Capitalism Under The Bitcoin System
This article is part of a series of adapted excerpts from “Bitcoin Is Venice” by Allen Farrington and Sacha Meyers, which is available for purchase on Bitcoin Magazine’s store now.
You can find the other articles in the series here.
Following Hernando de Soto, we see capital as “economic potential energy”; a stock of crystallized and stored time; the memory of experimentation and discovery; a tool allowing us to not need to work completely from scratch, and shared in a common language to spare us equally from isolation. As de Soto explains in “The Mystery Of Capital”:
“To unravel the mystery of capital, we have to go back to the seminal meaning of the word. In medieval Latin, ‘capital’ appears to have denoted head of cattle or other livestock, which have always been important sources of wealth beyond the basic meat they provide. Livestock are low-maintenance possessions; they are mobile and can be moved away from danger; they are also easy to count and measure. But most important, from livestock you can obtain additional wealth, or surplus value, by setting in motion other industries, including milk, hides, wool, meat, and fuel. Livestock also have the useful attribute of being able to reproduce themselves. Thus the term ‘capital’ begins to do two jobs simultaneously, capturing the physical dimension of assets (livestock) as well as their potential to generate surplus value. From the barnyard, it was only a short step to the desks of the inventors of economics, who generally defined ‘capital’ as that part of a country’s assets that initiates surplus production and increases productivity.”
Capital is whatever can be transformed or used to produce goods that satisfy human wants. It can be stored, deployed and accumulated, because it is productive. But it follows also that capital is, like value, entirely subjective. We call capital that which we use in the process of creating a good. Milk may be the good which will satisfy our want for a beverage, but it can also be the capital which we can use to produce a cake which will satisfy our hunger. Capital is thus an abstract idea we superimpose on reality to describe things which have subjectively useful potential energy. De Soto writes:
“Capital is born by representing in writing — in a title, a security, a contract, and in other such records — the most economically and socially useful qualities about the asset as opposed to the visually more striking aspects of the asset. This is where potential value is first described and registered. The moment you focus your attention on the title of a house, for example, and not on the house itself, you have automatically stepped from the material world into the conceptual universe where capital lives. You are reading a representation that focuses your attention on the economic potential of the house by filtering out all the confusing lights and shadows of its physical aspects and its local surroundings. Formal property forces you to think about the house as an economic and social concept. It invites you to go beyond viewing the house as mere shelter — and thus a dead asset — and to see it as live capital.”
Our imagination and recognition of objects, concepts or associations as capital makes them such. To see is to create. At the core of forming and accumulating capital is our ability to mutually recognize and agree on its existence and to record it such that there is an accessible consensus for consultation and resolution of dispute. Absent functional registries — or even the voluntarist recognition and respect for what would be in a registry — we fail to benefit from the productive accumulation of land or property because we fail to initially will capital into abstract existence.
In extracts six through 11 in this series, from chapter seven of “Bitcoin Is Venice,” we predicted Bitcoin’s likely near-term impact on stocks of capital across finance, communications and energy. But we anticipate its influence will extend much further than just these areas of essentially physical infrastructure. In fact, we anticipate it will extend well past what might most easily be referred to as economics and into social affairs also.
This is a far more speculative proposition. Most of what we analyzed in these extracts we are familiar with as it is starting to happen: It is really just a question of understanding technology and extrapolating the implications of its logic. Our argument requires little more than assuming that people will be motivated to seek out economic efficiencies.
But there is surely at least a little more to it than this. “Seek out economic efficiencies” is ill-defined, and we have argued at length, and at too many points throughout the series to now recite, that “efficiency” defined too narrowly and over too short a period of time is a false idol. It breeds arrogance, fragility, and, ultimately, destruction. Arguably even referring to “economic” efficiencies — as if the purely “economic” can be reductively isolated for controlled analysis — is deeply misleading. We rather suspect the probably widely-held impression that there even can be the exclusively “economic” is rather the fault of contemporary academic economics and its historical legacy.
