For my new series; capitalism: a hobby I have been looking into collecting a definition of capitalism we can all agree on as a starting point to have an interesting conversation around it.
It’s not easy. And WHY it’s not easy will be the subject I am sure for later blogs in the series. Suffice to say I need to do a bit of work to produce a definition I can get to work on.
In the meantime, though, let me give you my analysis of what capital is.
Before I do that I must point out that the idea that a person or organisation can own something has to be a given in order to understand this.
The other given is that capital as a concept is generally accepted as something measured in money, and then as an item on an organisation’s balance sheet. This means the idea of “capital” needs to be understood in narrow terms as an accounting term.
- If you put cash or goods into a business this is labelled as “capital” on the books of that business.
- By the same token, you can add everything a business has and owes and get a figure that could be called its “capital” the same as net worth.
Just before we dive into details of what capital is, let’s take a look at how the nation of Canada presents its capital in its national balance sheet.
Details from Canada’s Balance sheet
|– Machinery and equipment
|– Consumer durables
|Total financial assets
There are a few things to note here that may seem self-evident if you have studied economics or political economy, but to a lay person like myself – and I suspect many others – there is a certain mystique around economics that needs clarifying in simple terms.
- The things that Canada puts on its balance sheet are not “owned” by Canada, but by residents of the country.
- Things are given monetary value and so is money. Money in the bank is termed a financial asset.
Now I am going to remember this because I have a hard time understanding how the financial assets of a country can be about double that of its other assets. If anyone can explain that I would love to know. If it were gold I could sort of understand it. In theory you could trade the gold for goods. But where on earth would you find a land that would give you things that were worth double the value of your own land. And what would you do with the goods if you got them?
On the other hand if you are taking stock of where you are today you need to add up what you have in the bank so I understand the need to make one list.
The diagram below breaks down the categories of capital often used.
The categories should be be self evident. But from the point of view of accounting, human capital and social capital are not normally put on the books.
Financial capital is divided into that owned by the organisation and that borrowed. In English the terms foreign capital is used for non-owned money on the books and equity is the money put into the company by its owners.
Before we make an inventory of the interesting points from this investigation I found a book that describes some of what we are looking into.
Raymond Goldsmith was able to construct balance sheets for twelve nations dating back to the nineteenth century or earlier dating back to the nineteenth century or earlier. Combined, worldwide balance sheet are included for 1950 and 1978.
In what appears to me to be an almost super-human effort Goldsmith compiled a Planetary balance sheet.
An excerpt appears below.
1) General reflections. I am struck by how complicated this thing of capital is. If capitalism is so good why is it so complicated?
2) Terminology is unclear, to me at least. You have the term capital being used to describe things in monetary terms, but some people are talking about human capital for example, which does not appear on the balance sheet, even of nations.
3) That nations do their own balance sheets as if they were corporations surprises me. This could be because nations in capitalist countries are seen as collection of organisations and individuals owning stuff. That is a little frightening and makes me think we are closer to a corporatocracy ( a democracy that in effect is controlled by corporations) than I first imagined.
THINGS TO LOOK INTO FURTHER
The idea of the right to ownership and putting monetary value on things – even money seems to be only one facet of capitalism. I need to break it down further if I am to understand more.
More references: I recommend the youtube films “Money as Debt”