The nature of economic capital
The nature of economic capital is a subject of bitter dispute in economics. In this essay, I defend the idea that knowledge is the nature of all economic capital, providing humans with the capacity for economic activity.
To understand the nature of economic capital, it is useful to observe human history and identify the causes of capital growth. A common denominator of all periods of growth is an important evolution of salient knowledge, particularly thanks to technological advances and successful experiment. An interesting observation of economic history is that capital has been growing progressively since the middle of the last millennium, started by the expansion of knowledge and science of the European Renaissance. J. Bradford Delong, of U.C. Berkeley’s Economics Department, has estimated international GDP values throughout human history1. Our period of interest starts around 1000, at the beginning of the modern economic growth. World GDP has fluctuated greatly since the beginning of human civilisation; it has however reached a stable and progressive growth since that period.
| Estimated world GDP (in billions of US$ 1990) —3 methods | |||
|---|---|---|---|
| 1000 | 35.31 | 131.00 | 30.36 |
| 1100 | 39.60 | 146.91 | 36.67 |
| 1200 | 37.44 | 138.90 | 41.25 |
| 1300 | 32.09 | 119.06 | 41.25 |
| 1400 | 44.92 | 166.64 | 40.10 |
| 1500 | 58.67 | 217.64 | 48.70 |
| 1600 | 77.01 | 285.70 | 76.41 |
| 1700 | 99.80 | 370.26 | 104.67 |
| 1800 | 175.24 | 650.11 | 189.00 |
| 1850 | 359.90 | 945.60 | 359.90 |
| 1900 | 1102.96 | 2052.38 | 1102.96 |
| 1950 | 4081.81 | 5379.21 | 4081.81 |
| 1975 | 15149.42 | 16801.40 | 15149.42 |
| 2000 | 41016.69 | 38281.97 | 41016.69 |
If we would compare the three great economic periods of the past one thousand years: the agricultural kingdom, the industrial nation and the knowledge society, the most important differences lie in knowledge and its use towards work. The shift from the agricultural kingdom to the industrial nation took place because of new knowledge: functional, by a better organization and management of operations, and technological, by the use of mechanical, chemical and electromagnetic energy. The transition to the knowledge society took place thanks to mastery of electronics and major discoveries in physics, chemistry and biology. Going back further in time, we observe similar transitions from the disorganized economies of nomadic tribes to the civilisations of antiquity and their achievements in sciences, engineering, management and arts. These innovations are all characterized by the residual nature of their introduction to humankind; they are still as relevant today as they were the day they were invented.
The Antiquity saw an enormous expansion of knowledge, while the dark ages that followed were subject to systematic repression of knowledge and rational thought. The repression that plagued the dark ages coincided with an era of pathetic economic growth in comparison with the nations of the Antiquity and the European Renaissance, periods of great expansion of knowledge. Adam Smith’s work on the reorganization of work by division of labour and the additional workforce created by the use of mechanical, chemical and electromagnetic power, were made possible by centuries of evolution. A characteristic of knowledge is its capacity to transform into work given the right conditions. Knowledge contains an implicit workforce, much more efficient than physical work. Economic capital grew approximately 1.7 times during the 18th century, between three and six times during the 19th and between 18 and 37 times during the 20th, between 7 and 10 times during its last fifty years alone. The mastery of mechanical, chemical and electromagnetic forces allowed the creation of more capital in two hundred years than all human work prior, as knowledge follows Ray Kurzweil’s law of time and chaos2, particularly its corollary on accelerated returns, and grows progressively with order.
