“The situation remained grave, he said, and there was surely no alternative than for the ECB eventually to ‘print more capital’.
“What he meant, we think, was printing more money. But that’s not what he said.
“Capital is not money. One is scarce, the other is infinite.”
Dylan Grice, Edelweiss Journal, 2013
It’s easy to lose sight of what investing is all about.
The financial world makes a real racket sometimes. There’s a million different things to know – different numbers, metrics, ways of analysing what’s happening – and thousands of different people all competing for your attention.
But at its core, being an investor is all about one very profound decision we’ve all made. And that is choosing to make sacrifices now in order to benefit in the future.
Investing – at least, long-term successful investing – is all about being prudent. You might be planning for retirement; you might be putting money aside for your children or grandchildren; you might just be putting money aside for something as yet undecided in the future. You want that money to grow – so you invest.
OK, so I’m pointing the obvious out here
But what is maybe less obvious is that when you choose to be prudent and save your money for the future, it ceases to become ‘money’ and becomes investable ‘capital’.
There are a lot of different definitions of capital and how it is created. For instance, Dan refers to capital as ‘surplus value’. But I’ve always liked the idea that capital is created when someone makes the virtuous decision to be prudent and save for the future.
It cannot be printed; it cannot be conjured out of thin air. It only comes into existence when you choose not to spend your money and instead decide to put it aside.
Given that capital is the very basis of capitalism and the ideology that much of the world is based upon, I consider this to be a very important idea indeed.
And it’s an idea that is under attack from the very people who are supposed to be the ‘stewards’ of the system – central bankers.
Pushing interest rates to zero and printing money to try to inject inflation into the system corrupts the very basis of capitalism. It creates a disincentive to save. It makes spending your money – or using it for short-term speculating – more attractive than being prudent, saving and accumulating capital.
It turns capital into consumption
It’s an attack on what it means to be an investor.
By incentivising people to spend, not save, we undermine the foundations the world economy is built upon. We threaten the prosperity and livelihoods of billions of people
Of course, there’s a good chance the authorities don’t care about what capital really is these days. As the quote I featured above (taken from one of Dylan Grice’s pieces a couple of years ago) demonstrates, some central bankers see capital that has been worked hard for and saved – and the money they print – as interchangeable.
They are not. They never have been, and they never will be. Thinking they are buys into a kind of fantasy economics that suggests we can create wealth without having to work for it.
We can’t.
My point is, for half a decade we’ve seen the very basis of what capitalism is – and what it means to be an investor – destabilised by the policies of the financial authorities.
That’s the climate we’re investing in. It might not be something you think about every day in managing your money. But it’s important to be aware of it, lurking away in the background.
Category: Central Banks