@Angle And it may be that some notion like that, the idea that ANYONE who gets up and works hard can get ahead and better himself, seems needed to keep capitalism going.

@Angle My background is uni training in mainstream economics some three decades ago, followed by a lot of critical thought about what I was taught. I've a pretty good sense of the mainstream, several views in strong cultural / lay mindset, and criticisms.

So I'll bring that to bear.

2/

@Angle If you follow a mainstream "neoclassical synthesis / neoclassical economics" view, "capitalism" typically refers to a market-based economic system with rational actors, profit-maximising firms, utility-maximising consumers, and a financial system. Producers and consumers are assumed to be price takers. The system operates at a market equilibrium, with perfect (or at least uniform) information and limited externalities.

In popular discussion, this actually doesn't see much play.

3/

@Angle Note that all market economies have inherent inequality, but between taxation policy on the top end, and a social safety net on the bottom end, that inequality can be limited.

@bhtooefr @Angle The role of corporations is another fascinating study.

Reference of possible interest: Charles Perrow, "Organizing America".

https://www.worldcat.org/title/organizing-america-wealth-power-and-the-origins-of-corporate-capitalism/oclc/994398310&referer=brief_results

@Azure Myself? Well, it's a complicated question, but to give you my five minute answer, I would say an ideology, centered around a particular kind of market economy that emphasizes the role and power of Capital.

@Angle @Azure A pretty good answer. And ... shorter than mine ;-)

@dredmorbius @Angle @Azure

I've always defined it as "an economic system in which ownership of the means of production rests primarily or entirely in private hands", but I'm thinking it could be useful to identify other useful definitions (such as Angle's) and catalog them.

(...on, say, Issuepedia.)

@woozle @dredmorbius @Angle @Azure

wealth is aggregated, but liability 'limited' in such ways to flow "downhill", externalised away from the more wealthy & powerful to those less wealthy & powerful.

Though banking etc as developed in, eg, what is now Northern Italy were important antecedents, what grew up on either side of the North Sea was the real cradle of capitalism, VOC et al.

Allows for, but does not require, & may co-opt, democracy.

@deejoe @woozle @dredmorbius @Angle It's also interesting that in recent times, many of the 'democratic' features of the Limited Liability Corporation are under attack. Perverted (yes. PERVERTED.) share structures are used by the likes of Google to keep /Control/ separate from Ownership and in the hands of the founders, sort of destroying the inherent social contract of selling shares for equity. (Thankfully there's some push-back against this. FTSE and S&P are refusing companies that try this.)

@Angle @dredmorbius @woozle @deejoe Well, NEW companies. Ones already in it are grandfathered. However, a stance taken by a big index like that can really penalize companies who try this crap, which is good, since large institutional holders won't buy their shares.

The shift from dividends to buybacks is similar. Because founders/executives/'insiders' get paid in options buybacks benefit them much more than they benefit ordinary shareholders.

@deejoe @woozle @dredmorbius @Angle That and dividends gave a definite relationship between ownership and profit. You own stock, you get a portion of the profits. It's predictable. It also democratizes stock, since the average guy can buy it, see how much money he's getting, and just hang on to it if he likes it.

Buybacks change that so it's purely a buy/sell thing, and individual investors have a much harder problem thinking about value and benefit.

@Azure @deejoe @dredmorbius @Angle

Side note: this suggests (only just occurred to me) that the stock exchanges may be control-points worth looking at.

(We need to find control-points we can influence to Do The Right Thing.)

@woozle @Azure @deejoe @Angle Any thoughts on how you're thinking of applying that control?

And I'll note, there are examples of this.

Stocks have been delisted or frozen. The founder of the Piggly-Wiggly stores lost control through a similar mechanism.

It's possible to attempt to bid up or down shares (though dangerous). Short sales may be used for companies in trouble. Probably other bits.

Lawsuits and regulatory changes can be attempted (see Tesla for cases of both, used by other co.s)

@dredmorbius @Azure @deejoe @Angle

At first I thought by "applying" you meant "convincing the exchange to actually do what we think they should do", which to my mind is the harder part.

What should be done, if we can convince them to do it, seems like an easier problem; you've suggested a couple of ideas.

Having read "Flash Boys" a couple of years ago, another idea comes to mind: delay trades of problematic companies on an incremental scale starting around 1 millisecond.

@woozle @dredmorbius @deejoe @Angle There's some support for that. Well, not that /in particular/ but I've read of proposals to kill high frequency trading outright by running exchanges on a discrete clock for everybody, which is a pretty appealing idea to me.

@Azure @dredmorbius @deejoe @Angle

That's pretty much the exact solution that came into my head as I was reading the book.

(The idea that the best solution was to insert a super-long network cable into the system seemed highly suspect to me. Someone is both (a) not really thinking the problem through, and (b) lacks access either to the source code or to a half-decent coder to modify it.)

@woozle @Azure @deejoe @Angle Long cable is readily evidencible and testable. You can plug it in.

Light only goes so fast.

Other options might be used, but they're subject to cheats.

@dredmorbius @Azure @deejoe @Angle

The question of cheating wasn't an issue in this case, as it was the company which owned and ran the computer and software which decided to make the cable longer.

As a regulatory enforcement measure... maybe.

@Azure @woozle @deejoe @Angle Tobin Tax.

https://en.wikipedia.org/wiki/Tobin_tax

@dredmorbius ( @Azure @deejoe @Angle )

Are you suggesting the literal version of that, or the more general "Robin Hood tax" version?

@woozle @Azure @deejoe @Angle Transaction taxes, generally.

HFT only works if you can do *lots* of trades, *cheaply*.

