>The financial services sector adds value to society by providing mechanisms to diversify risk, price assets, and make capital available for productive uses.
Capital isn't an object, it's a belief system, with a strong faith-based component. So in a purely rational sense it's impossible to "make capital available."
Capital is actually an executive instantiation of social patronage. Someone says "I want to try this..." and someone else with capital - usually of higher status - says 'OK, I think that's a good idea. Here are some imaginary social credits you can swap for resources because everyone believes in them. Now that you have credits, your project looks more believable too."
Nothing real changes hands. There's simply a nod of political approval from interests who stand to gain status if the project succeeds.
The system would work just as well without the credits. The credits are really only there to hide the politics.
Risk doesn't exist at all in the market sense, because risk is only defined by loss of capital - i.e. loss of face and status - and not by any other possible losses, no matter how physical. (E.g. loss of biosphere and future carrying capacity, social opportunity costs, loss of life through profitable war, and so on.)
I doubt you can have an economy without at least some executive decision-making and planning. But the current system is so completely disconnected from true social and economic value creation that it's actively hampering real growth.
Property is the belief system. Capital is just an optimization of it.
Resources are finite. Not everyone is equally efficient at allocating resources. Not everyone specializes in analyzing the most effective way to distribute resources. Capitol is intended to fit this role: those with past success in correctly distributing resources in productive areas make a profit, and thus have better ability to select correctly.
Of course, there are are a few great problems with capitalism under this perspective.
- Inheritence only makes sense as an incentive to keep being optimal close to death, but after the generation gap, the "wealth belongs to proven optimizers" is no longer true.
- Benefit of the system is skewed significantly towards the wealthy, which is counterproductive if happiness scales logartithmically with wealth, as it seems to.
- (What this article talks about) Wealth is encouraged to create more wealth, even if it is to the detriment of overall production in some cases.
> Risk doesn't exist at all in the market sense, because risk is only defined by loss of capital - i.e. loss of face and status - and not by any other possible losses.
Why is social status not something that has value? Almost everyone wants more social status and would trade things for it, so it seems that it has value.
You're drawing a distinction that I don't understand between things that are "real" and "not real".
> Capital isn't an object, it's a belief system, with a strong faith-based component. So in a purely rational sense it's impossible to "make capital available."
If I have a bunch of gold in a safe, then that's very much an object. If I decide you have a good project and could use that gold to finance that project, then I can "make capital available" to you.
Sure, but replace the term "gold" above with lumber/steel/concrete/apartment buildings/oil/prepaid employees/automobiles/etc.
If I have a bunch of stuff which I can loan to someone else then I have "capital". That "capital" can just as easily be physical as it can be financial.
Capital has universal value. The value of food is the preservation of life. That has value. That is objective reality for all life on Earth. If an animal can store food (read capital) then it improves it survivability.
Once basic needs are satisfied you cannot double-satisfy them. Paying for twice the amount of food does not make you live twice as long. So that's a fixed demand, while luxury goods are unbounded in their potential costs.
If you subtracted all that value spent on basic needs there there still would be a lot of capital flowing around.
I think the ancestor comment is arguing that there basically are two separate value circulations. One to distribute and allocate the essentials and the rest for social-value-signalling. Maybe that's also something UBI gets wrong. That we actually would need two currencies.
Post-scarcity scifi settings often feature something like that
a) all the basic stuff including housing is essentially given away for free
b) you get a fixed amount of luxury resource allocations on top of that
c) you can gain additional ones via some kind of work
d) they can be traded if others find whatever you're doing valuable.
so you don't have to work for the government or megacorp.
> Once basic needs are satisfied you cannot double-satisfy them.
Yes you can, food can be stored! At a later date less food can be consumed with no work was needed to harvest it.
> Paying for twice the amount of food does not make you live twice as long.
No but using your acquired food (read capital) to trade for medical supplies will increase your longevity. And it will increases the doctor's because he gets to eat!
> If you subtracted all that value spent on basic needs there there still would be a lot of capital flowing around.
Yes and isn't it wonderful? Its what allows things like food stamps and vacations to exist. Excess capital allows things like scientific research to occur.
> ...the rest for social-value-signalling.
That's a pretty pessimistic view of wealth.
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I think I've been pretty realistic in my assessments of capital and its uses. But now, I'm going to enter territory where I'm wildly speculating.
