John Steward of Jesus
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Capital and risk

October 19, 1980

Wealth is something considered desirable, the replacement of which requires human effort. Thus, a car is an example of wealth. Sunshine is not, though sunshine is more important. In this sense wealth and capital are the same. Perhaps capital is the more fitting term, though it has negative connotations today. Building capital requires a long range rather than a short range view, and therefore confidence in the future, either short range or long range.  To build capital, a man must work today for benefits to be received sometime in the future, as in planting corn or building a house. The longer-term the investment in capital, as in building a factory, the longer term must be the confidence in the future. Usually the workers performing the labor have not built up enough capital to assume the risk. They must be paid for their daily labor so they can live. Therefore someone with stored capital must pay them and assume the risk of the investment. Of necessity this investor must also reap the rewards.

Men will not make such investments and assume such risks unless their view of the world and of the future gives them confidence and reason to look for better things resulting from the invested capital (labor). This requires a recognition of progress. If there is no progress, then working for the future makes no more sense than working for today, and the motivation for investment is gone. For example, if there is no progress, then a day’s labor will produce as much benefit (in the form of food, clothes, etc.) when directed to those results immediately, as when directed toward those results in the future. If there is no improvement, there is no reason for assumption of risk when looking to the future. Investment of capital requires a view of the future as better than the present. This would seem to require a religious basis for such confidence--a God who makes progress possible. If there is no basis for the confidence in the future, the confidence will disappear, and, with it, the willingness to invest in the future will disappear. This may be the reversal cycle which we seem to be entering at present.

Because future wealth will be produced only through the productive activities of men, as contrasted with direct divine gifts (such as sun and rain), the investment of capital also requires a confidence in the future productive capacity and willingness of one’s fellow men. They must produce the goods (capital) which will reward the investor for his risk and willingness to defer consumption. This confidence is also declining at present. All of which is not a good sign for our future standard of living.

The essential benefit of the capitalistic system is that human beings can produce the same amount of wealth with less labor when they take a long range view than when they take a short range view, as illustrated in planting corn or building dams. But, the labor must be expended in advance of the benefit rather than at the time of the benefit. This requires a confidence in the future--in the God who holds the future, in the men who will be working in the future, and in the government which will maintain order in the future. Also a confidence that men in the future will not object when the investor claims his just reward for his investment.

The critical question for social “planners” is: If men are to expend energy today in order to receive benefits a week, a year, or ten years from now, who, or what, will guarantee them that they wil receive those benefits? Because no guarantee has been found to substitute for a capitalistic system and society, the “developing” countries are forever floundering.

The benefits produced within an economic system will always be in direct (or exponential) proportion to the length of future time into which people’s confidence extends.