Posts Tagged ‘capital’

All wealth is not capital and all capital is not wealth

July 9, 2018

A note to myself.

I take capital to be an asset which can generate revenue and which can itself be converted to and consumed as revenue,

where

An asset is any thing (physical or abstract) which can be of use.  To be of use implies an entity capable of enjoying such use. I take an entity to be any living thing or any combination of such living things. The asset does not necessarily have to be in the ownership or the control of that entity. However, without ownership or control, the utility flowing from the asset is available diffusely to all entities and is not exclusive to a particular entity. An asset in the ownership of an entity is the property of that entity.

(The sun could be considered an asset for all entities and not in the control of any entity and its benefits flow diffusely to all entities. A physical characteristic of an entity, such as strength, would be an asset available exclusively to that entity. A house may be an asset owned by an entity where the disposition of that asset and and all utility flowing from it are exclusively in the power of that entity).

A revenue is an inward stream of utility, of usefulness, over time. The stream of utility is income only when it is in cash or in kind and is measurable and tradable. Something intangible could be revenue but, if not tradable, would not be income.

(Revenue and income are like electricity and can only exist as a flow over time. They can accumulate over time as capital or assets and are analogous to an electric charge).

Wealth and poverty are judgements. Wealth is always a surplus to requirements and thus relative to some norm of need. Similarly, poverty is then a deficiency also relative to some standard of need. Wealth and poverty can be applied to any tangible or intangible property or characteristic. The magnitude of capital or of assets or of revenue or of income are not necessarily wealth or poverty. It is the judgement of whether something is in surplus or in deficiency which determines the existence of wealth or poverty.

Wealth is often used to describe magnitude (total wealth for example) but this is incorrect usage. As in this often used diagram:

 (Rich describes magnitude and richness may not necessarily be wealth. Similarly poor also describes magnitude and is not necessarily a judgement of a deficiency. Thus a rich man with much capital may be in poverty if his needs grossly exceed his capital. Or a poor man with little capital may be wealthy if it exceeds his needs. A surplus of an intangible asset – say some skill or happiness – is wealth but may not be capital. Rich and poor are magnitudes. Wealth and poverty are differences of magnitude).

All wealth is not capital and all capital is not wealth.


 

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