THE NEW CAPITALIST MANIFESTO
On The New Capital Show we examine together true capitalism, a practice of accurately calculating the potential benefits, the full costs, and subsequently the return (or loss) from your activities so that you can determine whether they are beneficial and efficient.
Capital is a storehouse of value. It’s not money. Money is financial capital, but capital is not money. There are many different kinds of capital: human capital (human knowhow and possibilities), natural capital (the stock of land, water, air, and species of the planet), manufactured capital (the things we humans have built such as buildings, roads, and machines), and last of all, financial capital, which is the monetary representation of the other three forms of capital. Until all of these forms of capital are accounted for, we will not make the right decisions for the planet.
New Capitalists believe that all of these forms of capital must be considered when an economic activity is undertaken. If one form of capital is increased during the activity, but another form is decreased to a greater magnitude, then the activity is uneconomic.
People should be free to engage in lawful economic activity, anyone engaging in lawful economic activities should, without the assistance of government or another external entity, bear the full costs of those activities. Such a system will ensure that customers are charged the correct price for the goods or services produced by the activity.
Our society (especially many of its more powerful members) currently prefers not to calculate full, total costs. The powerful would rather lobby our government to allow them to push their costs onto someone - anyone - else. And too often the government, the public’s representative, agrees to assume those costs.
The most vital function of government is to protect the common resources, the common capital. The commons, a word derived from the medieval concept of a livestock grazing commons, now has a more general meaning. It means any resource that is owned by the general population, or any resource in which the general population has an abiding interest. Examples of resources included in the general commons are the air we breathe, our water, and our land.
An owner of portions of the commons, such as the owner of a parcel of land, has an obligation to act as steward of the commons, because at some future time the parcel could revert to common public ownership.
The government protects the commons by assessing the proper license fee for anyone who seeks to use the commons. A license is not a tax - it does not go for general government operations. The license is used to remediate the specific effects caused by use of the commons, and to restore the commons to the state it was in before it was used. An example of this is the proper license fee to remediate the air quality effects of emissions from automobiles. When proper license fees are not assessed for using the commons, a tragedy of the commons results, in which the commons is overused, and deteriorates.
A project returns either net benefits or net costs, and is calculated as follows:
Return = Benefits - Costs
If a project's benefits outweigh its costs, a positive accrues to society. Conversely, if a project's costs outweigh its benefits, a negative accrues to society.
RETURN ON INVESTED CAPITAL
The proper measure for determining whether, and to what degree, projects are successful is return on invested capital. By calculating return on invested capital we are able to compare one project with another to see which is superior and should be pursued, and which should be foregone. Return on Invested Capital is calculated as follows:
Return on Invested Capital = Return / Invested Capital
Clearly, both return and invested capital must be properly calculated so that all costs and benefits are included. If return on invested capital is miscalculated, it becomes impossible to understand which projects should be undertaken and which rejected. Currently, we do not properly calculate these variables, and bad projects are therefore occurring all over our country.
Along with education, the most effective way to change societal behavior is by creating a system that accurately establishes the prices that people pay for goods and services. Prices significantly determine the basic everyday economic behavior of individuals. And if prices are wrong, behavior will be wrong. For example, if gasoline prices are too low because the government pays a large portion of oil companies costs, then gas will be overconsumed, cars will be inefficient, and newer cleaner technologies will be ignored.
Free markets are the primary means by which prices are set. But markets will not establish accurate prices if the government does not regulate the commons by setting accurate license fees for its use. The determination of accurate license fees is best accomplished by a private price analysis industry, which is not as prone to lobbying as government. Thus, government should contract with disinterested (because they are paid the same regardless of the amount of the license fee) private specialist firms for the study and establishment of proper license fees.
If a good is wasted or overused, then it is by definition underpriced. The vast waste that our modern society produces is evidence that our prices for many goods and services are too low, because so many costs remain uncounted, or pushed off, we say “externalized”, onto the public. The waste comes at the expense of some kind of capital: natural, human, manufactured, or financial. A small group may profit, but society as a whole loses.
Failure to take into account all forms of capital is not a capitalist system. Our country does not currently have a capitalist system because it frequently omits the calculation of significant amounts of capital from its project accountings. The most fundamental challenge facing our society is to begin to move to a true capitalist system where all forms of capital are taken into account. If all forms of capital are taken into account, wise decisions about how to use all capital and resources will occur.
Both major political parties are not engaged in true capitalism, but rather in crony capitalism. Crony capitalism is capitalism that began life as purely financial capitalism and became even more distorted through the influence peddling process. The influence-peddling process is mostly a cost-shifting process, wherein parties whose economic activities cannot stand up to rigorous return on capital analysis seek to exaggerate their returns by shifting some of their costs to other parties (usually to the commons, the public). Such activity is fundamentally unfair and unpatriotic.
When we talk about a sustainable planet, a sustainable method, we are talking about new capitalism, the preservation of and enhancement, for the future, of the different forms of capital. We are talking about making investments today, to have returned to us and our descendants something greater in the future.