Increase trade costs, and you can't do HFT, it costs too much.

Incidentally, this becomes a "bad hygiene" approach to decentralisation. You're raising costs so that centralised approaches don't work.

@dredmorbius @Azure @deejoe @Angle

Sure, a transaction tax is a viable idea for reducing high-speed trading.

So would forcing all trades to be on a clock-tick. (If you're worried about enforcement, how the bleep would you enforce a transaction tax?) The tick wouldn't even have to be synchronized across exchanges.

I'd want to find some trustable financial computing experts to see what they think of the various options.

@Angle I use this loose definition because I believe it isn't important whether the system is a mercantilist or materialist or corporate one.

The point is that there are people in control who are there due to a positive feedback loop of power gained through power.

@Angle My landlord is engaging in capitalist behavior when she disregards the law because she knows she can just kick me out if I cause trouble while enforcing the law when it suits her interests.

@dredmorbius @Angle

"capital. That is, productive output reserved and utilised for production itself."

See, that's what I *don't* think 'capital' actually is in modern capitalism.

Perhaps to an economist this definition is correct? But that's why economists look foolish to most people. They build very clever models which do not actually connect with reality.

In our society, I believe, capital is a measure of *ownership and control*, often of something not productive or even *real*.

@Angle @dredmorbius

Eg: capital, as it actually exists and is deployed in our culture, is not any kind of physical 'productive capacity'. It's literally debt.

A venture capitalist comes in to an established business, and the only thing they bring is *capital* - ie, money, in the form of loans, with a corresponding debt.

With this capital the business can command the production of *others*... but it also requires them to produce for the VC, not things, but *money*.

@dredmorbius @Angle

So increasingly, capital in our culture is not *producing* things of real value but growing itself by *consolidating ownership and control*.

Our abstract form of tradable 'capital' may even grow by shutting down productive capacity: closing factories, outsourcing jobs, reducing living standards.

Housing is a great example. If a house doubles in price, it's called a 'capital gain', yet zero real productive capacity has increased. A number has gone up, that's all.

@Angle @dredmorbius Yet this function of the thing we call 'capital', of growing itself by consolidating control rather than increasing productive capacity, is nothing particularly new. It's been there a very long time.

So I'd say that capitalism is a system based on capital, a tradable *proxy for* real productive ecological, industrial and social capacity, and which is very often mistaken for the real thing. And it's actually a measure of *exclusion* of access to and control of resources.

@dredmorbius @Angle This is because control over a thing requires the ability to exclude others from that thing.

So capital is a tradable commodity that *claims to represent* real productive and generative wealth, but *actually is* a means of excluding people without capital from that wealth. As capital grows, naturally forms of control-by-exclusion grow, because again, that's what capital fundamentally is and seeks to grow. A freely provided good has no tradable value (but IS great wealth).

@Angle @dredmorbius So there are two great errors here that form a large part of the terrible social and ecological hurt done by capitalism, the social form that respects capital and seeks to grow it above all else:

(and societies can be more or less capitalist than others; 100% capitalist is Libertarian, where even law and justice require money)

1. Mistaking a proxy of a thing, which can often be its opposite (control and exclusion) for the thing itself (production of real wealth)

@dredmorbius @Angle

And 2. That thing, capital, the *proxy* for wealth-generation, *itself* grows, ie the more control-by-exclusion you have, the more you can control and exclude others.

So its both 1) a system which is dangerously self-deceived about the true sources of wealth - a deception that 'works' only when there's lots of free productive capacity (ecology, labour) and just *capturing* a chunk of that capacity looks like *creating* capacity

2) a system that consumes itself via growth

@Angle @dredmorbius

Now it may well be that the economists' definition of capital ("productive capacity used to produce more capacity") does in fact exist.

But since it's almost always exclusively measured in terms of ownership and *control* of that capacity - where merely *controlling* production doesn't mean creatively directing it but simply skimming off the 'profit' for yourself - then it's still measuring the proxy, not the real thing.

I think we need a new word for 'real capital'.

@dredmorbius @Angle The other thing is that the new thing about 'capitalism' (I mean new in terms of becoming the dominant mode of European society 500 years or so ago, though it's probably much older)

Is the idea of 'tradable ownership' of productive capacity.

I think that's what's at the root of what we *call* capitalism, as opposed to monarchism, etc.

It's that you can have lots of people all owning chunks of 'real capital' (or what they THINK is real capital - see tulips).

@Angle @dredmorbius So where as before you could have a monarch/emperor and all his/her feudal lords and officers owning all the land, trade routes, and other capital-like stuff... under capitalism, you can have complex and rapidly ever-changing systems of that ownership. Eg joint-stock companies. It let capitalism evolve fast.

But I think that also means that 'ownership of nominal capital' becomes even MORE abstract and removed from 'creatively directing the production of real wealth'.

@dredmorbius @Angle Like maybe an emperor in another country wasn't SUPER good at actually giving good instructions to his regional lords and making trade safe, but at least he was hopefully a bit aware that that was his job and doing it well was the source of his wealth.

But if you just own a share in Apple? Especially if you're only owning it for 30 milliseconds, just to flick it on to someone else? That really means you understand how to run Apple? Or are you just being an algorithm now?

@Angle @dredmorbius And again, this probably has always been the case since ancient times. Just owning land didn't mean you were necessarily using it productively. and just winning a war with your neighbours and taking their land didn't mean you are therefore a more moral and efficient kingdom and more entitled to manage that land.

(though no doubt that was exactly the argument made, and still is)

So maybe it's not 'capital' so much as 'mistaking control for real wealth' that's our problem?