I don't believe post-scarcity can exist or should exist. I don't believe it can exist for two reasons:
1). There simply is not an infinite amount of energy and matter (but there may be enough that it doesn't matter that its finite).
2). Even if there is enough resources, time will always be the limiting factor. Time contributes to scarcity the same way money does.
I don't believe it should exist because I believe that is the end of human progress. Scarcity, whether its a desire to own an iPhone or to acquire knowledge of quantum gravity, motivates humans to achieve.
In regards to "value" for food, let's consider beyond a certain universal unit of sustenance. For example, imagine two pieces of fish that are identical in size, nutrition etc... However, one was simply grilled by a fisherman, while another was "expertly" prepared by a specialized chef. The latter costs 10 times as much. This extra cost is the social value that is being added to the food.
Basically, the value associated with the fundamental nutritional benefit of food is objective and is something everyone can agree on. If this value is the only thing we cared about, the world would not be organized in the capitalist structure that it is today. Everyone would fish and equally distribute the produce. However, we as a species are hardwired to compete, to be "better". All capital is derived from "social-value-signaling".
My argument is that the "fundamental nutritional benefit" value is present in both types of fish while the fisherman/chef-prepared aspect is value-add on top of that baseline.
And the fixed baseline vs. subject-to-infinite-want value-add aspects make them categorically different.
One reason for post-scarcity to not exist is that the more resources we have, the more we will reproduce which will end up in consuming more and more resources. It degrades the ecosystem and brings down the quality of living for everyone involved.
This is pretty much what is happening around us. As we get hold of better resources, we reproduce more to make it impossible to have everything for everyone.
Again, we will have to re-discover the definition of scarcity because we have too many people unhappy with the system.
> This is pretty much what is happening around us. As we get hold of better resources, we reproduce more to make it impossible to have everything for everyone.
How does that jive with the fact that every developed country's reproduction rate has dropped as they developed?
> Once basic needs are satisfied you cannot double-satisfy them
why is there a boundary to surplus essentials? if you store enough essentials for one person, then storing more of them means you're increasing the number of people (or amount of time) you're storing essentials for.
storing them doesn't give you the same value. instead of enabling people to be alive you're now only increasing a safety margin for those who are already living. and there are rapidly diminishing returns for increasing the storage factor.
That's why it's categorically separate in my mind. For a fixed amount of people you only need a bounded amount of resources to satisfy their essential needs, which can be met with a relatively small fraction of the population's work capacity.
Everything beyond that is subject to drastically different dynamics where your want (not need) for luxury goods can gobble up a practically infinite amount of work capacity.
I think you might want to reconsider this. Arguably the first ever accumulation of capital in human history was grain storage in the ancient river civilizations (Egypt, Sumeria, Indus, etc.). Stockpiling capital in the form of grain reserves allowed these civilizations to shift labor efforts from subsistence farming to a more diverse range of economic activities.
That sounds like your opinion, so I can't say that it's "wrong", but according to the dictionary "capital" is defined as follows[0]:
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
Capital is just wealth in some form which is available for investing. You don't have to ascribe a dollar value to tree trunks to say they could be used to build houses. That's capital.
Sounds to me like there some cross purpose debating going on here.
To me it is simple. If by "Capital" you mean "money" then of course it has no intrinsic value, it is based on faith. Zimbabwe's currency is an obvious example of that.
If we are talking about other stuff that is useful to our lives, then the value is relative to the beholder and their situation. Water is more valuable than gold from a survival point of view, but not from a $ point of view.
You're spot on, and this is a bit of an issue - there are a huge number of cross purposes in economic definitions, and the word "capital" is one of them.
My personal take on the word (informed by the dictionary source I gave above and a rather pragmatic approach to economics) is that "capital is stuff". Typically this "stuff" is in the form of either physical goods (lumber, food, concrete, gold, etc) and services (and I know services can't really be 'physical' but I can have a reasonable claim on the labour of someone through prepayment of salary, or a labour contract, etc); or financial assets (such as bank balances, stocks, bonds, etc).
Ultimately though, the "financial capital" is just a slightly divorced claim on the physical capital, and all anyone really cares about is the real stuff which they can eat or build with or develop, etc. You might have a big bank balance, but all you really care about is what you can ultimately cash it in for.
