Defining capital

Below is a definition of capital. I would like to suggest a slightly different view.

Money represents purchasing power. When we “save money” as with a bank or “investment” we are transferring the purchasing power attached to that money to somebody else’ If enough people transfer purchasing power to another that person will have a larger amount to put into a project. We do this in the hope that what they eventually return to us will have an even greater purchasing power but it isn’t alwayts the case. The money can be lost either through poor decision making or from inflation. Therefore capital could be defined as an aggregate of purchasing power.

Furthermore, wealth is a myth. Economic activity does not create wealth. It uses up resources, some of which are non renewable. that is what diminishes our economic well-being.

The formation of capital plus a culture of entrepreneurship is the only way to create economic well-being. When government policies destroy capital, it diminishes everyone’s economic well-being.

Capital is saved wealth. If you produce goods and you make a profit and save the profit, then you have created capital. Ditto with your labor. If you spend all of your wages, you’ve saved none of the wealth created from the goods you made and you have no capital.

The quote is from an article The Daily Capitalist: The Economics of Mass Destruction, Part I

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