@dredmorbius @Angle Oh, and the final other twist, which again has probably been there since the Nile salt plains flooded but is especially urgent post-WW2?

You can do things, lots of clever things, that in the short term and locally 'increase productive capacity' but in the long term and far away actively DESTROY productive capacity.

Pollution, CO2, species extinction, shredding the social fabric. All these are HUGE net planetary 'capital losses' but marked up financially as 'capital gains'.

@Angle @dredmorbius (And not just financially: the entire scientific community has been trumpeting, eg, 'the green revolution' in agriculture, but on a planetary scale, it's a disaster on a scale we can't yet comprehend.)

@natecull @Angle So, /that/ is another very central point to the like of argument and explanation I've been building up.

Part of this is pretty much from today:

Raw materials, land, energy fluxes, capital, etc., all represent forms of /potential/. Potential /isn't/ wealth, but it can /become/ wealth. Potential may be used in any of multiple ways, but once you've committed to one use, it generally costs you /more/ to revert it to another than if you were starting fresh. So: path dependencies.

@Angle @natecull Economists natter on at length about "cost", "value", and "price", as well as "wealth". They are /still/ trying to define these things, and it's a bit of a mess. Seriously.

The Steve Keen video linked earlier spends a lot of time on this: https://www.youtube.com/watch?v=f8KhlejNwyU

I've also been asking what these are, and feel a lot less stupid for asking these questions now than when I first asked them.

I've realised a few things.

1: "cost", "price", and "value" are 3 different things.

@dredmorbius @Angle Cost: what you really lose by doing something

Value: what you really gain

Price: what some other person who may be utterly foolish and/or evil is willing to trade you for something you have and which can in fact be traded?

@Angle @natecull 2. That "wealth" is /really/ inconsistently defined, and this is a problem.

3. That "value" is used, variously, to describe /cost/, or /market price/, or /use value/. This means people are arguing over the definition of what is actually three entirely different things.

4. Something I've just twigged on today is that C, P, and V /still/ aren't the full story. I think there are at least two further bits.

And yes, good start in your post:
https://mastodon.social/@natecull/99102643458121169

@Angle @natecull I'm going back to chemistry.

There you've got a number of concepts associated with energy and reactions.

There's heat of formation, there's activation energy, there's latent heat, there's sensible heat, there's entropy, and there's useful work. You should also probably be looking at net flux, inflow, maybe albedo, and radient losses.

I'm talking my way through constructing economic equivalents here. The fit isn't perfect, so take with a few grains of salt.

@Angle @natecull So, consider some natural resource that you want to make use of.

It (1) formed, somehow. It (2) exists in some natural state. It needs to be (3) removed and processed, (4) transferred to others, and (5) converted ultimately into some useful form, which itself (6) contributes to social capabilities.

Economics generally /has not considered natural capital costs/. That is, the cost of formation of a thing -- what went into its initial provision. This is changing, but slowly.

@Angle @natecull If you look at, say, wheat, you have a year's worth of sunlight and water, some contribution of minerals from soil, applications of fertiliser and pesticides, and the sowing, cultivation, and harvesting of the wheat. Those are all inputs.

You can look further at the inputs of the inputs: sunlight comes to us, and is either used or not -- you cannot "use up" sunlight, though you can pass on the opportunity. Land, especially good land, is in limited supply, and is only ...

@Angle @natecull ... about 17% of earth's surface. Topsoil is created at the rate of about 2.5 cm/century, and is /lost/ at rates of up to 2.5 cm every 1-10 years. In the best farming basins, it's accumulated since the last ice age, about 10,000 years ago. So there's a 250 cm base, and we're drawing that accumulated natural capital wealth down at a rate 10x its provisioning. That's a debt or asset depletion, whichever way you want to look at it, and a bad one. But not the worst.

@Angle @natecull Tractor and combine fuel, pesticides, and nitrogen fertiliser all rely on petroleum and natural gas presently. We're extracting those at rates faster than they are accrued. By a factor of roughly 5,000,000 fold.

My accountant tells me it's a poor notion to spend at a rate of five million times income.

Contemporary accounting, finance, asset valuation, economics, and national accounts fail to consider this. It's a massive hole and distortion through the entire economy.

@dredmorbius @natecull Hey, I love the stuff you write. But one thing - you might want to make sure that each post responds to the last, so it's easy for newcomers to read through. Like, I was thinking of linking the convo to others, but I'd basically need to copy it all down in the right order, as otherwise they wouldn't know what order to read your posts in. :/

@Angle @natecull I know. I'm trying to do that though I'm missing at times. I /do/ try to have a common parent.

@Angle @natecull I will also probably try to pull this into an essay form at the #dreddit (https://dredmorbius.reddit.com). Tootstorms are proving a useful writing technique, /especially/ for getting focused response and feedback.

@Angle @natecull So, by way of my wheatfield, I've pointed out a kind of a big problem.

Continuing:

The farmer exerts effort (and capital, materials, and fuels) in growing and harvesting. That's sort of a "separating your good from its substrate" phase. At a market, some price is sufficient to induce the farmer to exchange the fruits of her labour with a buyer, in exchange for money. The money represents liquid purchasing power. A term I'll get to if necessary. For now: it enables trade.

@Angle @natecull The buyer moves, and then transforms the grain into something useful (say, bread), which provides calories in a form that are useful to other humans, and of which other humans require about 2,000 kilocalories daily simply in order to get up and moan about life.

Elvis, or rather, the wheat, and the beneficial factors it contains, have now left the building. By way of the WC.

What's left is mostly /anti-wealth/ (though there are some useful things you /can/ do with poop).

