"It’s Capital - We Guarantee It!"

In any economy, “capital” is real wealth which has not been consumed. The production of new wealth is dependent on the supply of capital goods or factors of production - above all the tools essential to the task. A capitalist economy is impossible without a further form of capital - a medium of exchange or money. But money does not produce goods, it facilitates their exchange. Any money will do that, but SOUND money provides a still more important service. It allows for economic calculation. And without a reliable form of economic calculation, it is impossible to discover whether a given process of wealth production is viable or not. A SOUND money allows for the reliable calculation of profit or loss in any enterprise. By doing that, it acts to minimise the loss of real wealth by directing new capital into profitable uses and diverting it from uses which do not pay their way.

This is the only process by which any nation can become prosperous. It is entirely short-circuited when the common denominator in all economic calculations - money - is produced by edict and not by effort. It has long been known that it is impossible to “create” wealth out of thin air. It has long been held that money and wealth are synonymous. It is now a tenet of market faith that when it comes to creating money out of thin air - literally anything goes. The contradiction is as glaring as it is ignored.

Today, capital is taken to be a sum of money. This nominal amount is “guaranteed” by government edict and central bank power. The purchasing power of that money is also “guaranteed” by central banks to fall over time but only in carefully controlled annual increments. This is known as “inflation management”. Every central bank has its preferred rate of inflation. Every one of these rates bears no relationship whatsoever with the pace at which these same central banks are creating it out of thin air.

The economic - AND MARKET - distortions resulting from this practice have long since become incalculably huge. They have been fixed into economies everywhere. They must be corrected before any type of genuine wealth creation can once more come forth. That process will crystallise huge losses because of the huge misallocation of REAL capital that has already taken place. There is no way over, under or around this situation. The world is simply going to have to go through it. The longer the paper “capital” underpinning investment markets is preserved, the more painful this process will become.

Capital can NEVER be “guaranteed” - it can only be produced. And governments produce NOTHING.