Wednesday, November 18, 2009

The Meaning of Capital, Part II

In my previous post we learned that capital is "a permanent value, that multiplies and does not perish"--meaning that it is of lasting consequence and may not only be preserved, but multiply in value. Fertile farm land is perhaps the best example of capital, as it holds value due to its ability to produce food for human consumption--the most basic of human needs. Paper money on the other hand, is a perfect example of what capital is not, though may represent. Paper money operates on the whims of perceived value. A one trillion dollar note form Zimbabwe has virtually no value beyond being a collector's item--its value has been lost because the government responsible for printing it printed too many of them.

Clearly capital is of the utmost value, and must not only be preserved, but enhanced for the survival of our species. "Machinery, buildings, and lands" are the things that provide sustenance and protection in their most basic functions, but may also add comfort, luxury, and development in their more enhanced functions.

But capital is not all that is required--as human creativity, skill, and labor must be employed to shape, develop, and enhance the capital stock. Land without a skilled farmer is of little value. A hammer without a skilled carpenter is dangerous and unproductive. A building with a leaky roof or drafty window compromise the value of the shelter.

I will again bring Herbert Schlossberg and Idols For Destruction into this discussion. Schlossberg writes:

" If we understand capital, in the broadest sense, to be any asset--material or non-material--that produces continuing benefits of any kind, then its importance becomes clearer. With the biblical norms increasingly spurned by an idolatrous society, the family structure, the intellectual competence, the legal foundations, and the economic base--in other words, the capital--are all decaying. Therefore, the stability, peace, and prosperity they should be producing will increasingly be lacking." Idols For Destruction
page 317

Schlossberg also defines capital as producing "continuing benefits." This is the aim of holding capital--to reap more and more from it. In a way it is like living off of interest--as long as the principal remains intact, this may continue as long as interest rates are maintained. But as soon as the principal is tapped into without replenishment, it is only a matter of time before the principal is expended entirely.

Next, we'll look at our current situation.

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