@Angle @natecull The upshot is that raw materials, land, sunlight, a massive amount of unaccounted natural capital, some finiancial trades, etc., all went into keeping about 98 sods active for another day (ag is about 2% of the population, one farmer feeds ~98 people).

The 1:98 factor is a measure of the raw value-producting factor of the farmer. One day of farmer work provides the basis for 98 days of /other/ people's work, at leas so far as food is concerned.

In 1800 the ratio was about 1:2.

@Angle @natecull Another way of looking at this is that land + sun + seed + farmer + fertiliser + pesticides + tractor + fuel all represent a /potential wealth/ which can be realised and manifested. There are several possible endpoints.

The end result is going to have some total net quantity of available, sensible energy (or equivalent) capacity.

And that will be less than the initial amount.

Again: Economics doesn't think this way. It has no measure for this.

@Angle @natecull Economic activity is a process of converting a /large/ amount of initial embedded energy representing various potentials of useful value, by way of applied costs, and via price-mediated transfers, /and/ with a tremendous reduction in the actual embedded energy (deadweight entropic loss), to some quantity of useful sensible energy.

There's a rough analogue of chemical reactions in there (and in fact many of the activities are chemical in nature).

@Angle @natecull One thing, economically, that's driven off of this is some sort of saved, transferable, liquid credit. We think of that as money or cash, though it might simply be a credit entry, or even a social credit informally recognised.

That represents a capacity to bid on price-mediated transactions between _other_ people within the economy. So we now have a flow of these credits, generally in the /reverse/ direction of goods and services. Sort of like charge particles in ion-exchange.

@dredmorbius @Angle @natecull Electrons and holes!

@wrenpile @Angle @natecull Ayup.

I'm also thinking of ion-mediated cross-membrane exchanges as with cells.

@Angle @natecull That credit flow is what you find referenced in most economics texts as the "circular flow" model, and treated as "the real economy". There's some truth to that, but far more bullshit.

For starters, the credits are /not/ some physical entity, and bound by conservation laws. **Money is an information record of debt, credit, exchange value, and bidding rights in market or non-market transactions.** It may be created or destroyed. It may lose significance. It has limited domain.

@Angle @natecull And more to the point: the financial economy is a *minuscule* fraction, and a very poor accounting, of the real and natural economies.

I mentioned that there's work toward recognising market capital. That recognition has been proceeding along the lines of looking at market transactions for natural capital. That's an absolutely false and red herring.

**True costs are what you give up to gain a thing.**

For natural capital: energy, time, materials. In BIG numbers.

@Angle @natecull @dredmorbius and the definition of "you" is critical here too.

@alanz @Angle @natecull That definition might better read as "True costs are what /is/ given up to gain a thing."

The "you" version being closer to the conventional definition.

@Angle @natecull Human economies are measured in hours, days, weeks, quarters. The Industrial Revolution dates back about 200 years. Most of the activity, on the order of half of all of it, has occurred within the past 20 years.

But it's been based on accruuals that are measured in centuries, millennia, millions, even billions of years.

(Look up BIFs, Banded Iron Formations, source of most iron ore, laid down in the Great Oxygenation Event about 3.5 billion years ago. And call my accountant.)

@Angle @natecull The thing is, *those are real costs*. And *time* is a massive factor of production. We're talking about accounting mis-matches on the scale of millions or billions. These are not rounding errors.

They're round-globe-sized errors.

One of the amusing thoughts I've developed over the last year or two is that maybe the accountants /can/ save us. That we'll send an Asset Revaluation Notice to various Extractive Industry concerns, for a few septillion or octillion dollars.

@Angle @natecull Because they've been drawing down accounts without booking full asset losses.

(Another thought is that there might be some resistance to this suggestion.)

@Angle @natecull But yes, a tremendous amount of "modern market-based economic activity" is in fact a form of neo-mercantilism, burning down millions and billions of years of natural capital to generate a few decades of liquidity flows. Nate's comment here is absolutely on mark.
https://mastodon.social/@natecull/99102521690434882

@natecull @Angle Thing is, in ancient times, there wasn't much total surplus or potential to go around. And as things got crowded (that is, you were no longer in a nomadic state, and had to actively patrol and defend land), if you weren't generating sufficient surpluses to fend of other interests, you'd be overrun.

It was a fairly blunt form of productivity motivation, but fairly effective.

One form played out in encounters between the generally more efficient Europeans, and indigenous tribes.

@natecull @Angle The notion of beneficial stock ownership and corporate control is ... another one that's been grossly, and quite possibly intentionally, muddied over the past century or so. Again, Charles Perrow's "Organizing America"

https://www.worldcat.org/oclc/994398310

@dredmorbius @natecull @Angle Thanks for not giving an Amazon link!

I used to be friends with one of the early architects of OCLC, by the way.

@wrenpile @natecull @Angle OCLC / Worldcat are my heros.

@natecull @dredmorbius @Angle

Likewise if you buy a house just long enough to dress it up a bit and "flip" it, with the expectation of making back far more than purchase + improvement cost... what, exactly, are you contributing?

There's at least one TV show about couple who apparently live off the income they make from doing this, and are *proud* of it.

(Yet another example of "wealth as virtue" -- another proxy error.)

@natecull @Angle Right. The feudal system (or other equivalents in China, or the Roman empire, or Persia and India) served to define, control, protect, and utilise productive capital. Almost wholly /land/, and transport (mostly rivers and sea). It was oppressive, but unified interests well, and was strongly stable.

Coal started messing with that, oil all the more so.

(Though oil states remain, in large part, strongly feudal, something to consider.)