In his presidential address at the first annual meeting of the Economic History Association, “The Tasks Of Economic History,” economic historian Edwin Gay drew attention to “the beginnings of [his] discipline in order to emphasize how the subsequent shift in its development has made us economic historians instead of historical economists.” He traces the emergence of economic history as a distinct discipline to a reaction against what he calls “the tendency to abstract theorizing” originating in 19th century Germany that was not present in the work of economists even a generation earlier, when economics itself was still young, observing that, “There had been in the writings of Adam Smith and Malthus and of some of their Scotch and German predecessors much incidental use of economic history and of observation of contemporary economic life.”
We would certainly like to think we have tried to ground our analysis as much as possible in both history and contemporary observation, and have done our best to give the abstract theory of contemporary academic economics a bad name, particularly when clearly historically and practically illiterate or, arguably worse, ambivalent! Gay went on:
“Karl Knies, one of the profoundest of the critics, not only maintained the principle of historical relativity against the ‘absolutism of theory,’ but also insisted upon the continuity of historical development and the interaction of all manifestations of the human spirit, economic, legal, political, social and religious, during each period of history. In man’s physical environment, he held, in the sphere of laws to which the growing economy must be adapted; but in the successive economic activities and institutions there are such differences as well as likenesses that only analogies may be discovered, not the working of laws…
“While strongly emphasizing the role of the state and the community, and the immensely strong social disposition of man that originates and maintains those institutions, Knies especially inveighed against the defective psychology of those economists who based their entire deductive system upon the operation of one compelling motive, that of ‘desire for wealth,’ ‘hope of gain,’ or self-interest. Like the other historical economists, he demanded that whole complex of motives and interests, varying among themselves in intensity at different occasions and times should always be taken into account by the investigator of any form of human behavior.”
N. S. B. Gras makes a similarly holistic and humanistic observation, more specifically of the individual capitalist in “Capitalism: History And Concepts,” writing:
“The essential element of capital is something produced and then saved, not used up. Into this saving of goods to constitute capital, there goes necessarily a large amount of what is found in administration — planning, forbearance, and management. Business administration, like political administration, is made up of policy formulation, management, and control. In reality, capitalism is basically psychological. It is production in a certain way with a certain objective.”
That capitalism is basically psychological, as Gras suggests, ought to have some transferrable bearing on every area of human endeavor. We can use this insight to grasp at the same material and the same frustration as Gay (and implicitly Knies, also) but run the thinking in the opposite direction: Not that the “economic” must be treated as, in part, legal, political, and social and religious, but that the legal, political, and social and religious could be treated as, in part, economic. Our own argument extends that of Gras — that the lessons of real capitalism can be applied wherever something is produced and then saved, not used up.
In each of the following three extracts we will expand on three distinct but interwoven forms of capital: social, urban and cultural. We are not arguing for putting a monetary value on all aspects of our lives, by any means. We are rather proposing that the memory of experimentation and discovery, tools allowing us to not need to work completely from scratch, and common languages to spare us equally from isolation, all go well beyond the merely and exclusively economic.
And yet at the same time, money almost always has a role to play. Money is the right to time, while capital is time that has been crystallized toward a specific end. But no matter how illiquid, how abstract and how removed from its financial aspect capital has become, money will always be bidding for time and directing time to one end rather than another. The nurture, replenishment and maintenance of all capital cannot avoid being affected by the contemporary state of money. Our hope is that as money evolves toward the censorship-resistant, integrity-assured, sound, and free and open-source, that healthy financial capital accumulation hastens and its methods radiate out to other more abstract forms of capital.
We grant that this hypothesis is on the more speculative end, which is why we will repeatedly turn to history as a guide rather than theory, exclusively. We provide examples that might inspire the future.
