Friday, December 2, 2011

Capital accumulation - a thought experiment 2

Part 1
Part 3

The traditional categories of economic inputs are labor and capital. To understand how capital accumulates we need to look at labor. Both begin with energy. Energy on earth comes from the sun, in the form of heat and light. Heat and light make plants grow, which feed animals, all of which feed and clothe humans.

Labor is our conversion of the sun's energy into work--e.g., we consume calories which plants and animals have made using sunlight, and then we use those calories as fuel to move about and do things. I prefer to think of capital as the accumulated mass of stuff that is the result of work. How this stuff is owned and distributed is one thing, but at its most basic level, capital is stored energy. Thus, we might think of labor as flow, and capital as stock. About stocks and flows, wiki says:
A stock in this broader sense is some entity that is accumulated over time by inflows and/or depleted by outflows. Stocks can only be changed via flows. Mathematically a stock can be seen as an accumulation or integration of flows over time - with outflows subtracting from the stock. Stocks typically have a certain value at each moment of time - e.g. the number of population at a certain moment.

A flow (or "rate") changes a stock over time. Usually we can clearly distinguish inflows (adding to the stock) and outflows (subtracting from the stock). Flows typically are measured over a certain interval of time - e.g., the number of births over a day or month.

In fact, to return to and amend the first paragraph, labor and capital not only both begin with the energy of the sun (flow), they also begin with the materials of the earth (stock). Plants use the energy of the sun to do work to transform the gases and minerals--the earth's raw materials--into stems, leaves, flowers, and seeds, and so on. The sun's energy is actually a stock in that there is a finite amount of gas, and as it burns, outflows from the sun become inflows to earth. This transferrence of energy gives plants the ability to do work, and their work gradually increases the natural capital of the ecosystems of the earth, which is the combination of earth's stock and the inflows of energy from the sun.

Natural capital is the earth's accumulated capital of stored energy, our inheritance. This includes all the wealth of diverse ecosystems, the water catchment of forests, and so on, as well as fossil fuels which are forests long gone. It's worth noting that fossil fuels have taken billions of years to accumulate (slow inflow) and are being depleted at a remarkably rapid rate (fast outflow). There are, in fact, only inflows and outflows in a given system at a given scale - the wider you look, the more this looks like circulation within stock. So, an outflow here is an inflow there. We all know what happens with the food we eat, and the rest comes out as heat energy.

Of course, there is a difference between individual capital accumulation and collective capital accumulation. Lifeforms do work, they create surplus, that surplus may increase their odds of survival either directly or indirectly, it may encourage other lifeforms to flourish that relate either as symbiotes or parasites. It likely creates more niches, which invites greater diversity and complexity, all of which allows for more and more life in an ecosystem. If life is wealth, this is how it's built.

his is all to demonstrate (1) that capital accumulation has a counterpart in nature, and (2) what it looks like and how it works in nature.

And remember, the role of labor in accumulating is that labor brings inflows. It is not the only inflow, and whether or not it results in accumulated capital for an individual or household depends on a number of things in addition to labor, but a consideration of the notion of accumulated capital in its broadest sense is a good place to start. Next let's look at labor.

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