86Thousand400: Sapiens, The Capitalist Creed

Money has been essential both for building empires and for promoting science. But is money the ultimate goal of these undertakings, or perhaps just a dangerous necessity?

(George speaking - Money in our opinion has been a big reason why so many people in the world are dis-connected from their thoughts/feelings as they make this the ultimate goal in life and forget about the small things in life such as simply eating food or taking time for their health)

Economics is a notoriously complicated subject. (Example on page 342 of Sapiens - see instagram post)

Current banking law permits the bank to repeat this exercise seven more times. The contractor would eventually have 10 million dollars in his account, even though the bank still has but 1 million dollars in its vaults. Banks are allowed to loan 10 dollars for every dollar they actually possess, which means 90% of all the money in our bank accounts is not covered by actual coins and notes. If all of the account holders at Barclays Bank suddenly demand their money, Barclays will promptly collapse (unless the Government steps in to save it). The same is true of Lloyds, Deutsche Bank, Citibank, and all the banks in the world.

It sounds like a giant Ponzi scheme, doesn't it? But if it's fraud, then the entire modern economy is fraud. The fact is, it's not a deception, but rather a tribute to the amazing abilities of the human imagination. What enables banks - the entire economy - to survive and flourish is our trust in the future. This trust is the sole backing for most of the money in the world

In the example given on page 342 of Sapiens - The entire enterprise is thus founded on trust in an imaginary future - the trust the entrepreneur and the banker have in the bakery of their dreams, along with the contractor's trust in the future solvency of the bank.

We've already seen that money is an astounding thing because it can represent a myriad of different objects and convert anything into almost anything else. However, before the modern era this ability was limited. In most cases, money could represent and convert only things that actually existed in the present. This imposed a severe limitation on growth, since it made it very hard to finance new enterprises.

Consider the bakery again. Could McDoughnut get the bakery built if money could represent only tangible objects? No. In the present, she has a lot of dreams, but no tangible resources.

Humankind was trapped in this predicament for thousands of years. As a result, economies remained frozen. The way out of the trap was discovered only in the modern era, with the appearance of a new system based on trust in the future. In it, people agreed to represent imaginary goods - goods that do not exist in the present - with a special kind of money called 'Credit'. Credit enables us to build the present at the expense of the future. It's founded on the assumption that our future resources are sure to be far more abundant than our present resources. A host of new and wonderful opportunities open up if we can build things in the present using future income.

If credit is such a wonderful thing, why did nobody think of it earlier? Of course they did. It was that people seldom wanted to extend much credit because they didn't trust that the future would be better than the present. They generally believed that times past had been better than their own times and that the future would be worse, or at best much the same. to put that in economic terms, they believed that the total amount of wealth was limited, if not dwindling.

That's why many cultures concluded that making bundles of money was sinful. As Jesus said, 'It is easier for a camel to pass through the eye of a needle than for a rich man to enter into the kingdom of God' (Mathew 19:24) (That makes absolutely zero sense)! :) If the pie is static, and I have a big part of it, then I must have taken somebody else's slice. The rich were obliged to do penance for their evil deeds by giving some of their surplus wealth to charity.

(George speaking - thoughts are that 'the pie' human population is and has continued to grow. Hence the 'need' for overall growth/expansion. More homes/food etc for ever growing population. The world has an in-ordinate amount of houses, however we continue to build more as demand increases. As this demand increases so to does the value of land/property. Hence why if one would like to make money 'nowadays' property is a great area to be in as there is an ongoing ever growing supply of demand. Thinking out loud - healthy food is another good area to be in as people will always require food and the overheads are far lower than being involved in property)

If the global pie stayed the same size, there was no margin for credit. Credit is the difference between today's pie and tomorrow's pie. If the pie stays the same, why extend credit? It would be an unacceptable risk unless you believed that the baker or king asking for your money might be able to steal a slice from a competitor. So it was hard to get a loan in the premodern world, and when you got one it was usually small, short term, and subject to high interest rates. Upstart entrepreneurs thus fu=Lund it difficult to open new bakeries and great kings who wanted to build palaces or wage wars had no choice but to raise the necessary funds through high taxes and tariffs. That was fine for kings (as long as their subjects remained docile), but the scullery maid who had a great idea for a bakery and wanted to move up in the world generally could only dream of wealth while scrubbing down the royal kitchen's floors

The Capitalist Creed Cont...

The belief in the growing global pie eventually turned revolutionary. In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In the eighth chapter of its first volume, Smith made the following novel argument: when a landlord, a weaver or a shoemaker has greater profits than he needs to maintain his own family, he uses the surplus to employ more assistants, in order to further increase his profits. The more profits he has, the more assistance he can employ. It follows that an increase in the profits of private entrepreneurs is the basis for the increase in collective wealth and prosperity.

This may not strike you as very original, because we all live in a capitalist world that takes Smith's argument for granted. We hear variations on this theme every day in the news. Yet Smith's claim that the selfish human urge to increase private profits is the basis for collective wealth is one of the most revolutionary ideas in human history - revolutionary not just from an economic perspective, but even more so from a moral and political perspective. What Smith says is, in fact, that greed is good, and that by becoming richer I benefit everybody, not just myself. Egoism is altruism.

Smith taught people to think about the economy as a 'win-win situation', in which my profits are also your profits. Not only can we both enjoy a bigger slice of pie at the same time, but the increase in your slice depends upon the increase in my slice. If I am poor, you too will be poor since I cannot buy your products or services. If I am rich, you too will be enriched since you can now sell me something. Smith denied the traditional contradiction between wealth and morality, and threw open the gates of heaven for the rich. Being rich meant being moral. In Smith's story, people become rich not by despoiling their neighbours, but by increasing the overall size of the pie. And when the pie grows, everyone benefits. The rich are accordingly the most useful and benevolent people in society, because they turn the wheels of growth for everyone's advantage

Capitalist Creed Cont again....

In the modern era, the nobility has been overtaken by a new elite whose members are true believers in the capitalist creed. The new capitalist elite is made up not of dukes and marquises, but of board chairmen, stock traders and industrialists. These magnates are far richer than the medieval nobility, but they are far less interested in extravagant consumption, and they spend a much smaller part of their profits on non-productive activities.

Medieval noblemen wore colourful robes of gold and silk, and devoted much of their time to attending banquets, carnival and glamorous tournaments. In comparison, modern CEOs don dreary uniforms called suits that afford them all the panache of a flock of crows, and they have little time for festivities. The typical venture capitalist rushes from one business meeting to another, trying to figure out where to invest his capital and following the ups and downs of the stocks and bonds he owns. True, his suits might be Versace and he might get to travel in a private jet, but these expenses are nothing compared to what he invests in increasing human production

CC Continued one more...

Over the last few years, banks and governments have been frenziedly printing money. Everybody is terrified that the current economic crisis may stop the growth of the economy. So they are creating trillions of dollars, euros and yen out of thin air, pumping cheap credit in the system, and hoping that the scientists, technicians and engineers will manage to come up with something really big, before the bubble bursts. Everything depends on the people in the labs. New discoveries in fields such as biotechnology and nanotechnology could create entire new industries, whose profits could back the trillions of make-believe money that the banks and governments have created since 2008. If the labs do not fulfil these expectations before the bubble bursts, we are heading towards very rough times.

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