Throughout history, money has been both revered and vilified. Some see it as a vice. Others see it as a critical enabler. Yet others see is as a sort of dummy variable that exists only to facilitate two transactions. Most views are rather pragmatic. Philosophical views of money and capital are much rarer.
The (philosophical) argument I am about to make in this very brief piece is this: (financial) capital plays a critical, generative role in the complex process from which the future is born. Simpler still: money is, generally speaking, a good thing. Without money, and the mechanisms by which it accumulates as “capital”, progress would be not only slower but also more convoluted. I will also proceed to point out this scenario is not universal. Under certain circumstances, capital can be a source of instability.
Capital: the past meets the future
As the past turns into the future, old knowledge is replaced by new. It is human nature which animates – and complicates – this perpetual renewal process. We as a species like to hang on to that from which we have derived historical advantage. It may be that we hang on to mental models that have proven successful, expertise and such other “learned tricks”. These often accumulate in each of us as personal biases, attitudes, idiosyncrasies. Their total sum becomes the current knowledge or worldview on which our societies operate. If we were to be asked to transition abruptly to new knowledge, we would balk. We would also have a hard time making collective decisions, given the vast diversity of personal biases – our uniqueness is also reflected in our different experiential paths.
The buffer effect
A buffer is therefore needed to ensure progress does not resemble a stick shift car driven by someone who insists on not using the clutch pedal. The metaphoric gears of knowledge-past need to meet those of future knowledge in such a way that sparks are avoided. In comes capital to save the day. Here’s why.
Capital can of course be traced to money – afterall, capital is an accumulation of money. Money in turn is liquid, i.e. it can move fast. In today’s virtual and transactional world, it moves very fast indeed. To move this fast, money cannot convey meaningful information. Somewhere along the way it becomes decoupled from the value that justified its printing. As money accumulates into capital pools, it achieves a degree of independence from the knowledge that helped generate it. It becomes divorced of the emotions of the original owners. Capital therefore breaks free of our attitudes, biases and idiosyncrasies. It is, if you will, at least partially sanitized of past knowledge as it is applied towards the development of future knowledge. And so, capital is the perfect buffer, the ideal medium to arbitrate between what has been and what will be.
Let’s follow this line of thought a bit further, aided by two questions. First, what is future knowledge? And how does it get created?
Future knowledge is never fully defined in the present. If it were, we would all be equally rich – or poor -, curiosity would be deemed useless and personal improvement coaches and strategic planning consultants would be bankrupt (perhaps not such a big loss afterall). If the future were to be known, there wouldn’t be much to debate about. We could get rid of politicians perhaps. But we would also have no use for visionaries.
For better or worse, future knowledge is not yet defined. It rather exists in a blurry cloud of possibilities resembling for lack of a better metaphor the subatomic quantum world – a world of indeterminate possibilities that have not yet collapsed to established facts. Future knowledge is presented to us in the form of falsifiable experiments – trial and error exercises than offer no guarantees. Because of this, it is best that experiments of all size, scale, scope and diversity are simultaneously undertaken. And so, capital should ideally resemble an ecosystem. Angel investors, institutional investment funds and ultimately governments all have a role to play. There are respectively experiments that range from tiny to global that need to be engaged. The experiments being performed also form an ecosystem. Capitalism is in fact that ecosystem. Through capital, Capitalism is an experiment factory.
The other side of the capital-knowledge decoupling coin
I mentioned in the opening paragraph that the argument framing capital as generative force is not necessarily universal. In certain circumstances we want capital to retain past history. Loan-based capital for example should embed historical data and so be tied to knowledge of the past. In this particular case past knowledge embeds patterns of behavior which can be projected into the future with some degree of reliability. The financial crisis of 2007 demonstrated the dangers of skewing historical information as capital was aggregated into increasingly sophisticated (and meaning devoid!) financial instruments.
There’s numerous debates on the morality of capital, and, by extension, the morality of Capitalism, particularly as it relates to the very wealthy. In general, we want a healthy capital ecosystem. I don’t know of any very wealthy person that prints their money in bills and buries them in crates underground. For that is the one scenario that would definitely hurt the generative processes of progress. Broadening the argument beyond the wealthy to the rest of us, it is in our collective interest to invest. It is in our collective interest to actively participate in the creation of the future, one experiment at a time.