The lifeblood of capitalism is capital.
Today, to a great extent, the difference between advanced nations and the rest of the world is that between countries where formal property is widespread and countries where classes are divided into those who can fix property rights and produce capital and those who cannot.
Marx didn't grasp that formal property was not simply an instrument for appropriation but also the means to motivate people to create real additional usable value. He didn't see that it is the mechanisms contained in the property system itself that give assets the labor invested in them the form required to create capital. Nor was he able to foresee to what degree legal property systems would become crucial vehicles for the enhancement of exchange value.
Marx lived in a time when it was probably too soon to see how formal property could, through representation, make those same resources serve additional functions and produce surplus value. (Though he saw that capital is more a transcendent concept than a physical good) Thus he could not see how it would be in everyone's interest to increase the range of the beneficiaries of property. Property titles were only the visible tip of a growing formal property iceberg. The rest of the iceberg is now an enormous man-made facility for drawing out the economic potential of assets. Potential capital is no longer the privilege of the few. The world is not filled with true proletarians but with extralegal entrepreneurs.
But property systems can also be used for theft. But it is not the reason to ban, just like we would ban automobiles or computers just because some people may use them to commit crimes.
Formal property is more than just ownership. It has to be viewed as an indispensable process that provides people with the tools to focus their thinking on those aspects of their resources from which they can extract capital.
Formal property is more than a system for titling, recording, and mapping assets---it is an instrument of thought, representing assets in such a way that people's minds can work on them to generate surplus value.
The reason why formal property must be universally accessible: to bring everyone into one social contract where they can cooperate to raise society's productivity.
A good property system puts assets into a form that lets us distinguish their similarities, differences, and connecting points with other assets. It collects dispersed information and makes capitals fungible.
The value of things can be increased by reducing the costs of knowing them and transacting with them. (Ronald Coase)
In Plato's famous analogy, we are likened to prisoners chained in a cave with our backs to the entrance so that all we can know of the world are the shadows cast on the wall in front of us. This means that many things that guide our destiny are not self-evident. (Hayek) That is why civilization has worked hard to fashion representational systems to access and grasp the part of our reality that is virtual and to represent it in terms we can understand. (Margaret Boden)
Representational systems such as math and integrated property help us manipulate and order the complexities of the world in a manner that we can all understand and that allows us to communicate regarding issues that we could not otherwise handle. prosthetic extensions of the mind.
Showing posts with label why capitalism fails elsewhere. Show all posts
Showing posts with label why capitalism fails elsewhere. Show all posts
10/13/2012
10/11/2012
The mystery of legal failure
The reason that governments worldwide have failed to open up their property systems to the poor is that they usually operate under five basic misconceptions:
(1) all people who take cover in the extralegal or underground sectors do so to avoid paying taxes
(2) real estate assets are not held legally because they have not been properly surveyed, mapped, and recorded
(3) enacting mandatory law on property is sufficient, and gov.t can ignore the costs of compliance with that law
(4) existing extralegal arrangements or "social contracts" can be ignored
(5) you can change sth. as fundamental as people's convention on how they can hold their assets, both legal and extralegal, without high-level political leadership
Most people do not resort to the extralegal sector because it is a tax haven but because existing law does not address their needs or aspirations.
Operating in the underground is hardly cost-free. (basic application of demand-supply curves) Being free from the costs and nuisance of the extralegal sector generally compensates for paying taxes.
The widespread undercapitalization, informal squatting, and illegal housing throughout the non-Western world are hardly caused by a lack of advanced information and mapping technology.
Property is not a primary quality of assets but the legal expression of an economically meaningful consensus about assets and law is the instrument that fixes and realizes capital.
Property is not the assets themselves but a consensus between people as to how those assets should be held, used and exchanged.
Assets themselves have no effect on social behavior: they don't produce incentives, they make no person accountable, no contract enforceable. Assets are not intrinsically "fungible"--capable of being divided, combined, or mobilized to suit any transactions. All of these qualities grow out of modern property law. It is law that detaches and fixes the economic potential of assets as a value separate from the material assets themselves and allows humans to discover and realize that potential. It is law that connects assets into financial and investment circuits. And it is the representation of assets fixed in legal property documents that gives them the power to create surplus value.
(1) all people who take cover in the extralegal or underground sectors do so to avoid paying taxes
(2) real estate assets are not held legally because they have not been properly surveyed, mapped, and recorded
(3) enacting mandatory law on property is sufficient, and gov.t can ignore the costs of compliance with that law
(4) existing extralegal arrangements or "social contracts" can be ignored
(5) you can change sth. as fundamental as people's convention on how they can hold their assets, both legal and extralegal, without high-level political leadership
Most people do not resort to the extralegal sector because it is a tax haven but because existing law does not address their needs or aspirations.
Operating in the underground is hardly cost-free. (basic application of demand-supply curves) Being free from the costs and nuisance of the extralegal sector generally compensates for paying taxes.
The widespread undercapitalization, informal squatting, and illegal housing throughout the non-Western world are hardly caused by a lack of advanced information and mapping technology.
Property is not a primary quality of assets but the legal expression of an economically meaningful consensus about assets and law is the instrument that fixes and realizes capital.
Property is not the assets themselves but a consensus between people as to how those assets should be held, used and exchanged.
Assets themselves have no effect on social behavior: they don't produce incentives, they make no person accountable, no contract enforceable. Assets are not intrinsically "fungible"--capable of being divided, combined, or mobilized to suit any transactions. All of these qualities grow out of modern property law. It is law that detaches and fixes the economic potential of assets as a value separate from the material assets themselves and allows humans to discover and realize that potential. It is law that connects assets into financial and investment circuits. And it is the representation of assets fixed in legal property documents that gives them the power to create surplus value.