As ordinary such knowledge seems today, electricity, writing, running water and the use of metals completely revolutionized their era and were necessary to human socioeconomic evolution. The most recent and future economic evolutions are all based on science: electronics, computer science, telecommunications, biotechnologies, nanotechnologies, energy and other fields of high technology. The systematic presence of knowledge in the creation of capital is no coincidence; knowledge is economic capital. Without knowledge, there is barely any work, inefficient and disorganized. Knowledge, like capital, has a permanent effect on work. Evolutions like electricity and chemicals are not only more important industries than they were at their birth, they greatly influenced other economic dynamics and have created thousands of economic activities, trillions in capital. Creation of capital is only possible through new ways of working, through science. Work other than research and development only transform the capital that was already created, achieving full efficiency or not depending on how well knowledge is translated into work. Work, the traditional nature of economic capital, is only temporary and its efficiency, even its very existence, depends directly on the knowledge that justifies it. Work is still an essential condition of capital creation, but it is only through knowledge that it can exist or achieve sufficient efficiency to create further capital. If we observe humankind in 1800, workers worked longer and harder than today, producing only a fraction of capital with the same natural resources. Nowadays, people work less yet produce much more; the value of all work is simply more important because of accelerating knowledge and the residual capital of knowledge.
A consequence is that the more societies know, the wealthier they are. The natural evolution of society is thus to maximize its knowledge; information technologies are already capable of achieving basic tools to enhance education and communication of knowledge, politics and industry. Humankind will eventually master its natural environment and the use of such knowledge, positive or negative, will only depend on political power and its accountability towards the decisions made. A desired level of accountability and competence is only achievable through the full opening of all political activities. The opening of political power would provide unprecedented benefits to economic growth. A society where political power is privately wielded could never ensure the integrity of a fully digital monetary system, where the nature of every transaction would be known and economic knowledge sufficient to understand the plagues of economic management. Such a system would however protect the integrity of all exchanges, make capital inaccessible to criminal elements and provide full and precise measurement of the entire economy. The full opening of technologies used in the system and full accountability of all responsible officials would ensure the impossibility of any abuse. With full transparency and complete information about every decision, a digital system could ensure all the benefits while making abuses a systematic impossibility. The technological problems are already solved; only human obstacles are left, consciously created and enacted.
Economic growth therefore depends on the most efficient conditions for the evolution of knowledge. Essentially, the efficient use of knowledge requires unlimited access to all knowledge and progressive growth. To satisfy efficient access to knowledge, the creation of a global digital system could archive all human knowledge in such a way that its content can be informative and intuitively accessed and manipulated. It would essentially be an organized version of the current Internet with much larger capacity. All human knowledge, with the exception of the private lives of citizens, should be open and fully accessible to all. Information technologies are already capable of building such a system within five to ten years of work. The next evolution of computer science will connect all devices in a giant supercomputer that will have trillions of times the computing power of humankind, allowing artificial intelligence and nanoengineering to automate the primary economic processes. There is not a single possibility of wrongful uses of such an enormous power if political decision-making is entirely public and accountable. The only dangers are human actions and their only requirement is secrecy. An encyclopaedia of human intelligence would provide incredible new tools for education. Modern education will have much to change as its methods fail miserably in preparing new generations. That it is possible to achieve a higher quality of education through autodidact means is a sombre testament of the poor performance of the multibillion dollar academic institutions. The efficient sharing of knowledge and the use of information technologies could create a much more autonomous education, better adapted to the interests and talents of students. Education barely survives its institutionalization and its performance is simply pathetic compared to what it could achieve. Imagination and passion are all that really matter about education; modern schools fail miserably at meeting the needs of their students, not even their intellectual ones.
Private property is an important obstacle to the evolution of knowledge and must be redefined. Private property should be limited to the power of final decision, granting neither secrecy, nor immunity except in intimacy. Justice is supposed to be a pillar of modern economic thought, yet it is impossible to ensure it if secrecy hides public activities. Secrecy is the last remaining cause of criminal activities, the most damaging political privilege and an artificial distortion of information on markets. The integrity of economical and political exchanges will only be possible when they are carried in full transparency, a required condition for rational decision-making. Private property cannot make obstacle to public information, which cannot make obstacle to intimate property. Privacy is an undisputable right, but it should not be used as an excuse for unaccountability. Citizens are generally just as guilty as politicians in deflecting blame. The power of final decision is absolute and ensures the full control on any legitimate possession; the right of confidentiality, however, is only relevant regarding intimate possessions and activities. It is a question of limiting private property to its most simple expression: the power to decide how property will be used. With the exception of intimate affairs, there is no benefit from confidentiality, a cover for incompetence, corruption and unaccountability.
