early fifteenth century.  The em- prefix (used before certain consonants, most often the labials b and p) was a variant of the Middle English en-.  It was originally from the Old French en- (and an-), from the Latin in- (in, into) but was also from an alteration of in-, from the Middle English in-, from the Old English in- (in, into), from the Proto-Germanic in (in).  Both the Latin and Germanic forms were from the primitive Indo-European en (in, into).  The intensive use of the Old French en- & an- is due to confluence with the Frankish an- (the intensive prefix), related to Old English intensive prefix on-.  It was used to impart the sense of (1) in, into, (2) on, onto, (3) covered, (4) caused or (5) as an intensifier.  Embezzle, embezzles, embezzled & embezzling are verbs, embezzlement & embezzler are nouns

In English law, embezzle was a special class of theft or fraud which was distinguished by two characteristics: (1) the act was committed by a person employed by the owner of the misappropriated property and (2) the property misappropriated was in the (legal) possession of the employee.  The fine distinctions arose early in the development of common law because of the practical difficulties caused by the long-established legal doctrine that to constitute a larceny, the property must be removed from the possession of the owner.  Servants and others were thus able to steal with impunity goods entrusted to them by their masters and a stature of 1529 was enacted, providing that it would be a felony were employees to convert to their own use jewels, money, goods or chattels delivered to them by their employers (masters in the terminology of the time).

The idea that “theft as a servant” was an offense which deserved a greater punishment that theft by a stranger remains a doctrine in common law jurisdictions, the rationale being that such crime is also a violation of trust.  In Australia, the concept has attracted interest of late because of the increasing frequency of “wage-theft” cases in which employers have been found to have been engaged in deliberately under-paying their staff, sometimes in a manner which is so carefully constructed as to have been held to have been systemic.  In most jurisdictions, the penalties available remain civil but two states have recently passed laws permitting criminal prosecutions of both corporations and individuals.  Legal commentators have generally welcomed the development, noting the frequently cited defense that organizations lacked the resources to deal with the complexity of the award wage system didn’t appear to constrain them when engaging in the tax minimization exercises made possible by the intricacies of tax law.  The law reform does nothing to alter the notion of “theft as a servant” being higher order of offending that done by a stranger but it does slightly redress the injustice of embezzlement by employees being by definition a criminal act yet embezzlement by employers was only ever a matter redressed by civil action and, in a practical sense, usually claimed to be “an error” rather than a “deliberate act”, a defense rarely tolerated if raised by an employee (an in this judges were doubtlessly usually correct).  The first case under a criminal code is now before the Victorian courts.

In idiomatic use, someone with their “fingers in the till” is committing embezzlement.  Synonyms exist but because of precise definitions in law, not all are interchangeable in a legal context.  In general use they include filch, loot, misappropriate, misuse, pilfer, purloin, skim, abstract, defalcate, forge, misapply, peculate, thieve, defalcate, flog, pinch and peculate.  Most tempting because of the rarity is probably the verb peculate (embezzle, pilfer, appropriate to one's own use public money or goods entrusted to one's care) from 1749, from the Latin peculatus, past participle of peculari (to embezzle), from peculum (private property (and originally "cattle"), the related forms being peculated, peculating & peculator.

Bezzle

Bezzle was a back-formation from embezzle, coined by the economist John Kenneth Galbraith (1908-2006) in his 1955 book The Great Crash, 1929.  In the technical language of economics, bezzle is the temporary gap between the perceived value of a portfolio of assets and its long-term economic value.  The actions and forces which operate in economies over time create bezzle which unleash consequences understood usually only in retrospect.  The significance of the derivation from embezzlement was that Galbraith called it “the most interesting of crimes”, noting: Alone among the various forms of larceny [embezzlement] has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks.