Ok, how about this. I have a bunch steel in by vault. Steel is worth something and can be used to build things. I loan you this steel in order to build a factory (perhaps even a steel mill!), on the hope that your project will be successful and you will pay me back even more steel.
No it's not. It's just a lump of metal that sits there.
> and can be used to build things.
Only if I want things. And I only want things if I value them, and I value things, just because, there is no fundamental value to things, only what value we believe there is.
How about food? Is that basic enough for you? I lend a hunter food so that he can take that temporary supply of food to eat while he is hunting and then potentially bring back more food.
You make a good point about the connection between money and social power etc. Very good point.
But I disagree in what seems to be your conclusion which is to simply do away with credits i.e. money.
I believe the solution to these types of problems is A) to understand the true nature of money as you have pointed out and then B) to use technology come up with a better type of money or better credit or overall system.
The problem I believe is that the universal point system we have (money) is to simplistic and too easily gamed. Its like the whole world is stuck playing Dungeons & Dragons, as if computers and the internet didn't exist -- its like every bank is a Dungeon Master. Only its worse than that, because even D&D tracks more than one number for each entity.
The universal application and transfer of these points, and the relative ease with with they are created or allocated (at least by certain entities), is key in our current system. I think we need a more sophisticated framework though both on a conceptual level and a technological one. We should not rely on regulation by decree. Its as if the World of Warcraft system administrators were not allowed to talk to the developers or even edit data in the system, and could only make announcements about new rules for types of gaming that were not allowed, could only stop people from hacking the system by sending them threatening chat messages or actually getting police to put them in jail. Because there is no server or common protocol really and there is only one number for each entity that is really integrated into the system.
I get your broad point, and I agree completely that money-getting is too often divorced from (or inimical to) value creation. But I think you take it too far here:
> So in a purely rational sense it's impossible to "make capital available."
Suppose I start a business making pies. I sell them to cafes and restaurants. I don't have a truck, but I need one for deliveries. However, my brother has a truck. I go to him and say, "Let me borrow your truck Tuesdays and Thursdays and give you a pie each time." The truck is a capital asset. By him letting me use it, he has made capital available. Risk too is real; there's a chance each time something will happen to his truck.
We can take this through various degrees of abstraction (e.g., my dad brokers the deal; a professional brokers the deal; I pay in free-meal coupons from restaurants; we develop a generic coupon for all goods) and end up where we are today. At no point is the next step obviously insane. But each abstraction strips information and increases the cognitive load to understand what's really going on.
So in practice yes, we definitely get to the point where people treat it as a faith-based system. Before the 2008 crash, more astute industry observers were pointing out that a lot of risk was somewhere, but nobody knew where. Everybody else was too busy pocketing money to think.
And I think the real problem is the extent to which profit paralyzes the brain. As Upton Sinclair wrote, "It is difficult to get a man to understand something when his salary depends upon his not understanding it." The real limit isn't human comprehension, it's the human capacity for willful ignorance. Capitalism works adequately in the small, but left to its own devices it will keep growing beyond our power to understand.
> Risk doesn't exist at all in the market sense, because risk is only defined by loss of capital - i.e. loss of face and status - and not by any other possible losses, no matter how physical.
Tell that to someone who loses their life savings and their house.
Capital is an economic system, but it absolutely governs people's physical lives.
Capital isn't an object, it's a belief system, with a strong faith-based component. So in a purely rational sense it's impossible to "make capital available."
Capital is actually an executive instantiation of social patronage. Someone says "I want to try this..." and someone else with capital - usually of higher status - says 'OK, I think that's a good idea. Here are some imaginary social credits you can swap for resources because everyone believes in them. Now that you have credits, your project looks more believable too."
Nothing real changes hands. There's simply a nod of political approval from interests who stand to gain status if the project succeeds.
The system would work just as well without the credits. The credits are really only there to hide the politics.
Risk doesn't exist at all in the market sense, because risk is only defined by loss of capital - i.e. loss of face and status - and not by any other possible losses, no matter how physical. (E.g. loss of biosphere and future carrying capacity, social opportunity costs, loss of life through profitable war, and so on.)
I doubt you can have an economy without at least some executive decision-making and planning. But the current system is so completely disconnected from true social and economic value creation that it's actively hampering real growth.