given I primarily use the bird app for shitposting (and now apparently marketing, fml) whereas nostr is where real work gets done and real learning happens, I’d be very happy to discuss Capital In The 21st Century if anybody has any questions.
AMA!
Discussion
If capital is currently misallocated and there needs to be a reset of sorts….and we need to transition from a world of an endless supply of cheap money and the need of businesses to constantly grow and grow and grow….
How painful is the “reset” going to be?
I’ve thought about this a lot and I honestly have no idea. it’s essentially trying to predict not only when a bubble will pop, but also *how*, but the whole point of bubbles is you can’t know. it’s an emergent behaviour from a complex and reactive crowd. if you could know, they would never happen. so given you can’t, you just have to insure yourself against the bust and wait.
While I do love making fun of the parasites in finance what do you think is one of the most legit financial jobs that sticks around even in on a “Bitcoin standard” 
I think they are all basically legit given people value the service and don’t wanna do it themselves. the problem is just that there are way too many of them and they have toxic political power.
I don’t quite understand the relevance of the stocks/flows distinction. Since capital is “economic potential energy”, isn’t the stock merely a discounted sum of flows? I.e net present value
ooo that’s a super fun question. so the main different is the dimensionality: economics stocks have the dimension of $, whereas flows have the dimension $/t.
this is academic in some senses, but the point I am getting at in the piece is to properly understand *time and causation*. the flows can only happen because they are created by stocks, and you need the stocks first. once you have them, the flows play out over time, and allow you to replenish the stocks.
this is the gist of the “economic potential energy” metaphor: the stocks can be transformed into something more useful or even consumable, but it takes purposeful action and time to get there.
in terms of valuation, yeah it’s probably best to use NPV, but I’d argue it’s better still to just admit you don’t know. if you bake in “uncertainty” as another foundational concept, you realise you can’t possibly know what these future flows are going to be.
rounding off your question, though, this presents a super interesting contrast in terms of the dimensionality: if the argument is you want to sum up a bunch of flows, then yes, that forces the stock to be “worth” an amount with dimension $/t. but then that kinda has to be the case because you aren’t actually *getting* this value now. it doesn’t exist in any tangible form. you are getting it over the period of time you discount over. whereas if you say “I don’t know” (as I recommend) you mark it at book value ($) and move on.
Fascinating, i think i understand now. But correct me if I’m missing something.
The stock of capital goods as “economic potential energy” may be *priced* in terms of future discounted flows - if you knew them for certain - but since you don’t, you go by book value as the best possible appraisal. This of course needs a sound money to be in place so that the competitive bidding process can accurately reflect this potential, the idea being that through a weeding-out, tâttonement process, rational expectations ought to prevail. However, although *value* is derived/imputed from the future, those future flows only come about *physically* through a causal transformation of the capital goods. Thus causally, it is best to think of the stocks primarily existing (physically) and being transformed into consumable value through entrepreneurial action, while also needing to be replenished by the same.
Fascinating, i think i understand now. But correct me if I’m missing something.
The stock of capital goods as “economic potential energy” may be *priced* in terms of future discounted flows - if you knew them for certain - but since you don’t, you go by book value as the best possible appraisal. This of course needs a sound money to be in place so that the competitive bidding process can accurately reflect this potential, the idea being that through a weeding-out, tâttonement process, rational expectations ought to prevail. However, although *value* is derived/imputed from the future, those future flows only come about *physically* through a causal transformation of the capital goods. Thus causally, it is best to think of the stocks primarily existing (physically) and being transformed into consumable value through entrepreneurial action, while also needing to be replenished by the same.
Fascinating, i think i understand now. But correct me if I’m missing something.
The stock of capital goods as “economic potential energy” may be *priced* in terms of future discounted flows - if you knew them for certain - but since you don’t, you go by book value as the best possible appraisal. This of course needs a sound money to be in place so that the competitive bidding process can accurately reflect this potential, the idea being that through a weeding-out, tâttonement process, rational expectations ought to prevail. However, although *value* is derived/imputed from the future, those future flows only come about *physically* through a causal transformation of the capital goods. Thus causally, it is best to think of the stocks primarily existing (physically) and being transformed into consumable value through entrepreneurial action, while also needing to be replenished by the same.
looks good to me!
Tangential to this but in Bitcoin is Halal you touched on “depositors will…demand the shared upside of equity” - is there more I can read on that?