The conditions which exist at certain times Galbraith observed, are especially conducive to the creation of bezzle, and “…at particular times this inflated sense of value is more likely to be unleashed, giving it a systematic quality”.  Those times tend to be defined by the business cycle in that “…in good times, people are relaxed, trusting, and money is plentiful.  But even though money is plentiful, there are always many people who need more.  Under these circumstances, the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression, all this is reversed.  Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous.  Commercial morality is enormously improved and the bezzle shrinks."

Jacqueline Kennedy (1929-1994) with the elongated Ken Galbraith who was serving as US ambassador to India.

In other words, there can exist a temporary (and not necessarily short) difference between the actual economic value of a portfolio of assets and its reported market value, especially during periods of irrational exuberance.  At these times, there is “…a net increase in psychic wealth” because (1) the embezzler both feels and is richer while the original owners of the portfolio do not realize that they are poorer.  The classic case studies of the phenomenon are those duped in Ponzi schemes, a mechanism of deception in that two people simultaneously can enjoy the same wealth but the effect is similar when accounting fraud is involved, companies like Enron and WorldCom booking overvalued assets and excessively high stock valuations.   Until accounting frauds are uncovered, there is a collective increase in psychic wealth as the value of the bezzle rises.  Bezzle is of course temporary and when the truth emerges perceived wealth decreases until it once again approximates real wealth but this is not an abstract measure of value, the perceptions greatly influencing patterns of consumption with obvious effects upon the real economy.  Many recessions have followed the unwinding of a bezzle and of course, Galbraith’s 1955 book was about the worst of them, the Great Depression of 1929.

Others have since refined the idea of bezzle, noted investor Charles Munger (b 1924) explaining the net effect of a bezzle doesn’t actually demand that there be some form of constructive embezzlement as described by Galbraith.  It needs only that when the reported market value of an asset or portfolio temporarily exceeds its real economic value (which he defined as the value of future returns on that asset), the economy goes through the same cycle of increase and decrease in psychic wealth.  Munger tracked the way rising asset prices, disconnected from their underlying long-term economic value, can contribute to what he called the febezzle.  The word didn’t linger in the language as bezzle has but his insight certainly has, his point being that rising stock or real estate prices can generate income and wealth effects whether or not these rising prices reflect real increases in the earning capacity of these assets.  When asset prices rise for reasons other an increases in actual productive capacity, the overall economy doesn’t benefit because there will be no corresponding increase in the productive capacity of that economy.  The owners of the over-valued assets so of course feel richer but only temporarily because prices eventually converge to a value that represents their real contribution to the production of goods and services, thus the concern some express during periods of irrational exuberance in markets such as fashionable equities, real estate, cryptocurrencies or tulip bulbs.

Interestingly, Munger was discussing things in the distant world of the 1990s when commentators were expressing concern about the economic pattern in Western economies simultaneously to drive up asset prices while restricting the money supply.  Some of the range of possible consequences of that had unfolded since the early 1980s but those events provided little guidance to what might happen were the same forces to be unleashed when the money supply was allowed rapidly to expand and sold at marginal cost.  In the twenty-first century, the successive reactions of central banks to (1) the “tech wreck” of 2000-2001, (2) the global financial crisis (2008-2011) and (3) the COVID-19 pandemic mean the implications can be explored.

The photograph used on the cover of some editions of Galbraith's book was not staged.  It was taken on 30 October 1929, shortly after the Wall Street crash and shows investor Walter Clarence Thornton (1903–1990) offering his 1928 Chrysler Imperial 75 Roadster for US$100, the car at the time typically costing between US$1550-2000 depending on options.  The Imperial name was used by Chrysler for its upper range models between 1926-1954 after which it was the corporation's stand-alone marque designed to compete with Cadillac, Lincoln and Packard, an approach abandoned in 1975 and few care to recall the abortive revival of 1990-1993.  A former model, he's remembered also for founding the Walter Thornton Modeling Agency which would be one of the most successful in the industry until the mid-1950s when he was the victim of a malicious prosecution.  All charges were dismissed before going to court but the trial-by-tabloid had so damaged his reputation he retired to Mexico.