@natecull @Angle Before capital (or labour) were recognised as the "source of value" (itself a ... problematic phrase), the key was seen to be /land/. Particularly by the Physiocrats. Richard Cantillon, Essays:

https://mises.org/library/essay-economic-theory-0

(Ironic indeed that this is at Mises.org.)

@dredmorbius @Angle Right, from my vague understanding of feudalism, mostly 'land' and 'capital' would have been, mostly, the same thing. Those who were rich in gold were also rich in land.

But something shifted that let gold etc become more powerful, or as powerful, in their own right than land.

I'm guessing one part was the rise of a European international banking network after the Crusades? separating money from nations

And the other was industry needing non-land stuff that money could buy.

@Angle @dredmorbius and also I suppose the rise of travel (maybe caused by nasty wars between states and refugee flows?) broke the feudal link of *labour* with land.

Before the feudal era, though, I wonder how things worked? Was money (metals, I guess) still a sort of international glue? Was land-ownership (and slave ownership, ick) still super powerful?

Was 'labour' itself a late proxy for 'slaves/serfs'?

@natecull @Angle Coming up with different terms for different things may help. Understanding the inadequacies of the generally-understood (and false) system model, and improving the model or replacing it with another (Steve Keen's trying) would also help.

Before getting too hung up on capital, though, I'd like to suggest a broader-scoped view of "factors of production" and how we came up with those.

Cost accounting, mostly.

Alexander Hamilton Church.

https://en.wikipedia.org/wiki/Alexander_Hamilton_Church

@Angle @natecull (And yes, he may be related to Alexander Hamilton.)

"Capital" and "Labour" appeared mostly because those were the things accountants had to keep track of because that's what they were paying money for. Eventually raw materials and operations and maintenance and a bunch of other stuff started showing up. But if you look at "factors of production", they mostly come from accounting journal entries.

Of all people, Leo Tolstoy takes this up:
https://archive.org/stream/whatshallwedothe00tolsrich#page/100/mode/2up/search/factors+of+production

@natecull @Angle But /all/ systems work by proxy. It's all we have. These words, the keysim codes and ASCII/UTF-8 representations and letterforms and OSocial protocols are themselves all proxies for some idea in my brain that I'm desperately trying to infect yours with.

@natecull @Angle But recognising the limitations, inadequacies, and pathologies of your systemis a good way to keep those from driving it into the weeds, through a wall, or off a cliff, yes.

@natecull @Angle You've just hit on an absolutely essential truth, and this is why I see property-based economics as a matter of control, systems dynamics, and control theory.

If you have property ownership, you have (at least some) say in who can, and more importantly, *who cannot* make use of a thing. And you can charge for the privilege.

I've mentioned etymologies: the etymologies of "own", "fee", "property", "control", "power", "monopoly", etc., are fascinating. Look them up.

@dredmorbius @Angle I guess the interesting thing - and why ownership of productive capacity often gets confused with that capacity itself - is that a GOOD owner CAN increase capacity of badly-managed capital by taking it over and running it well.

But investment funds and executives often consider themselves 'good owners' if they achieve 'good returns' based on abstract metrics like sales, click-throughs, etc and not based on what is actually happening to the resource they control.

@Angle @dredmorbius Eg:

An investor may purchase a house (not actually increasing its real capital) and immediately raise the rent.

On paper, they're 'increasing the productive capacity' of that house because it's now earning more money.

But it's not housing more people. It's actually costing those tenants more, which means their life is worse. Their physical and mental health may be suffering. As real capital, the house is actually producing *less* wealth.

How can we measure this?

@dredmorbius @Angle On the other hand, if that same investor purchases that same house, and fixes the driveway, upgrades the wiring, plants some fruit trees..

.. that HAS increased the REAL capital of that house. All these things make the tenants lives better. But none of that will show on the balance sheet unless the landlord can charge more rent.

And sometimes they can, so sometimes the market rewards ACTUAL capital.

Sometimes though they just squeeze out more rent and the market don't care.

@Angle @dredmorbius Like part of the problem of capitalism (that you may or may not get under other systems, like kingdoms)

is that if the market fixes costs and weights and measures itself, you can have things like property asset bubbles, which is sort of like your one-meter ruler shrinking or growing by 5% one year and 20% the next.

Money tells us what things are 'worth' but it doesn't really tell us if that estimation is long-term correct. It can give us wildly bad and wrong estimates.

@dredmorbius @Angle Whereas if you have a king he can just say 'right, a house costs $100 per square meter, that's it, that's what it costs'.

and sure that's hard to do right (but real estate firms have to do something similar) but at least that means your culture can be free from *one modern form* of weird bubbles.

But of course if lots of people move into your kingdom, or there's a drought, all sorts of relative costs and values will change even then.

@natecull @Angle Another term often applied to Roth/Rand Libertarians & Austrians is "propertarians". That is, they declare ownership of property as a fundamental and universal right.

(It's actually not. The whole concept of transactable real estate mostly dates to the 19th century. There are limitations on property rights, and ownership does not equal total control. I ... could go on about this for days, and probably will, but not right now.)

@natecull @Angle But yes: property can be owned, and ownership is exclusion, and wealth /accumulates/, then you eventually reach the point, as Marx noted, where the Few own Everything and the Many Nothing and survival is not possible. Either the Many die, or become slaves, or revolt.

This is one reason Winner Takes All is a Very Bad Idea.

It's also a pattern with an exceedingly strong tendency to re-emergence. And a dazzling array of rationalisations and justifications.

@natecull @Angle Correct. Not new. Been around for a long time.