A common argument against hyper-bitcoinisation is due to lack of liquidity, but I intuit holders would simply demand equity in good businesses for their 🌽 - do you know of historic examples under a gold/silver standard of this happening? Or were things too feudal and the money simply expropriated when TPTB of the time needed liquidity?
Late medieval and early renaissance Italian and Low country city states 😉
Thank you, that looks worthy of a dive down the rabbit hole - will read the references on the weekend 🤙
Seemed very clear to me. It was very well put together!
What you think the role India 🇮🇳 will play in coming years in world capital flow?
don’t know nearly enough about it to have an interesting take, sorry.
you are pretty cool… I know it’s not a question, but still wanted to let you know
brb just telling my wife somebody thinks I’m cool.
Does stock/flow dynamics change if the good being produced is a consumable resource (i.e.iron) or a business interest vs. a monetary good (i.e. BTC)? I keep thinking that if the stock/flow of the monetary good is priced in its own denomination (#BTC and #BTC/time) what you get is a stock becomes something akin to 1BTC is 1BTC and the flow would represent BTC issuance inflation rate which eventually goes to zero.
Also if we stick with $ denominated stock/flow valuations, how do we calculate in inflation of the measuring asset ($ in this case)?
Thanks
I think you might be thinking about this too literally. there is no such intrinsic property as either “stock” or “flow” - it’s primarily about how to interpret financial statements and, importantly, noticing that the balance sheet and the income statement have different dimensions, and that these dimensions reflect different causal states.
also, to be clear, this has next to nothing to do with the asinine “stock to flow” concept. this is a framework from dynamical systems applied to finance as a helpful heuristic.
When a founder or major executive sells their shares, we consider this "capital consumption". Is a transfer of ownership really "consumption"? Maybe the productivity of that capital is diminished, if the key contributor is less invested in the company or separates entirely. Any better insights you can give on the concept of capital consumption?
I don’t see that as consumption at all, it’s just trading financial assets. why would a founder be any different in this respect to any other holder of the equity?
That's what I struggle with in regard to Keith Weiner's warnings about capital consumption. I can see how mixing human intangibles (experience, know-how, expertise) makes capital productive, so that might be it.
What’s your response to the Keynesian argument that regulated economies and intervention during financial crises have led to the incredible technological innovations from the 20th century that we benefit from today?
that this is absolute nonsense?!?
how do you see mortgages on family houses transform under finite money? what would be the mechanism of buying a house ?
If R > G then do we need a global wealth tax?
may as well just go for full blown communism ngl.
Absolutely loved the article!
Loved the distinction between increases and growth 👌
A couple of things that I dont fully get:
1. If bitcoin makes capital even more expensive, doesn't that massively discount future cash flows and therefore incentivise more short-term returns thinking?
2. How will investors (you?) be incentivised to invest in things that "should" be invested in that increase our collective capital? I'm not seeing the connection between investing in things that produce capital that ultimately makes profits for ME, and that which creates collective growth (which I think you implied would be the thing Bitcoin fixes). Or put another way, why dont investors just do this already? Fiat or not, growing capital would produce sustainable future profits in something that has purchasing power.
1 - I don’t think this question is really well formed. discount rates compound so it doesn’t really matter how far in the future some gain is, all else equal. if you are curious, this is closely related to why IRRs only make sense if you assume you can reinvest *at the IRR*. what matters is your liquidity constraints (i.e. you wouldn’t accept a 100% p.a. return if you didn’t actually get it for 500 years). but liquidity constraints are largely influenced by time preference, so it seems pretty obvious to me that with properly sound money providing a base of savings you can rely on, you won’t need as much liquidity from your legitimate investments and you can think about them over more and more appropriately longer terms.
2 - 2 reasons, both of which stem from (reversing) inflation in capital goods and financial assets. the main reason a lot of “real” investments aren’t made in fiat clown world is that inflation pushes everybody’s liabilities to the point that the humdrum return doesn’t cut it, so you need to get more and more speculative and go further and further out the risk curve. OR, alternatively, you take a humdrum return and lever it to the tits, which only makes this problem even worse because then critical infrastructure becomes incredibly fragile (look at Thames Water for a contemporary example of exactly this), which is just more of the same inflationary problem. the subtler reason is that this desperate chase for yield bids up the price of capital goods so your starting point is distorted as well.
This is not a question about capital.
I wonder "can Bitcoin be used two subvert a tyrannical regime?"
Like opposition miniting their own money
We’re still trying to finish bitcoin is Venice