The physics of capital

Is capital is fixed? Like energy can it neither be created or destroyed? In an hour from this writing financial markets in the United States will open up for trading. These markets act as the medium for converting cash into stocks or bonds. The law of energy would describe this conversion as the creation of a disordered state where the original form of matter, in this case cash, is turned into a more disordered state, in this case a security.

The market process does not follow the law of energy precisely. Whereas after converting matter into a disordered state means that the resulting products cannot be recombined into the original form, the stocks and bonds purchased with cash can be sold in the markets with the result being the original form, cash.

The market provides a conduit for energy transfer, the transfer between cash and securities. I consider the energy transfer that we see in the financial markets as an echo of the original and most important form of capital: information and knowledge. Information and knowledge are the “big bang” of our capital universe. The information that we derive about and from the land allow us to create and use knowledge about farming, mining, fishing. As the land becomes increasingly valuable as a source of goods and services, we use this knowledge about productivity as leverage for creating banks and banking and payment systems. Through lending and borrowing money is created and these funds can be used to expand productive capacity or invest in stocks or bonds.

Information isn’t the capital of the 21st century. It has been the premier capital of human existence. All other substance we refer to as capital emanates from this origin and is a reflection of the value of information.

I would argue that knowledge and information represent another divergence away from the laws of energy. Knowledge and information are not fixed. Man is always discovering something new whether about himself as a sovereign or about the universe around her. The more she discovers and the better she is at communicating her discoveries, the more capital in the form of currency that she can accumulate.

Currency transmits to the markets the value its holder has. It should also signal us to look behind the currency to determine who the holder is.  The rapper who has $300,000 in currency but owns no productive property and has no prospects for another hit album in a year has low value. The markets will not want to trade with him on a continuous basis versus a writer with $50,000 in coin but also owns land that she rents out for farming and is able to write software apps when not writing music. The market will see her as high value and will trade her currency.

This creates a political dilemma for politicians who claim to represent the interests of the poor. They must now come to terms with an information gap spurred on by a lack of critical thinking skills in America. Solving real world problems not only benefits the individual but benefits communities overall as solutions are distributed throughout communities. The ability to bring solutions to real world problems enhances value and creates currency. For the poor access to quality education or other resources that provide a conduit to knowledge should be at the top of the policy agenda if they are to survive an economy that asserts a greater need for knowledge and information talent.

Capital may, after all, not be fixed and can be created. Information is the most important source of capital and like energy needs an infrastructure that allows its generators to signal and transmit value.

 

Political intelligence that matters to markets

A business or an investment fund is simply a betting pool for people who have coin or credit. The bet represents all the information that the investor has acquired over some period and the dollar amount of her bet represents the minimum cost of the information acquired. This means that the actual cost of creating the investment fund, asset, or business means nothing to the investor.

All that matters is an outcome that recovers her cost for accumulating information that helps her determine whether her preferred outcome-a return of and on her capital-will be realized. Information on sunk costs mean nothing to her (much to the chagrin of the run-of-the-mill economist).

For information traders entering information markets what should matter is providing information that addresses existential threats to profits and revenues. The information trader must have awareness of the outcome the investor is interested in.

Investors watching political markets are interested in whether a decision poses an existential threat to a firm or a firm’s profits or revenues. Existential threats posed by government come in the form of a revocation of a license, denial of access to natural resources, or denial of access to financial capital. The investor wants to know the likelihood of the occurrence of these events.

In hind sight this is why the Trump Effect became vacuous. The expectations surrounding the Trump administration’s impact on investment never took into account government’s prime operational mandate which is to exploit the natural environment of a physical area. It does this by managing the extraction of resources from that physical area. In the case of American government, it has determined that extraction would best be carried out by a private sector driven by a profit motive.

Businesses provide efficient methods for extracting resources and converting the resources into “taxable events” i.e. goods and services for sale. Businesses convert human resources into taxable events by employing labor thus making humans available for taxation by government.

The subsequent uncertainty experienced by the financial markets post Mr Trump’s inauguration was the result of investors listening to the “emotional marketing” of the 2016 campaign. Rhetoric regarding bringing back manufacturing jobs into a political economy that favors information as its primary resource or building more bridges to nowhere via infrastructure knowing that the multiplier effect is limited by a project’s termination date was baseless but pulled on enough heartstrings of investors that they forgot or were forced to overlook even further government’s prime mission.

Also, the financial markets can’t risk forgetting that the U.S. is a federal system and states have to be considered when assessing the American economy. States have to be on board with any policies that address contraction or expansion of licensing or access to natural resources. For example, it is one thing for the federal government to increase access to radio frequencies by mobile telephone companies. But if the states do not put in place rights-of-way policies that allow mobile phone companies to deploy tower facilities, then having a license to transmit wireless signals is meaningless and the firm faces a scenario of less revenues.

When discerning what information matters, the focus should be on political information that threatens the continued existence of a firm or threats to its revenues and profits. Investors need to discern between the emotional or campaign marketing noise and substantive political intelligence that addresses a firm’s existence.

Capital, technology, social media, & fake connection

Capital uses technology to create a singularity in the individual. This process toward “self-actualization” is the wrong one because the journey to self has nothing to do with technology or capital.
 
The downside of using technology to create a singularity is that as part of validating its use, technology markets itself to the masses as a way of creating a collective consciousness, a fake singularity.
 
I call it fake because trying to create a oneness with multiple, diverse, un-self actualized minds is dangerous and only leads to narcissism on steroids. It is the mistake that liberals, for example, have been making for the last 130 years of political history in the United States. One need only look at social media and see the effects.
 
Meanwhile, the masses, believing they are creating some good through collective behavior are merely being used by the few that herd them up into single-minded, over-emotional mania.
 
Eventually this fake singularity collapses on itself with violent repercussions as all shifts in mass political behavior eventually does as this fake singularity is exposed for what it truly is; a distraction.
 
What are the masses being distracted from? The fact that progressives have learned how to hoard and leverage inside information, move to urban centers, monetize this inside information, and raise rents on the poor, forcing the poor to move to lower quality areas.
 
Meanwhile, rich, liberal urbanites become more “singular” meaning less diverse as they show their true value system, one that was never built on diversity, but where a diversity narrative was merely used as a Trojan Horse that allowed them to infiltrate minority communities and run out people that neither look, act, or think like them.
 
Atlanta, Manhattan, San Francisco. We see it, but cognitive dissonance allows us to ignore it. The fake singularity has no room for an organic collective.