“Samuel Greedy, a shrewd financier, founds a bank in El Dorado, California. A.A. Stone, an up-and-coming contractor in El Dorado, finishes his first big job, recieving payment in cash to the tune of $1 million. He deposites his sum in Mr Greedy's bank. The bank now has $1 million in capital. In the meantime, Jane McDoughnut, an experienced buy impecunious El Dorado chef, thinks she sees a business opportunity — there's no really good bakery in her part of town. But she doesn't have enough money of her own to buy a proper facility complete with industrial ovens, sinks, knives, and pots. She goes to the bank, presents her business plan to Greedy, and persuades him that it's a worthwhile investment. He issues her a $1 million loan, by crediting her account in the bank with that sum.”
Still slow-reading Yuval Noah Harari's SAPIENS
“McDoughnut now hires Stone, the contractor, to build and furnish her bakery. His price is $1,000,000. When she pays him, with a cheque drawn on her account, Stone deposits it in his account in the Greedy bank. So how much money does stone have in his bank account? Right, $2 million.
“How much money, cash, is actually located in the bank's safe? Yes, $1 million.”
And about a page later:
“What enables banks — and the entire economy — to survive and flourish is our trust in the future. This trust is the sole backing for most of the money in the world.”
In a way yes, I agree with Harari, but also no, I don't, because most capitalists lack imagination and tend to only trust proven track records. So their trust in the future tends to be tied to something's proven success in the recent past. It is trust in the future as long as that future is tethered to the past, in most cases anyway.
Another interesting bit a few more pages in:
“Over the last few years, banks and governments have been frenziedly printing money. Everybody is terrified that the current economic crisis may stop the growth of the economy. So they are creating trillions of dollars, euros and yen out of thin air, pumping cheap credit into the system, and hoping that the scientists, technicians and engineers will manage to come up with something really big, before the bubble bursts. Everything depends on the people in the labs. New discoveries in fields such as biotechnology and artificial intelligence could create entire new industries, whose profits could back the trillions of make-believe money that the banks and governments have created since 2008. If the labs do not fulfil these expectations before the bubble bursts, we are heading towards very rough times.”
This checks, and explains the tendency of a particular echelon of Western capitalists to always chase the next new shiny innovation to pump their money into. But it also fails to acknowledge that the problem today isn't the lack of tangible wealth as much as it's a problem of adequate distribution. What investing in new innovations in the past did was allow for the creation of new jobs that relied on that innovation, thus creating just enough “wealth” for those new employees to delay the inevitable market collapse. Presently, all indications are pointing towards new innovations that eliminate jobs rather than create them, creating more even more wealth disparity, with most of the pie going into the mouths of those who have no need for it.
Capitalism is a dead-end system, its very demise being the doing of capitalists (and their science labs) themselves.
This is something Harari unfortunately seems very unwilling to see or acknowledge, despite it being spelled out even in his own description of it. But he seems fascinated by it, more than critical, and given his evident smarts, has a way of convincing you that everything he says must be true. But much of it simply isn't. #reads #journal