Farming And Capital
Part V of the Bitgenstein Serialization
The most egregious falsehood regarding economic health that is nonetheless widely believed is surely that we ought to measure it by the magnitude of goods and services consumed. This is dangerous nonsense. Consumption is the result of a complex web of individual commitments of time and energy towards uncertain ends. The result is delayed, and the greater the complexity, the greater the uncertainty, the greater the delay, and the more plentiful the result is likely to be. To measure the health of such a mechanism only by its tangible output and not its internal workings is like measuring the health of a tree by its size. Small trees can be vibrant and large trees can be dead.
A better analogy — perhaps the perfect analogy — is a farm. A planted seed is foregone consumption. The farmer invests time and energy, made uncertain by the vagaries of pests and weather, in nurturing the delayed but more plentiful bounty of harvest. The wealth of the farmer is not the magnitude of the harvest, but the capacity of the land to produce harvests indefinitely. Indeed, this is the origin of the word “yield”. The farmer could always choose to maximize his consumption by eating his seed rather than planting it; by selling his soil rather than tending it. But, patently, this would decrease any sane conception of his wealth.
In, The Unsettling of America, Wendell Berry laments the gradual shift in attitudes to agriculture in the US from that of nurturers to exploiters:
“I conceive a strip-miner to be a model exploiter, and as a model nurturer I take the old-fashioned idea or ideal of a farmer. The exploiter is a specialist, an expert; the nurturer is not. The standard of the exploiter is efficiency; the standard of the nurturer is care. The exploiter’s goal is money, profit; the nurturer’s is health — his land’s health, his own, his family’s, his community’s, his country’s. Whereas the exploiter asks of a piece of land only how much and how quickly it can be made to produce, the nurturer asks a question that is much more complex and difficult: what is its carrying capacity? (That is: How much can be taken from it without diminishing it? what can it produce dependably for an indefinite time?) The exploiter wishes to earn as much as possible by as little work as possible; the nurturer expects, certainly to have a decent living from his work, but his characteristic wish is to work as well as possible.”
I contend an analogous transformation is happening to the capital stock as Berry bemoans of the agricultural stock; that this is driven by an obsession with immediate, quantifiable consumption rather than delayed, uncertain investment; and that this is fuelled by dysfunctional money that does not calibrate certainty and uncertainty as it should. In our ignorance, impatience, and arrogance, step by step we are turning the farm into a strip mine.
In Parts I through IV of this serialization, I explored the consequences of failing to appreciate the role of time, ignorance, and uncertainty in understanding the function of money, and how its function can change. I pushed the reasoning to an embrace of the role of capital: that the certainty provided by money allows for increasingly uncertain endeavors to create increasingly complicated tools and organizations, and the extent to which the creation of capital is successful sets the stage for further economic uncertainty still. The more capital we accumulate, the more specialized we are incentivized to become in our own economic contribution, which increases our vulnerability to unpredictable changes in all other supplies and demands. Also, the more surplus we are likely to be able to create, some portion of which can be diverted towards further experimentation, which makes changes in supply and demand more unpredictable still. This makes money that actually functions the way its users expect it to all the more valuable. Money emerges from uncertainty, capital emerges from money, and uncertainty emerges from capital.
In parts V through IX, I will explore what we can expect to happen to this potentially virtuous cycle if we ignore the link between money and uncertainty; if we fail to grasp the importance of capital and suppose maximizing consumption to be our most important collective goal; and if we are indifferent to the money underpinning the cycle becoming highly uncertain and dysfunctional. The Semantic Theory of Money I satirically articulated in Part I has a spiritual counterpart here: that by all manner of semantic contortions we can convince ourselves that we can consume more than we produce, reap more than we sow, borrow more than we repay. As Wittgenstein says in Philosophical Investigations, “philosophy is a battle against the bewitchment of our intelligence by means of language.” Let us not be so bewitched, but cut through this nonsense and call a spade a spade.
In Parts X through XIII, I will get rather more excited about putting all this behind us. But for now, let’s get our hands dirty.
How to Increase Consumption
There are three ways to increase consumption. One is to commit more human time and energy to producing stuff to consume. Another is to consume existing capital rather than use it. Clearly, neither of these first two options is sustainable. There is a maximum of time and energy it is possible to commit, and a point well below the maximum beyond which committing any more is undesirable. And there is a finite stock of capital which, if consumed rather than used, will eventually be depleted.
The absolutely only way to sustainably increase the economic output that is available for consumption is to grow the capital stock above its natural rate of depreciation. If we have more capital, the same amount of human time and energy will create a greater output available for consumption. Hence it ought to take less human time and energy to exchange for a given proportion of this output.
The tricky thing about growing the capital stock is that it is by nature an uncertain process. It cannot be automated, nor reduced to an algorithm. It is necessarily experimental. This is why money is so important to efforts to create capital: these efforts themselves take time and energy that might otherwise have gone towards more certain avenues of production. Only some small group may have the knowledge and skills to credibly experiment with creating a particular new tool or new organization, and they may not be willing to take the risks required. Some other group may have the willingness to take the risks but not the knowledge or skills to do so. Money provides a means for coordinating the risks of attempting to create capital such that those contributing to the risk-taking are not necessarily those bearing the risks.
By disconnecting the bearing of the risk from its execution, we incentivize those willing to bear risk to seek out those risks whose reward seems the greatest, unburdened by their own particular circumstances. We will collectively run not only more experiments that have the potential to increase our economic wellbeing, but we will also prioritize running the best experiments. Functional money facilitates all this parceling up and trading of risk. What we must try to understand next is that this process has reflexive effects on the functioning of money.
continue to Part VI:
or go back to Part IV:
n.b. This is a serialization of my previous trilogy on Bitcoin, economics, and capital markets: Wittgenstein’s Money, The Capital Strip Mine, and, Bitcoin is Venice.
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