The term “Kapital” is used in the SMP Compendium to denote all forms of Currency that originate from the economic and financial activities of Liberal Capitalism. The distinct properties and characteristics that go into the creation of Kapital are tied to the worldview that defines Liberal Capitalism itself as a political-economic Ideology of the Enlightenment. For the sake of clarity and ease of reference, I will be drawing from conclusions arrived in “Bretton Woods, the Gold Standard, and the Rise of the Debt Standard.”
In it, I stated that there were four specific types of Kapital within Liberal Capitalism: Bimetallism, Schuld, LCFIs, and Cryptocurrencies.
- “Bimetallism” refers to the Gold and Silver Standards that had dominated much of international finance in the Western world prior to the end of the Bretton Woods System. This form of Kapital relies on the Value of a Currency being pegged to the Price of Gold or Silver. The Silver Standard ended in the 1873 financial crisis that brought about the original “Great Depression” of 1873-1896, replaced by the Gold Standard throughout most of the 20th century. The Gold Standard that met its demise in the two World Wars was defined by the British Pound Sterling as the World Reserve Currency, the predominant Currency during the period. It was later superseded by a post-1945 variant which is the subject of this Post;
- “Schuld” is a German word that has two meanings, both of which are employed to describe the deeper meanings behind the contemporary usage of Fiat Currencies. It can mean “Guilt” in a moral sense and it can also mean “Debt” in the financial sense as well. Whenever a Currency is not backed by anything, it is a Fiat Currency pegged to the Schuld Standard. This form of Kapital has been the most commonly-used variant since the end of Bretton Woods, as evidenced by the spiraling amounts of Schuld accumulated by nation-states for decades. Its composition is a dialectical combination of lending Credits and borrowing Debits;
- LCFIs (Liberal Capitalist Financial Instruments) refer to the means of financial production commonly found at Financial Markets under Liberal Capitalist Financial Regimes. With the exception of “Forex” (Foreign Exchange), LCFIs emerged in the centuries since the Enlightenment of the 17th and 18th centuries, as Liberal Capitalism gradually created its planetary hegemony throughout the 19th and 20th centuries. These include Securities such as “Stocks” and “Bonds,” “Derivatives,” “Options,” and “Futures,” as well as “Mortgages,” “Insurance,” and “Commodities”;
- Lastly, “Cryptocurrencies” represent the latest form of Kapital, its conception a byproduct of advancements in the commercial application of computer technologies after Bretton Woods. The historical documentation on Cryptocurrencies were conceptualized between the 1980s and 1990s before finally becoming realized by the advent of the Bitcoin in the late 2000s. Since the Bitcoin’s introduction, an entire industry devoted to this form of Kapital has grown up throughout the 2010s and has proven to be unstable due to the lack of anything backing its Value except for a “Blockchain” that acts as a digital ledger for a limited number in circulation at any given time.
All four types of Kapital prevail in the post-1945 world thanks to the financial hegemony of the US Dollar as the World Reserve Currency. The origins can be traced back to the final years of the Second World War. The terms of the post-1945 monetary order was arranged in the favor of the US at the Bretton Woods Conference in 1944. The Allied Powers convened in response to the proliferation of protectionism, currency devaluations, and trading blocs of the interwar period between the two World Wars. They sought to ensure that the conditions which created those policies would be deterred post-1945. Among the terms agreed upon by the Allied Powers were the creation of the “International Monetary Fund” (IMF) and the International Bank for Reconstruction and Development (IBRD), the lending arm of the World Bank. What enabled the rise of US Dollar hegemony was the Bretton Woods System that defined the international finance during the early half of the Cold War.
For those interested in what I had to write on the history of Bretton Woods, I recommend reading it as a primer for the rest of this particular entry in the Compendium. For those who have already read it, I should point out that the death of Bretton Woods has led to a divergence among Liberal Capitalist intellectual circles for decades. It is pure irony because of how they have been able to convince the world after 1945 that Planned and Command Economies are impractical through unanimous consensus, but deviate from each other over the question of Financial Regimes. In essence, the latter half of the Cold War did nothing to substantially undermine the viability and feasibility of Planned and Command Economies. What the 1970s and 1990s as well as the decades thereafter have demonstrated is the need for the reapplication of the general premises behind Planned and Command Economies within the Financial Regime. That in turn requires a revolutionary approach to how everyday financial practices are conducted under Socialism.
