Where does capital come from?

[drudman]

This is an off-shoot of my post from the "Christianity and Gambling" thread.

Is the global economy a zero-sum game? It seems like to accumulate capital, it must come from somewhere.

"It is not enough to succeed. Others must fail."
-Gore Vidal

[MtDon]

Hows this for the basics:

Capital comes from the sun (energy), soil (farming, ranching), water (fishing), rocks (mining, drilling), brain (ideas). Probably not a complete list, but you get the idea. It is "extracted" by work, generally using other forms of capital.

[StevieG]

No, the economy is not a zero sum game, mostly because of trade and competitive advantage of specialization.

This is a simplistic explanation, but here goes:

Imagine a simple situation where you and someone else are dropped off on an island. You know how to hunt, your companion how to weave.

You each do your own thing, and at the end of the week, you have M meat and your co-islander has N textiles. You trade some meat for weaved goods.

Now you have lost some of the product of your week's labor, but what you get in return for the equivalent of your time (that thatch for a roof, or clothing) would take you far more time to make on your own than the amount of meat you got in that time.

So at the end of the week, although both of you worked the same number of hours, each of you have more than what you could have produced on your own.

Other things like economy of scale and time value of money are important.But no way is it a zero sum game.

[BluffTHIS!]

drudman, Stevie has basically given a similar analogy that I gave in the other thread, though without the part where I mention that some individuals through superior ability or by dint of more labor, produce more value and thus become "richer". Their comparative better economic well being does not imply that it came about at other people's disadvantage. Also as I alluded to, some political groups, notably the more socialistic and communist ones, would agree with the Vidal quote regardless of whether it is in fact true which it is not. Note however, that this applies to the global economic system as a whole, and does not mean that some groups in poorer nations with more meager natural resources and less capital to invest, and who might suffer from exploitive interests who take advantage of them via grossly unfair monopolistic practices, might not indeed experience economics in their particular situations in a different and less advantageous manner.

[drudman]

Okay, I dig this.

The reason I brought this up at all is that I responded to a fellow from the other thread who stated that poker was different from global economy because in poker, to win money, others must lose it. My contention was that because money (which is not the same as capital) is in finite supply in the world, you can't accumulate it without it having to come from someone else, just like in poker.

Is this line of thinking wrong? I mean, I can't just print money. I could work an earn a wage, but that money would have to come from the boss, who is able to still turn a profit because money comes from the consumer. So the money is always coming from someone. So isn't it true that when it comes to money, the global economy is a zero-sum game? Or are there ways to spontaneously generate new money, money that did not come from someone else?

[tylerdurden]

[ QUOTE ]
My contention was that because money (which is not the same as capital) is in finite supply in the world, you can't accumulate it without it having to come from someone else, just like in poker.

Is this line of thinking wrong? I mean, I can't just print money.

[/ QUOTE ]

YOU can't print money, but governments can, and in fact, that's exactly what they do. If YOU try it, they put you in jail, but when they do it, they call it "sound monetary policy." Effectively they're stealing from you by inflating the money supply and making the currency you hold worth less.


To answer your original question, yes, one can create new capital. Any time you do work and add value to something, you're effectively creating wealth. If I take a tree, chop it down, and make furniture out of it, it's worth more than just the tree was worth before (note that the value of the furniture isn't based on how much labor I put in, it's based on what someone will actually pay for it). This furniture is effectively a form of capital - an asset.

[Redeye]

I will add that technology is a big reason the global economy is not a zero-sum system. The reason for this is that as technology advances, two things happen. One, productivity increases. As a worker, if a new machine is created that lets you create 4 cars a year instead of two, the total wealth of the world economy has increased. Secondly, increased in technology allow for increased in efficiency in the use of raw materials. Creating more from the same amount of materials essentially increases the total wealth of the world.

[JohnnyHumongous]

Wealth is created.

[Darryl_P]

The difference between poker and the economy is that in poker, money is all there is that has value. If you have no money you have nothing.

In the economy on the other hand, money is just one of the many things that has value. Some businesses have huge inventories but hardly any cash but are still huge players in the economy. If you owned all of the worlds commodities you'd be very rich even if you had no cash, and most of those commodities can be "created" from (almost) nothing, or at least tranformed via work from a non-useful state (ie. buried far beneath the ground) to a useful one (refined and ready to pump into your tank in the case of gasoline, say).

When you look at the economy you need to look at the totality of all the "stuff" out there (of which money is just one type). And since "stuff" can be created, it's not analogous to poker.