Let us take the simple example of office space. It has often morphed to emulate the dominant technology of the age. In the early 20th century, the industrial factory drove aggregate productive economic activity. The hierarchical structure that benefited factories was transcribed into rigid bureaucracies. Now that software has begun eating the world, you hear insurance companies talk of open-plan office and flat hierarchies. Dominant ideas spread.
Saifedean Ammous has, on several occasions, spoken about the impact of soft and hard money on time preference and how that core monetary instinct can spread to other behaviors like choosing what to eat, how to build and what art and culture to value — what to consume, in evermore abstract and yet vital forms than the merely economic. A society using soft money is subconsciously infused with the realization that value melts and must be spent quickly. It will favor immediacy, sacrificing the future in search for gratification now. Another way of putting it would be that low stock-to-flow money focuses people’s attention on flow.
From its inception, the euro’s operating philosophy was to predictably lose 2% of its purchasing value annually. That’s it. That’s its objective. Damn the stock. Focus on the flow. Eventually, you get politicians and economists excitedly measuring GDP (i.e., the temporary flow created by the wealth) and GDP growth (i.e., the temporary change of the temporary flow created by the wealth). If your core social institution teaches you that capital stocks lose value fast, farmers stop thinking about how best to preserve the richness of the soil and wonder instead how many bushels of wheat they can grow per acre this season and possibly next. Musicians stop coveting a legacy of contribution beyond their death and are forced to focus instead on how many albums they can sell, and how short they can get away with making their songs to game the per-track monetization of music streaming platforms.
Under a monetary system both sound and open, a new set of ideas could spread. We might once again learn to understand social systems as complex and organic structures that produce desirable emergent properties as a result of decentralized decision-making. The result probably won’t look neat and orderly. It won’t look “efficient.” But it would be resilient and effective. It will get the job done and be adaptable enough to solve whatever new problems are yet to arise. It will do so by seeking and responding to feedback incessantly. It won’t work off a single masterplan, but rather by multitude of experiments and discoveries. Those who accumulate capital under this framework are capitalists. They are individual actors in a broader network that look to increase its productive capacity through personal initiative.
Since under real capitalism, as we define it, healthy productive systems are expected to maintain or appreciate in value over time, the default assumption is conservation and the goal is accumulation. This naturally brings about a lower time preference as we believe whatever we contribute to a capital pool will reward us in the future. And, of course, in complete opposition to the interlocking vicious circles of debt, short-termism, exploitation, and fragility, here we would expect a virtuous circle. Widespread low time preference contributes to the nurture, replenishment, and growth of capital stocks.
Price deflation can, after all, be conceived of as the reward we reap from providing a depth of liquidity to a store of value which innovators can redeploy in tackling fundamental uncertainty with judgment and skill. When innovators increase the quantity or quality of economic output and trade the surplus on a sound and open monetary network, everybody benefits. Everybody owned some share of all “coins,” and the value traded on the network has increased. We win. And interestingly we start to grasp that there are such second-order benefits from participating in a growing network. Ultimately, we shift our attention away from the current flow of that network and towards its stock, instead.
This is straightforward for economic stocks. In the series entries to follow, we do our best to extend Gras’s reasoning to many more abstract areas than the merely economic in which, something is being produced and then saved, not used up. We will likewise endeavor to emulate Gay; to remain mindful of, “the interaction of all manifestations of the human spirit, economic, legal, political, social and religious, during each period of history.”
Across the areas of social, urban and cultural capital, we will attempt to analyze the effects of an appreciation for nurturing, replenishing and growing these stocks; how time can be crystallized, the memory of experimentation and discovery preserved, and an organic language allowed to evolve, all in a peer-to-peer network of voluntary cooperation.
We will praise a handful of individuals who championed this cause across each domain and were active in fighting against some or other high-modernist, client/server modeled, centrally conceived and decreed imposition of capital strip mining. These individuals may not have thought of themselves this way, and furthermore it may read as odd or out of place, but in standing against the destruction of memory and for the creation of capital, these were capitalists.
This is a guest post by Allen Farrington And Sacha Meyers. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.