The post-1945 consensus in international finance shattered when the old Keynesian model proved impractical. The ones who refined the original ideas behind John Maynard Keynes’ works, Sir John Hicks, Franco Modigliani and Paul Samuelson, saw the credibility of their own improvements undermined by the end of Bretton Woods. The onset of “Stagflation” in the 1970s created contradictions in the reliability of the “Phillip’s Curve” by a rise in Inflation Rate coinciding with a rise in the Unemployment Rate. This is important because the Phillip’s Curve insists that rising Inflation Rates are correlated by a decline in the Unemployment Rate. It can be argued that the rising Inflation Rate coincided with the end of the Gold Standard, the adoption of the Schuld Standard, and the difficulties that Liberal Capitalists faced in adjusting to the latter as well as the energy crises of 1973 and 1979.
The Keynesian interpretation of Liberal Capitalism survived the fall of Bretton Woods thanks to the research of economists like Stanley Fischer and John Brian Taylor around the late 1970s and early 1980s. They argued that the Phillip’s Curve needed to be revised to account for explicit nominal price changes and wage-setting. The result led to the creation of “New Keynesianism,” its adherents including economists like Joseph Stiglitz, Paul Krugman, and Nouriel Roubini.
Serving as a counterweight to the prominence of New Keynesianism is the Monetarism of Milton Friedman and Anna Schwartz, who popularized their Anti-Hamiltonian interpretation in A Monetary History of the United States, 1867–1960. Friedman is identified in the SMP Compendium as the historical figure who devised the market reforms of Pinochet’s Chile after the overthrow of Salvador Allende and the destruction of Project Cybersyn. Within economics and finance, however, Friedman was known for his rejection of the Gold Standard and any attempts to revive it as impractical, even for Liberal Capitalism. While this causes the Monetarists to be in opposition toward the Austrian School adherents advocating for a return to Bimetallism, the Monetarists themselves also detest New Keynesianism. For the concept of Inflation under the Monetarism interpretation of Liberal Capitalism deems it as only arising from Kapital and nowhere else. A number of prominent Monetarists are well-known figures such as Prime Minister Margaret Thatcher and Federal Reserve Chairmen Paul Volcker and Alan Greenspan. Greenspan in particular was once a follower of Ayn Rand’s Objectivism philosophy and addressed concerns about the Y2K Bug among American financial institutions.
While the New Keynesians and the Monetarists remain adamant about not revisiting the Gold Standard, that has not stopped various Liberal Capitalists influenced by the Austrian School. Those who favor the Gold Standard have done so on the belief that the Value of Kapital overall has waned for decades under the Schuld Standard. A similar variation of this interpretation, abetted by the Cybernetic technologies research of Friedrich von Hayek, is the recent interest in Cryptocurrencies. While the philosophical concepts are present in von Hayek’s lesser-known interests in Cybernetics, the technical research coincided with the development of information and financial technologies.
Research on Cryptocurrencies coincided with the conceptualization of “Triple-Entry Bookkeeping” as a precursor to the Blockchain by Japanese economics and accounting researcher Ijiri Yūji. Ijiri outlined the concept of Triple-Entry Bookkeeping in a 1989 monograph entitled, Momentum Accounting and Triple-Entry Bookkeeping. A working Cryptocurrency was not unveiled computer scientist David Chaum refined his ideas of Cryptocurrencies since 1983 to create “Digicash” in 1995. Over the years, serious research into a practical Cryptocurrency was attempted without any success until somebody named “Satoshi Nakamoto” (or Nakamoto Satoshi, if one believes that this person is Japanese) invented Bitcoin by the end of the 2000s. Since the realization of Bitcoin, most Cryptocurrencies have proliferated to overcome the programmed limitations on the quantity of available Bitcoins. Both Bitcoin and its various derivatives share the notion of creating small amounts of Kapital for excessively large amounts of computing and electrical power. Their mere scarcity is what enables them to have any Value.
There is a general trend that can be discerned from the divergence among Liberal Capitalists about Kapital. Kapital is becoming increasingly abstract and divorced from the everyday realities of actual national economies. The growing abstractions of Kapital ought to be studied alongside the growing abstractions of what passes as “freedom” and “security” as they are understood by Liberal Capitalism. Kapital does provide a combination of both in the form of material wants and desires, and despite the world literally drowning in a deluge of Kapital, there is always never enough and always too little in existence. However, the ‘freedom’ and ‘security’ are really contradictions of the actual ‘unfreedom’ and ‘insecurity’ that manifest themselves in problems like “underemployment,” “wealth inequality,” “taxation,” “social welfare,” and “insurance.” They are observable among the recent interests in Economic Nationalism vis-à-vis the Tiger Economies of Asia and the Social Democracies vis-à-vis the Nordic Model of Scandinavia.