What is capital?
We are surrounded by capital, and the results of capital, the modern world would be impossible without it and yet it can be almost invisible as it is so familiar to us and part of the fabric of our societies. We think of it in its simplistic forms as housing, money and shares, we know there is a lot of it and for some reason we don't seem to have it, you have to work incredibly hard just to get a small slice of it. However there is more of it today than there has ever been, the value of the total amount of capital in the world is in the hundreds of trillions, despite being an estimate, we know it is rising, and yet it seems to increasingly be concentrated in a smaller and smaller section of the population, which causes resentment and anger in the world.
It is worth reminding ourselves what capital actually is, it is the stored value of labour, human ingenuity and knowledge. There are a number of forms of it, financial, natural such as oil and habitat, social that is trust between people, knowledge in terms of invention and technology, human in the form of laws, contracts and customs, and public infrastructure capital, roads and parks. It is what happens in societies, when people individually or together invest and create better ways of doing things, often in ways that reduce the cost of our needs so that less labour is needed or that we can more with that labour.
The classic example is the desert island scenario, where Sally finds herself stranded with nothing, she is able to fish with her hands though it takes eight hours to catch one fish, she then has a choice she can fish or can make a spear which takes sixteen hours to make. You might think she only has two choices, fish or make a spear, however there is a secondary choice, she can either go into debt, that is eat nothing for a day and make the spear, or double her fishing for a day, and then have enough to make the spear and eat the next day.
I hope you all think making the spear would be a good idea, especially when you're told she would then be able to catch a fish every four hours. In terms of interest, that would be a return of fifty percent every day, which would be worthwhile even if it was yearly and shows how much more powerful it is to spend less rather than increase investment returns. The hard choice is whether to go into debt or to save first, which in the real world depends on how long it would take to save and whether the returns on the investment is greater than the interest rates to borrow money. Of course on the desert island the risk of not paying back the debt is death rather than a county court judgement, which would probably change your decision.
Whichever way you look at it, the spear seems like a good idea, it is a store of labour, and whilst having no real value to you in and of itself, the work it can do, that is the reduction in labour to catch the fish does have a value to you. That is the nature of capital it provides indirect value, that might be in terms of a house which provides shelter to you, however it only becomes a financial asset if you rent it out to someone else, up until that point it is technically a liability as it has running costs, of course this might be off balanced by not having to pay rent on a property. This shows the tricky nature of capital and how we treated it. Sometimes it is very obvious that something is capital, a share pays a dividend, however a park does not have any money value, though everyone who uses it gets value from it.
It is even harder to recognise that money itself is actually the result of capital, not financial capital but human and public capital. Money cannot exist without the trust that it can then be exchanged for goods, that does not come from any magic quality of money, it comes from stable societies which have a respect for law and especially contract law, it needs peaceful and safe society. All these are forms of capital that we have invested in together and for generations, however the only return we get from this capital is the freedom and shared benefit to use money.
This seems like a meagre return, from what is the fundamental building block of free-market economies, it does not seem to recognise the amount of value that this capital provides, after all we tolerate our government because of the shared benefit of peaceful and stable societies. It is in its role as the guardian of law and order, and more importantly of the money supply that we use for legal tender, that government fulfils a role which it is in a unique position to do so due to it's reputational capital, it seems like one of the few justifications for it, despite attempts by bitcoin to usurp it. However the lack of returns from our social and human capital does seem unjustifiable, as it undervalues out generations of investment in it and our continued support of it.
By not recognising our inherent worth which everyone has exactly one unit of, and our contributions to this social and human capital through our daily human action. It is easy to see how people can end up with the impression that they have no worth, when they do just by existing as a member of our society, that is why I'm in favour of a universal basic income, as people we all contribute towards a peaceful and law-abiding society, and in a society that values money as our medium of exchange, that contribution and the unpaid contributions of our previous generations, means that as a shared benefit we should have a return from our capital, and pay a dividend on people's inherent worth.
