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.


What happens when the State abandons black Americans?

In their book, The Sovereign Individual: Mastering the Transition to the Information Age, James Dale Davidson and Lord William Rees-Mogg describe the demise of the welfare state with the political changes the information age will bring about. Those who can garner, manipulate, organize, distribute, and monetize information and use today’s digital technology to deploy this new capital from anywhere in the world will be able to achieve a level of individual sovereignty such that the protection services of the old nation-state will no longer be needed. The internet, cyberspace, will be their new jurisdiction, and with capital in the form of information, they will be able to carve out a minimized or tax-free environment in whatever physical jurisdiction they choose.

Information losers, according to Davidson and Rees-Mogg, won’t like this new world. This information-based economy will challenge their welfare state “employee” status. It is a welfare state employee status because in exchange for the “work” that they do at the polls i.e. their vote, information losers are awarded with transfer payments such as Medicaid, Medicare, food stamps, and low-income housing. As the hoarders of the new capital, information, choose lower tax jurisdictions, information losers are left holding the bag containing reduced benefits, the result of a lowered tax base.

The recent tax reform legislation passed by a GOP-led Congress and signed by President Donald Trump is a small indicator of the leverage the wealthy have, especially those who make their income as sole proprietors or partners in a business where they are now beneficiaries of a 20% reduction in the taxes they would normally pay on pass-through income. Congress and the President will now have to reduce or eliminate programs made infeasible by a $1.5 billion tax cut.

There is no guarantee that tax cut goody bags will be continually given out in the future. If the GOP loses both chambers of Congress in this year’s midterms, then Democrats will pursue a rewrite of the tax reform, or at least put on a good show effort.  I say a good show effort because the response by the wealthy will be, “Remember the two trillion dollars we have stashed overseas? How about we keep it there?”

Black Americans are not in the information age game even though blacks over-index on social media sites and, as a proportion of their population, own as many smartphones as whites and Latinos. Black Americans are under-indexed when it comes to employment in information technology. In an article for The Huffington Post, Jamal Simmons noted that black women may be able to scrape up $36,000 for a tech start-up, but white males scrape up on average $1.3 million in start-up funds.

And while blacks and Latinos continue to represent low single-digit proportions of actual STEM employees (technologists, mathematicians, engineers), there are plenty of black consumers of entertainment content on Facebook and Instagram. This content is low value. It differs from information which can be used as an input for production.

You may ask, “Don’t blacks have a right to consume entertainment?” My answer would be, “It’s not about rights to consumer content. It’s about channeling as much time and energy into mining and distributing information that creates knowledge that solves the deep well of problems in the black community.

Meanwhile, the State apparatus that blacks have disproportionately relied on for economic support and political protection is becoming bankrupt. Based on this recent tax reform, one would not sound too cynical in concluding that the GOP was in cahoots with the plot to blow it all up.  The information winners will not think twice about leaving information losers behind.