But it's also been very strongly denied by many mainstream economic pundits (many of whom you can trace back to the Mont Pelerin / Atlas Network / Chicago School / Rothbardian/Randian Libertarian / Austrian camp -- a fairly homogeneous group despite loud denials), and there's been a tremendous amount of FUD raised on this point, and for good reason: the FUD is astonishingly lucrative. To the tune of $trillions.

@natecull @Angle Proudhon: "Property is theft."

@natecull @Angle This is the problem of "money making money". This is frequently referred to as rent seeking, and I suspect it frequently /is/ rent seeking. I don't think it's /only/ rent seeking, though I'd have to think through what the other options are.

("Dumb luck" is one possibility.)

@natecull @Angle There's a whole lot of financial activity which centres around asset price inflation.

Asset prices rising or falling ***IS NOT WEALTH CREATION.*** It is a change in market price. And whilst that /may/ indicate a /real/ change in value, it can also reflect a manipulation of supply and demand. The notion of rents /does/ come to play here, particularly if supply can be manipulated independently of demand.

@dredmorbius @natecull @Angle This is nowhere truer than in the supposedly most tangible, least abstract asset class: real estate. In the USA, tens of millions of people live their lives worrying about this.

@wrenpile @natecull @Angle Right. I Made a Thing about that some time back: https://redd.it/608w97

I also just did another one pointing out how the Texas Railroad Commission, OPEC, and the 1973 Arab-Israeli War kicked off the 1980s homeless epidemic through FIRE:
https://plus.google.com/104092656004159577193/posts/eDscpi6Kg7L

@dredmorbius @natecull @Angle So it’s your position that the housing-shortage motor has been footloose international money, with few other places to go, bidding up the price of real estate under conditions of enforced scarcity?

@wrenpile @natecull @Angle Close, though a few niggles on that.

1. Currency backed significantly in financial assets rather than mineral commodities (gold, silver) creates both a role for those assets and their valuation in monetary management, and a significant financial trade in those goods. This isn't all bad: you end up with a vastly more flexible monetary system, and far more control by the central bank (and a fair bit amongst various commercial banks.)

1/

@Angle @natecull @wrenpile 2. There's a common thread to FIRE (finance, insurance, and real estate) as an industry: each is fundamentally concerned with determining future market values (or the probabalistic spread of same) for various entities, considered as financial assets.

Finance financialises loans, either personal or commercial. Insurance: risk. Real estate: land and structures.

*Once you are in possession of an asset, you have an interest in its appreciation.* Consciously or not.

2/

@dredmorbius @wrenpile @Angle @natecull

Except some organisations similar to
http://www.accesstoland.eu/-Terre-de-liens-
and some community land trusts that aim to decommoditize real estate.
Some organisations do use increases in price of real estate they hold to leverage finance to acquire more - so the interest still holds. Others don't.

@Angle @natecull @wrenpile This applies, by the way, well outside real estate, loans, etc. Professional licences, education (credentialing system), business licences (e.g., taxies), bourse seats (e.g. NYSE seats), etc. And there's a key way to ensure the price of a thing goes up: *LIMIT THE SUPPLY AND INCREASE DEMAND.*

Anything that /subsidises/ such goods /increases demand/. This means, incidentally, that many political interventions are bass-ackwards.

(And conventional econ is right.)

/3

@Angle @natecull @wrenpile School loans, mortgage guarantees, housing subsidies, /all allow for higher prices for those goods/. They /increase demand/.

So does advertising and shaping social beliefs -- DeBeers and "A Diamond is a Girl's Best Friend".

You can also limit supply: cap licenses or degrees issues, increase graduation requirements, discriminate against a large portion of the population, zoning density, some building codes, etc. All limit total supply and bid up prices.

/4

@dredmorbius @Angle @natecull “Diamonds are a girl’s best friend”? That’s Leo Robin and Jule Styne in the musical _Gentlemen Prefer Blondes_.

DeBeers gave us “A diamond is forever.”

@wrenpile @Angle @natecull Quibbling.

https://www.huffingtonpost.com/dale-elizabeth-meikle/diamonds-are-a-girls-best-friend----and-other-feminist-truths_b_6672530.html

@Angle @natecull @wrenpile Mind that I'm not against /all regulation/. I'm not. But there's a difference between /good/, /effective/, and /productive/ regulation that /increases/ net social capacity, and the bad sort which reduces it.

And quantity-of-regulation is itself a brake under my Hygiene Factors list: there's only so much that a single individual, or organisation, can keep on top of, and having a mass of independent regs is its own form of information overload.

/5

@Angle @natecull @wrenpile Back to my list:

3. For all the above reasons, the financial system got increasingly interested in assets and loans, high energy costs tended to drive manufacturing elsewhere, reduced the vast surplus-value elements of industrial manufacture, put downward pressure on wages, and had banks seeking /financial/ rather than real economic returns, where they could find them. Real estate provided those returns.

On that: to a bank both look the same.

/6

@Angle @natecull @wrenpile That is, a bank lends out some number of Wealth Units, and specifies a time-based growth ratio on those Wealth Units, and so long as the net risk of what's lent is matched by what's returned, everything goes peachy, as measured in Wealth Units. That is, currency-denominated financial assets.

Unless, and this turned out to be a huge problem for banks in the 1970s: a tremendous number of new Wealth Units are created. And they were.

7/

@dredmorbius @Angle @wrenpile I'm always fascinated by the question:

If there were say only 1,000 of us living in a generation starship for 500 years... would the notion of 'economic growth' be meaningful? We'd value stasis and balance above all, surely?

But we'd still have an economy, right? Might even be a market one.

What might it look like?

