Capital Conversion

In theory, capital is formed by sacrificing savings and consumption. Personal wealth is converted into capital to be used as a common, public good by investing in economic growth. Everybody benefits from the investment.

When the wealth was consolidated into the crown, for example, it was in the crown's best interest to extend the wealth by in-vesting commoners. If the wealth expands, there is less pressure to share the wealth in zero-sum, thus reducing the risk and ensuring political stability.

With rising expectations and ambitions to be powerful like the king, political stability was not assured, however.

Emerging with the demand for a commonwealth form of government was the realization that the capital must be measurably deprived to prevent rising expectations. In order to "live like a king," the commoner MUST sacrifice to achieve it.

Eventually, the means to distribute wealth without actually sharing it evolved into the kind of capital conversion in practice today, which also requires controlling the accumulation of risk without really reducing it. Risk is to be avoided and is not "the risk" we learn about in business school--pluralistically modeled and reduced with the conversion of wealth into capital. The discrepancy (the dissonance) instills (socializes) the middle class with false expectations which is realized as the capital is converted back into wealth in a crisis proportion.

The business cycle forces the sacrifice necessary to supply the accumulation of wealth. Therefore, the accumulation is not deliberately expropriated by a power elite, but naturally distributed to the best and the brightest (which too often turns out to be the most greedy and morally bankrupt, wanting to operate in zero-sum). Redistribution of the accumulation by government authority unnaturally confiscates the wealth (like the king did) and causes the crisis proportion (the gamma risk) experienced in the marketplace.

Capitalists, of course, claim that the capital is never really a public good. Title to private property is never relinquished when it is put to public use (when it is converted to capital). Title however can be "lost" in the marketplace and that is "the risk" we all commonly take when we use (rent) the capital (like what happens when you have to sell your property to cover your debt).

All the capitalist has to do to take title to the extension of the wealth is the extension of rents (inflation), converting net worth into capital in order to expand the pie by, paradoxically, reducing it (deflation). The result is the "paradox of thrift" in which we must sacrifice consumption in order to expand the pie with the formation of capital.

If you want to gain more capital (more wealth) all you have to do is extend the rent; but overextension puts the capital at risk. It is then necessary to invoke a moral hazard: if the surplus is confiscated and retributed, economic growth will not occur which, for example, in our current case, is exactly what we need to counter the negative growth caused by an overaccumulation of capital. Supposedly, the more capital accumulated, the more economic growth, but the opposite occurs, presenting a significant political risk to the legitimacy (the confirmation) of the working hypothesis (the assumptions) that support the practical model.

Everybody, supposedly, is better off than they would have been without the conversion. Thus, the conversion is a public good. It is Strong Pareto Optimal (SPO) with a highly indivisible benefit that we refer to as the general welfare, and the welfare is measured by the accumulation of wealth (economic growth).

Considering we are in the throws of what is described as The Great Recession...what happened?

The numbers verify a highly divisible benefit and a Non-Pareto-Optimal (NPO) condition. Anti-austerity protesters march in Europe in the tens of thousands, for example, to resist capital formation that is retributively valued (NPO) in a gamma-risk proportion (yielding a highly divisible benefit that puts the general welfare at risk).

Both in the U.S. and Europe there is a strong impulsive wave of gamma risk that represents the value of the risk accumulated in zero-sum. There is a beta-risk volatility as the risk proportion resolves into a corrective wave, suggesting a free-market, ontological ("undirected") legitimacy in operation. The apparent ontology provides legitimacy of the outcome despite being NPO. (Remember that we are all equally free to lose our property in the marketplace. The ability to manage this "risk" determines who wins and loses--your income--not by "direct" force, but by self-determined means played out in the marketplace.)

While the correction--a distribution on the accumulation of capital that is Weak Pareto Optimal (WPO) at best--will occur, it will be monetized so that the distributive value of wealth (the proportion of risk) is conserved. The risk, then, is not reduced, it is averted and recycled into the next crisis which re-consolidates the value of the previous distribution (the corrective wave).

Not often, but on occasion a business analyst will describe our current envirnmonment as both deflationary and inflationary. Since the terms are polar opposites, it seems contradictory for them to occur together, but they do.

Why they are occurring together is why it is rarely presented for popular discussion. When inflation and deflation occur together a free-market, pluralistic model does not have a predictive utility. A free market avoids inflation by adding supply and deflation by adding the employment needed to add the supply. The effect is supposed to be disinflationary--full employment with low inflation.

We have, however, prices that continue to rise along with unemployment, which converts the capital back into wealth with the added value that would otherwise be the disinflationary effect. The accumulation of this otherwise distributive value also accumulates risk (alpha risk) which is destined to be retributed if not consolidated into government control (gamma risk).

Without government intervention, the risk will not be consolidated and redistributed to conserve the process of converting capital formation (a public good) into an exclusive accumulation of private property. (The bailout, for example, of too-big-to-fail, overaccumulated financial firms is described as "the public good"). The accumulation causes crises, however, and public debt to provide for "the public good" which the capital is supposed to otherwise provide. Instead of providing, the capital is deliberately deprived--directed into a variety of complex investment vehicles--and recycled in the form of debt (the business cycle).

Only after consolidation of the value converted from capital into private property is there a recognition of capital being a public good for the provision of the commonwealth (a pluralistic form of government that relies on self-determination and dispenses with allegiance to elite power). The People are then "subjected" to the public good of the capital by paying tribute to it in the form of a regressive tax burden. (Keep in mind that the Federal income tax code is highly regressive above $500,000 per year, empirically delimiting who is subject to the extent of the risk.) The People then "pledge" to a social contract that turns the republic into a measure for their exploitation in the name of avoiding it (the extent of the risk).

Once the wealth is converted back into capital with the legitimacy of being SPO (despite having derived added value from the previous wave, leaving the majority less well off and protected), the capital demands it be paid economic rent, which inflates its value with a deflationary effect, like we have now. The rent is not enough, however, and it becomes extended with extra value derived in innovative ways to make the risk so extensive that government is required to consolidate it (absorb it) as a public good.

Instead of ensuring the provision of the public good (the capital), government is then necessary to deprive it, which is then mistaken, post hoc, as causing the deprivation, bankrupting our nation.

Free trade agreements, for example, are not causing inflation, deflation and unemployment. Consolidation of the capital is, but how often do we hear it being identified as the problem? About as often as we have effective solutions.

The sacrifice of The People is indeed conserved. It will eventually present with the full value of our self-determination. We just have to decide that the time is now.

For all those Wall Street employees about to lose their jobs, and anyone that has any kind of job or any kind of income, we should not be complacent, but sure to actively resist consolidation of industry and markets because the inflation-deflation monster can, and will, come for you.