Friday, June 29, 2007

capitial all becomes flow

In economics we talk about stocks and flows. No more so in terms of describing capital. Capital in the economic sense of providing the capacity to create goods and services. No more so is capital the life blood than in the worlds financial markets. I have listened to the Chairman of the Federal Reserve in USA talk about 'how efficient' the market is at allocating capital. Meaning, switching cash resources from e.g. energy into healthcare or selling Microsoft stock to invest in a venture capital fund etc. etc.

I am not sure I share is 'efficient' claims. Two fold reseaons. Only a minority of the worlds capital is directly traded on the words financial markets. Secondly, any market which requires a stock of capital has huge efficiencies to be gained. Ideally, we want a market with nil capital stock.

We still need capital, just that the capital will be 100% flow. This is what the financial markets want to achieve in theory but I don't believe they have the information flows or property laws or incentive systems to come anywhere close to realising this. A world of 100% flow of capital requires no financial markets. No need for third parties to make capital allocation choices, usually on aggregate for others, no need to incur a needless transaction cost on moving the capital and no speculative flows.

It's not that these processes won't continue to exist. They will it is just that the individuals directly impacting the flow of capital will be participating. It will be too costly to outsource these activities.

To be thought about: the transistion to 100% flow of capital, how financial markets will evolve and then disappear.

Tuesday, June 26, 2007

life transactions

Life transactions, today we talk about monetary transactions. Money has been successful as a currency. A currency allows for an exchange of different commodities, services or even money itself. Acts as a store of wealth and all because society has created/found a way to trust the record keeping associated with money. Such a task that it accounts for twenty odd percent of the market capitalisation of major stock market indexes but even more impressively is bound into every transaction in our recorded economy every second of every day, of every year, year in year out. Such an impressive situation you would find it hard to believe it being so pre its implementation.

Capitalism forces are now ready to expand its ambitions for its currency. Money transactions summaries a much wider set of events. The cost of wrapping those in a monetary transaction are too high. In fact, I read that half the GDP of the world is accounted for by transaction costs. (I have no evidence to support this). There is a transaction framework that has more or less put those costs to zero. The framework, the Internet.

The cost of authoring or publishing information is near zero. For those transaction formed online then we have a new currency able to capture all events that are meaningful in the creation of a monetary transaction. This currency exist today and as time passes more and more of all monetary transaction processes are being authored to the Web. It is just a matter of time before society migrates to this new currency framework.

Society will be comfortable in it the way, we are with money and banking services today. However, life transaction will improve the incentive systems of capitalism. In monetary transaction the legal frame work governing the transaction is the mechanism to create trust. However, this does not lead to a transaction doing the right thing or allocationg resources best, most efficiently or even fairly. Life transaction authored online will have incentives to rewards transactors that deliver the outcomes sought be each party. Life transaction will be complete when what needs to be done is done. This does not need to be the case with a monetary transaction, this disconnect being money Achilles heel.

Capitalism will always need a currency, that name and purpose will change, as society evolves. Timing these evolutions is never easy but from what I see happening in the world, a new currency is in the making.

Friday, June 01, 2007

Creation chains (demand and supply retire)

1991-1995 I studied economics at The University of Aberdeen. If you had said to me then, that in little over 10 years years time, we would start to question and then retire demand and supply curves from the teaching of economics, I probably won't have believed you.

It is clear that this is what the next stage of capitalism will demand. The Internet has given capitalism a new currency to expand its reach with, information. This bottoms up approach to capitalism focuses on creating an economy that focuses on sustaining life. The mechanism it will choose to 'allocate' resources will be creation chains. JIT time applied to the future. Monetary capitalism biased itself towards supply chains, where JIT of that supply chain being the holy grail.

Economies of scale, was a friend of supply chains. In creation chains they will increase costs.

The division of labour led to specialisation, but due to primitive communications those conversation became, in effect talking to yourself. Collaboration will allow all to communicate with all required in creation chains.

Commodity market, created monetary markets, that created derivatives of both to try and model the real word is saw. The Internet sees all that happen when people author to the internet. Money has a competition, its the incumbent but sure to be replaces in time.