Thursday, 25 September 2008

How important is knowledge for capitalism?

Large-scale capitalist economic growth has only happened for the last few hundred years, and it is not obvious why it started in the 18th Century rather than at any point in the 100,000 year (or whatever) history of humans. By capitalism, I mean either market capitalism, state capitalism, or any of the other varieties of production based on physical input accumulation and subsequent exchange.

People have exchanged goods throughout recorded history, and to get to a capitalist system people would only have to save some of the goods they produce with the purpose of using them for making future goods. It is such an easy and obvious thing to do that it seems most likely that not only humans would have done it throughout their history, but also other animals. Some animals store food during the summer so that they can eat it during the winter, and presumably a proportion of them share the food with their family or pack. It is local capitalism, with the accumulation of value occurring because the animals survive and can perform the same task the following year. (The depreciation of the capital is probably close to 100 percent per year, so some economists would classify the saving as delayed consumption, but I think of consumption and investment as a continuum.)

The output of production is determined by the productivity of inputs, including capital, times the amount of those inputs. If productivity is low, then saving large amounts of capital will not be rewarded well.

Productivity is determined to a large degree by knowledge, particularly scientific in character. So as human knowledge grows, the productivity of output grows and the likelihood of investment being a worthwhile activity rises. The burst of modern scientific knowledge from the 17th Century onwards probably was key in the rapid growth of capitalism subsequently.

To return to the animal example, animals getting smart might raise the productivity of their work. For example, if they hide food near their winter lodgings or make it easy for themselves to find their food, they will expend less energy in finding it during the winter and so have to consume less. Any spare food left unconsumed after the winter may seed and create more spare food for the following winter, and so on.

A fully fledged market system for animals with banks, wage employment, unionisation, unemployment, money, and inflation seems unlikely to emerge, but it's a nice thought...

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