1.3 Capital
We have considered that profit and wealth are generated by the process of industry, and that in the present age fortunes are made by this process rather than merely accumulating and hoarding things that are presumed to be of value. Three things are required to produce value:
- The raw materials: production is transformative, but requires us to act on materials in order to produce goods (the weaver needs thread)
- Tools and equipment: few things can be made with bare hands, but need equipment to produce (the weaver needs a loom)
- Subsistence goods: the producer's necessities must be met with other goods during the period of production (the weaver must have food to devote time to producing cloth)
A few other things are necessary to certain industries (EN: and when it comes to services, which JBS has not yet considered, the first item above is often not required). For example, real estate (a farmer needs a field).
Money is much overrated in consideration of economics. It is merely a method of storing value that is not productive until it is spend. As such, it can fairly be said that a weaver might need money to purchase thread for his trade, but the use of money is optional (he might barter directly) ad is not productive while it remains in the form of coinage. (EN: it might be reasonable to suggest financial services, such as banking and money-lending, use money itself as a material of production.) JBS considers money to be like the oil in the gears of a machine that is sitting idle.
The obsession with money has led many economists astray. For the people involved in production, the amount of their wealth that is stored in the form of money is a very small fraction of the value they possess: their stock of raw materials and finished goods, the tools and equipment, their land and real estate, and other non-monetary assets represent a far greater portion of their value than whatever amount of coinage they may have in storage.
Considered in this manner, the value represented by money is merely dead weight. A cache of coins in a locked box generates no profit and is of benefit to no-one. Exchange them for an acre of land, some seeds, and a shovel, and profits accrue with time and effort.
What is true of one person is true of a nation: the capital resources of a nation represent the sum total of private capital, and the sum total of the nation's production represents the sum total of the production of its citizens. Coins in the public coffer should not be considered to constitute the wealth of a nation, but instead are a detraction from it - value that could be put to productive use were it not locked away.
In sum, capital must be put to work in order to generate wealth and contribute to prosperity. To consider it as being of greater importance, even to the point of encouraging it to be hoarded, is a dysfunction of wrong-headed economists.