The potential gains from such an economic opening are enormous. A precise measure of the economy would greatly reduce wrong evaluations and ensure full information of all economic exchanges. Citizens would be fully informed about their economic options and be able to make better choices. For every purchased product, consumers could provide an appreciation and opinion, building a global intelligent selection for all products available on the market. Companies would gain from it full information about how well their products satisfy consumers while bad products would be eliminated quickly through bad reviews. There is no need for the dishonest illusions of the marketing industry, consumers profit just as much as companies from full information, as long as it is carried with unavoidable accountability and simplicity. Offer does not create its own demand; demand is simply not yet fully matched by offer, which slowly finds unmet demands. Products that do not meet the needs of citizens should be identified to make sure the market steers away from them. Efficiency would be greatly enhanced by removing subjectivity from large-scale economic choices. The current paradigm of marketing distorts information given to producers, who continue selling lesser products that should be improved. Consumers should simply be able to inform producers of their desires and appreciation of the products available. Secrecy distorts information on the market more than any other factor without providing any substantial benefit. The secrecy of socioeconomic activities simply provides an alternative path where image of competence is sufficient. The vast majority of economic activities are essentially identical: management, accountancy, human resources, business operations and communications are all based on a professional culture and academic foundations learned in universities. There is not a single benefit gained from secrecy that is not insignificant in comparison with full information of all economic decisions. The political market is also subject to the benefits of full information, eliminating the last remnants of inefficiency and corruption in public office. Information regarding political affairs is still insufficient for true democracy; electors are asked to vote a book by its cover. Rational decisions simply cannot be made about the available options without full information
Knowledge is the cause of intelligent evolution, which is collective to the human specie. Any individual cut from human civilization is barely more than an animal. That person would not be able to communicate, create or learn much beyond the capacity of an ape. The intellectual capacities of the human specie are incredible, however useless without the efficient sharing of knowledge, a cultural possession. The notion of self-made man simply does not make any sense in the context of an advanced society, where the survival and development of every individual depends on millions of others, past and present. Modern society stuns human intelligence with cheap entertainment and glorification of the most pointless vices. The opening of mass communications and the expansion of knowledge will be the most significant factors of human evolution for decades to come. The level of advancement of any political society rests in the scope, breadth and quality of its communication. Culture, like science, evolves through intelligent selection processes and requires a critical mass for large-scale adoption. Interactive mass communications will be the vector of future human evolution; they will need to be highly efficient and intuitive.
The economy has grown progressively collective during human evolution. Centuries ago, peasants were shielded from the world outside their land, having usually never travelled or seen beyond a few kilometres. Today, citizens are permanently connected to the rest of the world and their work generally involves hundreds of various other economic jobs. The modern citizen does not work for self anymore, but for the growth of the entire economy. From each citizen’s work does not depend only personal survival but the survival of thousands, sometimes millions, of other citizens. Knowledge has also become increasingly collective, built from the work of billions of human beings who devoted themselves. Natural resources and the physical environment have not changed in time compared to the incredible evolution of humankind. The free citizen contributes to society through his work, knowledge and imagination; however intelligence itself is a cultural element as it outlives all individuals. It is simply the context of society that gives relevance to any social function. It is hard to understand why it is so difficult for humans to accept their humanity as a uniting factor. We have created so many masterpieces yet always fumble on the same ancient obstacles, which are all conscious human creations. Humans easily forget they are free to build the society they want.
Notes
- DeLong, J. Bradford. 1998. Estimating World GDP, One Million B.C. — Present, Department of Economics, U.C. Berkeley, http://www.j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html
- Kurzweil, Ray. 1999. ‘The law of time and chaos’. The age of spiritual machines, 9-37