Capital is Frozen Time
Exploring the oft-used yet ill-understood term "capital" and its temporal aspects.
Capital is as ubiquitous to economics as spacetime is to physics. Yet these phenomena are generally misunderstood in a fundamental sense. Here, I will attempt to draw a connection between the two, and anchor it in apriori economic rationalism.
Standing Before Time
Axiomatic to economics is the truth that production must occur before consumption. “Before” is a metaphorical word, an etymological combination of the words “by” and “fore” that leverages our intuitive spatial sense of “being in front of” to convey a sequencing in time or a rank-ordered list of preferences. As the Austrian school of economics teaches, all action is an expression of value: the present priority in our internalized rank-ordered list of preferences. Every action we take is an expression of the highest value in our internalized hierarchy of values. Embedded deep in our everyday language is this stealth metaphor relating spacetime and value.
Production must happen before consumption, meaning it must happen “in front of consumption” in time. One simply cannot consume what has not yet been produced. Whether this is the berry growing on the bush (a production of nature) or the refinement of freshly picked berries into a pie (a production of humans), no one can consume what has not yet been produced. In this (fruity) example is a key division among economic goods: consumption goods are intended to be used “as is,” directly as they are, with no further time spent producing before consuming; capital goods are intended to be used to increase the production rate of consumption goods. Where more capital is employed before production, more consumption is made possible after.
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For berry-picking, a relevant capital good may be the gloves or boots which allow the fieldworker to pick more berries per hour of effort than they otherwise could. Or, a berry-picker may use a piece of machinery that gives them access to previously unobtainable berries. In this way, capital goods amplify the quantity and quality of consumption goods producible. In other words, capital magnifies the results of applied human time.
As it turns out, the greater the intensity of production that occurs before a consumption good is created tends to enable a higher overall level of productivity. Economists called this increasing the roundaboutness of production processes, which means that each phase of production is more highly segmented, specialized, and rich with expert knowledge input. “Many hands make light work” is the age-old wisdom underlying the efficiency gains of an economic division of labor. In a less obvious but equally true aspect of this dynamic, “many minds make smart work.” The more roundabout a production process, the deeper the division of labor, and the “lighter the work” for each market actor. More interdependence among market actors leads to the generation of more aggregate wealth.
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Capital accumulation is indispensable to the economization of human action. To economize is to produce greater results with the same (or even a lesser) level of work. Physics defines work as the application of force over distance, which makes capital a force amplifier. But Einstein taught us that space and time are one and the same, so an equivalent physics definition for work is the application of force over time. Since capital lets us store the value of our time to overcome its constrictions (at a later time of our choosing), it is a critical accelerant to the creation of human want-satisfaction. Said simply, capital streamlines the satisfaction of demand. Capital then can be considered “frozen time”: it is produced through the expenditure of human time, and can be later used to accelerate an actor toward the accomplishment of a specific aim. This temporal truth is fundamental to the value proposition of all capital goods; as Hans-Hermann Hoppe wrote in Democracy: The God that Failed:
“Capital goods have no value except as intermediate products in the process of turning out final (consumer) goods later, and insofar as the production of final products is more productive with than without them, or, what amounts to the same thing, insofar as he who possesses and can produce with the aid of capital goods is nearer in time to the completion of his ultimate goal than he who must do without them.”
A Place in Time
To illustrate this distinctively temporal value of capital, imagine you are intent on traveling from your plush New York City high rise apartment to a friend’s beach house in LA. If you plan on traveling by foot, such a feat may draw a crowd (like Forrest Gump), and your end point will be quite distant in time. According to Google Maps, walking from NYC to LA will take you about 913 hours (a trek that would be impossible without using at least one important piece of capital—a ferry ride):
Given the distance in time of such a trip, you’re much more likely to drive or fly. From behind the wheel of a car (a force-amplifying piece of capital), you are much nearer in time to your goal of relaxing beachside in LA. Notice in this example that capital (the car) placed you much closer in time to your aim despite the relationship of NYC to LA remaining unchanged in space. Although we haven’t yet figured out how to fold the fabric of space with capital goods, we benefit greatly from their capacity to bend time. Accelerated by the use of a car, the same trip will take you about 42 hours:
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Upgrading your capital accommodations to a private jet for the trip will place you even nearer in time to your goal (a quantitative gain), and offer you the enhanced experience of letting the pilot do the manual labor, leaving you free to watch James Bond films while sipping (shaken not stirred) martinis (a qualitative gain). Capital improves the quantity (hours of freedom) and quality (the options available) of life. As the sole generator of capital, hard work and free trade are salutary to the human condition. Free markets, then, are salvific processes generative to the capital needed to overcome the ravages of time. Capital, and inviolable property relations, are the keystones to the construction of a timeless civilization.
As we accumulate more capital, we further transcend time, thus lowering our collective time preference. This lowering of time preference is reflected in the natural interest rate, the free market “price” of money, or the rate at which market actors prefer present to later goods (the higher the interest rate, the more market actors “want it now,” thus decivilizing their dealings with one another). With more capital stock per capita, the uncertainty of time is more greatly buffered against, giving the natural interest rate a tendency to fall. In other words, with greater roundaboutness of production, the greater the intensity of free exchange becomes, thus generating more capital, which makes more consumption possible before more production is required. Capital reduces risks. By saving up the fruits (or berries) of our labor as capital, there is more “economic pie” to go around, and less reason to fight over each slice.
Absolutely uninhibited, free exchange is the greatest method we have to maximize capital accumulation: it facilitates the most economical means by which the sacrifice of the entrepreneurial spirit can be stored as “frozen time” to be later liquidated by the spirit of future entrepreneurs. Capital is the communal savings of the creative spirit.
Capitalism, therefore, moves us along the time preference continuum from infinity asymptotically toward zero as more “time saving” discoveries are stored and compounded over time. Capital allows civilization to be constructed reciprocally between agents and arenas in continuous patterns of exchange, stimulating a reciprocal opening of optionality, a virtuous cycle toward timelessness embodied in ever-more creative capital production structures and, ultimately, more moral virtue.
If humanity is to achieve a higher nobility of existence, then more free exchange and freezing of time as capital must come before.
Thank you for reading Capital is Frozen Time.
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