Posted by steve on August 13, 2012
Continuing with my hobby: capitalism, I have come as far as defining different types of capital. Please note that I have not yet taken on the task of actually defining capitalism. This is getting to be a life-long hobby instead of a temporary fad.
To take the analysis one step further let us consider the conversion of one form of capital from the other.
Let’s start with natural capital, encompassing soil, forest, water and minerals like iron as well. Natural capital feeds (a) into man – made capital, for food, water and housing systems, for example. Man-made capital feeds nutrients back into the natural environment, to allow growth and ecological maturity (b).
Human capital includes know-how (could be called technology) is applied to produce man-made capital like housing and transport systems (c).
Human capital can be used to create social capital (specialized organisations) that in turn can create more man-made capital (e) . Or indeed, this social capital of specialised organisations can create knowledge and increase human capital.
Now. Where does money, or the store of money called financial capital come in?
As an accounting system
According to my studies, money should act as an accounting system. So you would think that it would keep track of the capital conversions, to provide an overview to ensure that capital conversions promote ecological maturity whilst ensuring a standard of living for all.
Call me old-fashioned, naive or what, but I cannot see how money is doing that. Or if people are using money to do that. If it were, we would be seeing the status of capital conversions and system performances trounced on the news regularly. We don’t. We see only financial measures of financial wealth, like the value of the stock market.
As a medium of exchange
Here I think I see some use of money in capital conversion. As owners of “bits of capital” swap form(like using money to buy the expertise of a builder who converts natural, human and man-made capital to more man-made capital) or indeed bits of the same form (Like a university that buys a lecturer’s services). This creates another problem, though. The way money is created as credit it is hardly a representative means of exchange. A person who borrows to build a house and then sees the house repossessed by a bank sees capital being created out of nowhere, converted to man-made capital and then the man-made capital changing hands using the money that dis not exist from the beginning.
This is one of the central problems of today’s money system: it is useless as an accounting system that counts anything of real worth, and that it is at best, dysfunctional as a means of exchange if it is created as credit out of thin air.
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