The missing lesson of U.S. history
The transition to integrated legal property system had little to do with technology; instead, the crucial change had to do with adapting the law to the social and economic needs of the majority of the population.
The mystery of political awareness
For better or for worse, people outside the West are fleeing self-sufficient and isolated societies in an effort to raise their standards of living by becoming interdependent in much larger markets. A legal failure that prevents enterprising people from negotiating with strangers defeats the division of labor and fastens would-be entrepreneurs to smaller circles of specialization and low productivity.
Property obeys what is known as Metcalfe's law: the value of network is roughly proportional to the number of users squared.
Many of the problems of non-Western markets today are due mainly to the fragmentation of their property arrangements and the unavailability of standard norms that allow assets and economic agents to interact and government to rule by law.
Political blindness consists of being unaware that the growth of the extralegal sector and the breakdown of the existing legal order are ultimately due to a gigantic movement away from life organized on a small scale toward one organized in a larger context.
The existence of prosperous enclaves in a sea of poverty conceals an abysmal retardation in a nation's capacity to create, respect and make available formal property rights to the majority of its citizens.
Throughout the Third World, extralegal activities burgeon whenever the legal system imposes rules that thwart the expectation of those it excludes.
Property obeys what is known as Metcalfe's law: the value of network is roughly proportional to the number of users squared.
Many of the problems of non-Western markets today are due mainly to the fragmentation of their property arrangements and the unavailability of standard norms that allow assets and economic agents to interact and government to rule by law.
Political blindness consists of being unaware that the growth of the extralegal sector and the breakdown of the existing legal order are ultimately due to a gigantic movement away from life organized on a small scale toward one organized in a larger context.
The existence of prosperous enclaves in a sea of poverty conceals an abysmal retardation in a nation's capacity to create, respect and make available formal property rights to the majority of its citizens.
Throughout the Third World, extralegal activities burgeon whenever the legal system imposes rules that thwart the expectation of those it excludes.
10/07/2012
The mystery of capital
Dead capital exists because we have already forgotten that converting a physical asset to generate capital requires a very complex process.
Why assets can be made to produce abundant capital in the West but very little in the rest of the world is a mystery.
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.
The term "capital" does two jobs simultaneously: capture the physical dimension of assets (livestock) and their potential to generate surplus value (mike, hides, meat, fuel and reproduction)
Modern definition: part of a country's assets that initiates surplus production and increases productivity.
For accumulated assets to become active capital and put additional production in motion, they must be fixed and realized in some particular subject which lasts or some time at least after that labor is past.
Capital is not the accumulated stock of assets but the potential it holds to deploy new production. Creating capital also requires a conversion process.
Capital is first an abstract concept and must be given a fixed, tangible form to be useful.
The additional value people obtain from the resources is not a value of the resources themselves, but rather a value of the man-made process entrinsic to the resources.
Bringing capital to life requires us to go beyond looking at our assets as they are to actively thinking about them as they could be.
What creates capital in the West is an implicit process buried in the intricates of its formal property systems.---The formal property system
Any asset whose economic and social aspects are not fixed in a formal property system is extremely hard to move in the market.
The formal property systems produce six effects that allow citizens to generate capital.
(1) fixing the economic potential of assets
property is not the stuff itself but an economic concept about the stuff, embodied in a legal representation
(2) integrate dispersed information into one system
The integration of all property systems under one formal property law shifted the legitimacy of the rights of owners from the politized context of local communities to the impersonal context law.
(3) make people accountable
Freed from primitive econ activities and burdensome parochial constraints, citizens could explore how to generate surplus value from their own assets. People lose anonymity in the system.
Formal property's role in protecting not only ownership but the security of transactions encourages citizens in advanced countries to respect titles, honor contracts, and obey the law.
(4) make assets fungible
Why assets can be made to produce abundant capital in the West but very little in the rest of the world is a mystery.
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.
The term "capital" does two jobs simultaneously: capture the physical dimension of assets (livestock) and their potential to generate surplus value (mike, hides, meat, fuel and reproduction)
Modern definition: part of a country's assets that initiates surplus production and increases productivity.
For accumulated assets to become active capital and put additional production in motion, they must be fixed and realized in some particular subject which lasts or some time at least after that labor is past.
Capital is not the accumulated stock of assets but the potential it holds to deploy new production. Creating capital also requires a conversion process.
Capital is first an abstract concept and must be given a fixed, tangible form to be useful.
The additional value people obtain from the resources is not a value of the resources themselves, but rather a value of the man-made process entrinsic to the resources.
Bringing capital to life requires us to go beyond looking at our assets as they are to actively thinking about them as they could be.
What creates capital in the West is an implicit process buried in the intricates of its formal property systems.---The formal property system
Any asset whose economic and social aspects are not fixed in a formal property system is extremely hard to move in the market.
The formal property systems produce six effects that allow citizens to generate capital.
(1) fixing the economic potential of assets
property is not the stuff itself but an economic concept about the stuff, embodied in a legal representation
(2) integrate dispersed information into one system
The integration of all property systems under one formal property law shifted the legitimacy of the rights of owners from the politized context of local communities to the impersonal context law.
(3) make people accountable
Freed from primitive econ activities and burdensome parochial constraints, citizens could explore how to generate surplus value from their own assets. People lose anonymity in the system.
Formal property's role in protecting not only ownership but the security of transactions encourages citizens in advanced countries to respect titles, honor contracts, and obey the law.
(4) make assets fungible
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