@natecull @Angle @wrenpile Jared Diamond goes some way to answering that in "Collapse". Many of the sustainable examples come from your general neck of the, er, seas: South-Pacific islands, with limited land-area and productive capacity. Many of them quite literally populations of a thousand or so sailing off for 500, or 5,000 years.

The Human Diaspora across the Pacific was also surprisingly late. Some only ~1kya.

@dredmorbius @Angle @wrenpile I know! There's a whole fascinating story yet to really be uncovered I think about just what caused the Pacific diaspora. It's super recent! (With the possible exception of Australian aboriginal tribes)

New Zealand Maori seem genetically related to the indigenous Taiwanese, and the Maori language has some things in common with eg Hawaiian.

But have we seriously understood what happened to cause this huge exploration wave?

@natecull @Angle @wrenpile Way out of my league.

The usual: opportunity. Possibly motivation. There may have been earlier waves. General random dispersion may also have something to do with it.

@natecull @Angle @wrenpile The fact that concensus is leaning to the idea that settlers of the Americas arrived first by /sea/, and /traveled and settled by sea/, rather than overland, also strikes me as interesting.

You can get far further, with more cargo, in a dugout, or canoe, or kayak, than carrying packs.

I'm wondering at the first humans who cruised down along the West Coast of the Americas by boat.

@dredmorbius @natecull @Angle As David Foster Wallace called it, ”a supposedly fun thing I’ll never do again”.

@Angle @natecull @wrenpile From 1972 to 1982, a bank lost $62.68 of each $100 in loans it had. Compare to $27.15 from 1962-72, and $12.25 from 1952-62.

The 1970s were a /really/ bad time to be a bank.

Interest rates skyrocketed.

And inflation was seen as a Bad Thing, so the Federal Reserve /triggered/ a recession to prevent it. This was, I believe, a massive error. The inflation wasn't the /cause/ of economic conditions, but a /response to them/.

Hrm... I need to look at '70s housing.

8/

@dredmorbius @Angle @wrenpile That's another thing that boggles me:

1. The 1970s were all 'inflation bad, must make war on inflation'
2. In the 'anti-inflation' culture of the 1980s to 2010s, house prices inflated by... 4-10 times?
3. But not a peep out of the anti-inflation people in the face of this massive, runaway inflation?

When they said 'inflation is bad', were the 'they' investors not workers, and by inflation did 'they' ONLY mean 'wages'?

Because from 2017, it sure looks that cynical.

@wrenpile @Angle @dredmorbius Eg:

If one class of assets inflates while another stays flat, it's not called 'inflation', it's called 'growth'.

If housing costs inflate while wages stay flat, the newspapers proudly call it 'a recovery'

but to workers, that's still a recession.

In the 1970s we had 'stagflation'

In the 2010s, we have a 'recovercession'.

or maybe even a full-blown Great Recoverpression.

@natecull @wrenpile @Angle That's an interesting case, and I'd like to dig into it further.

I've been thinking about, e.g., Bitcoin, and its recent gyrations.

One thing about Bitcoin is that its price, whilst volatile, has tended to rise. Another is that its cost /including transaction costs/ are also climbing, due to the mining algorithm itself.

This makes me wonder it that appreciation is built in, and how stable that is. Works only so long as people buy into it, mind. (Literally.)

@dredmorbius @natecull @Angle If you believe recent reports, *transaction* costs are also rising rapidly for Bitcoin.

This looks like self-limiting appreciation: beyond a certain point, high transaction cost starts to cross over into illiquidity, and that’s a drag on value.

@wrenpile @natecull @Angle Though a single blockchain transaction can include multiple individual transactions. I believe 2k is current average.

Though the capacity of bitcoin to scale to real-world transaction volumes seems ... limited.

@Angle @natecull @dredmorbius Oh, with a new competitor like this, Bitcoin’s really in trouble: 🙃 https://www.nytimes.com/2017/12/03/world/americas/venezuela-cryptocurrency-maduro.html
https://mastodon.social/media/_lMLLWr1F8USkHnykXQ

@natecull @Angle @wrenpile One of the few business broadcast programmes I catch is PRI's "Marketplace". I'm increasingly disenchanted with even it.

They ran a piece ... I think within the past year, asking "who wants inflation anyway", and suggested that ordinary citizens (the piece had a typo and substituted "consumers") don't.

That is absolute and complete bullshit.

*Banks hate inflation. Everybody else more-or-less loves it.*

*Inflation reduces debt costs.*

@wrenpile @Angle @natecull The main problems arise when you've got some contract that's got a built-in, fixed-notional-currency payment scheme built into it.

E.g., a loan.

Or, yes: a purchasing contract, or a subscription payment, or a policy payment (insurance companies are banks except you have to hurt yourself to make a withdrawal), etc.

But if you're a wage-earner, you get a COLA. Your wages rise with inflation. If you're a business, you mark up prices.

And your debt gets cheaper.

@dredmorbius @natecull @Angle Bondholders also hate inflation. Don’t forget, middle-class retirees — OAPs! — get harangued to own bonds.

But basically I take your point.

@natecull @dredmorbius @Angle @wrenpile

Yes, "we have inflation under control" is code for: "real wages for the working class are frozen."

@natecull @dredmorbius @Angle @wrenpile

by definition, if one class of assets is getting massively more expensive while everything else isn't, that's not inflation, that's that asset getting massively more expensive.

a key component of inflation is prices *and wages* rising together. rabid anti-inflation rhetoric in fact often comes from banks and rentiers who are hurt by the way inflation effectively whittles down old debts over time.

