[TheOtherHobbes]

>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.

[kazagistar]

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.

[laretluval]

> 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".

[nstj]

> 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.

[hypron]

Only because we put a value on gold.

[nstj]

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.

edit: placed "gold" in quotes.

[rosser]

No, "capital" is the value we attach to the object; it's the belief, itself. The object is just an object.

[rukittenme]

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.

[the8472]

> The value of food is the preservation of life.

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.

[nstj]

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.

[0]: https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e...

[bbcbasic]

(General reply to sister comments)

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.

[nstj]

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.

[stale2002]

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.

[ars]

> Steel is worth something

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.

[stale2002]

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.

[ars]

Same thing. That only works if the hunter values food. If he has enough (or knows how to get enough), he might not value food.

At the end of the day things have value only because people want them and give them value.

What value do you give air? It's absolutely essential to life after all! But since you have as much as you could use you don't value having more.

[metaphorm]

> No it's not. It's just a lump of metal that sits there.

are you trying to argue the reduction ad absurdum? obviously steel is a construction/fabrication material with a very large number of practical uses.

[metaphorm]

the gold is an object. it's perceived value is what makes it capital. that's a belief system.

[ilaksh]

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.

[wpietri]

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.

[morgante]

> 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.

[MarkPNeyer]

This is why i think it makes sense to consider the financial economy as "a discussion happening in a formal language"

Issuing credit, defaulting, borrowing - these are all primitives in the formal language. That language decides who gets ownership over what goods.

> But the current system is so completely disconnected from true social and economic value creation that it's actively hampering real growth.

Totally agree. It's like we've mistaken 'ideas about reality' for reality itself.

https://medium.com/@MarkPXuNeyer/consider-money-as-a-formal-...

[Tycho]

I recommend reading the money speech from Atlas Shrugged, if you haven't already.