@Angle @natecull @wrenpile Upshot: banks needed nominal returns. Real estate was providing nominal returns. /Homeowners/ were happy with this, because, hey, *we're asset holders, our assets are inflating, FREE MONEY!!*. Sucks to be their kids though.

Banks, real estate holders, property owners, and a whole mess of others, recognised that /any little thing/ they could do to bump up prices was a net good for them. So they did.

No Vast Conspiracy Needed. Just plain old self-interest.

9/

@Angle @natecull @wrenpile And a conspicuous lack of foresight.

How do you fix this?

One part is to tax wealth directly: *tax assets to capture the socially-derived value.* Put a high carrying-cost on them.

The Tobin transaction tax, the ancient Chinese practice of requiring money to be regularly stamped (for a charge), *putting a carrying cost on cash*, estate taxes: these all accomplish much the same thing.

Another is to ensure a basic income. Living wages, universal income.

10/

@Angle @natecull @wrenpile ***MIND THAT YOU NEED BOTH OF THESE.*** If you have a UBI without asset taxes, the income simply gets eaten up in economic rent extraction.

If you have asset taxes without a UBI, you *still* have the problem of wages driven down to subsistence levels.

***THESE ARE NOT SEPARABLE POLICIES. THEY MUST BE PAIRED.***

And /that/ is part of the wage & rents classical economics discussion that's been almost entirely forgotten.

It's certainly not taught. Or wasn't me.

11/

@Angle @natecull @wrenpile It's also virtually /entirely/ missing from the policy debate ***INCLUDING BY BOTH THOSE WHO ADVOCATE FOR LIVING WAGE, AND THOSE WHO ADVOCATE FOR AFFORDABLE HOUSING.***

This fact in particular makes me very, very, very sad.

Living wages and wealth tax are not /of themselves/ a complete solution either, though they help.

There are people who cannot work. There are people who /should/ not work. There are people who can't maintain a household.

12/

@Angle @natecull @wrenpile ***NEEDS BASED SOCIAL SERVICES REMAIN, AND MUST BE MET ON A NEEDS-BASED BASIS.***

If not, people will starve, they will be homeless, they will go without necessary medical care. THEY WILL FALL THROUGH THE CRACKS, FOR THE CRACKS ARE WIDE, AND DEEP, AND MANY, AND HAVE BARBED TEETH TO PREVENT CRAWLING OUT OF THEM.

Ensuring that jobs /do/ pay enough to live, that land and housing are priced based on real benefit, and that /social/ value goes to society helps. A lot.

13/

@Angle @natecull @wrenpile TL;DR: Banks, US peak oil, petrodollars, FIRE, and the end of Bretton Woods did not singlehandedly cause the 1980s homeless crisis. But it dumped a massive shit-ton of fuel on an already smouldering fire.

Or at least that's my narrative here.

NB: I *really* like being challenged and testing my views, so if anyone can think of places that had similar dynamics but /no/ housing crisis, or where some of the remedies I've suggested were put in place and avoided...

14/

@Angle @natecull @wrenpile a runaway housing crisis (Germany seems to have done particularly well here), I'd really like to know.

I'm not putting this out here because I insist it's true. But it seems to hold together pretty well. I'd like to see someone challenge that and hit it with all they've got.

/15/end/

@natecull @Angle And "financial capital" refers to debt and other forms of finance. That is a different meaning of "capital", both narrower (in that it doesn't reference the actual plant, equipment, and knowledge of economic capital) and broader (in that money can buy or motivate these). And yes, it's confusing.

I tend to think intentionally so.

@natecull @Angle Economists /absolutely do/ use language and words in ways that are foreign to the general public. "Equilibrium", "shortage", and "surplus" are defined in terms of /market dynamics/ and not /adequacy to the population as a whole/, for example. It takes some deep digging to realise this.

@natecull @Angle Here's the definition:

That portion of the produce of industry, which may be directly employed either to support human beings or to assist in production. --M'Culloch.

http://www.dict.org/bin/Dict?Form=Dict2&Database=*&Query=capital

That's John Ramsey McCulloch, who continued the Ricardian school after David Ricardo's death, including inheriting his papers.

https://en.wikipedia.org/wiki/John_Ramsay_McCulloch

@natecull @Angle A more /familiar/ definition of capital is "financial capital", which refers almost entirely to the /funding/ of economic ventures. Investopedia has a pretty good clarification of the difference between the two.

https://www.investopedia.com/ask/answers/031715/what-difference-between-financial-capital-and-economic-capital.asp

@dredmorbius @Angle @natecull I think that meaning is captured in the word "loot". :)

@Angle I think my #13 got out-of-thread here:
https://mastodon.cloud/@dredmorbius/36675829

@gemlog @Angle Recognising that a thing /is/ a disaster is one thing. Digging in to understand why it is, why it keeps happening, what might be done about it, and why it seems to be so popular or widely perceived as a good thing, strike me as more interesting.

@dredmorbius @Angle Certainly, I was a bit flip and terse there, but I have thought about it over the years.

Capitalism is quite a 'recent' invention. 'Fake' people (corps) is a new thing.

“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power”
― Benito Mussolini

Money as Debt I - Revised Edition 2009 https://www.youtube.com/watch?v=2nBPN-MKefA

A public option for food presents quite a good argument against capitalism:
https://www.currentaffairs.org/2017/11/a-public-option-for-food

@Angle Several strongly-democratic states tend toward market-socialism. And there is a wide range of variations in between.

Naomi Klein's "Shock Doctrine" and Michael Hudson's criticisms especially of the Chicago School (strongly associated with Austrian/Rothbardian economics), esp. Milton Friedman, and fascist oppressive governments in Chile, Guatemala, and Argentina come particularly to mind.