Money and capital are different things. Capital in a broad sense is any durable good that is employed in the production of goods and services. For example, a road. Money is not capital. Money is simply a good without intrinsic value that is used as a means of exchange. As a result creating and destroying money doesn't create or destroy wealth.
You are using a very non-standard definition of capital.
> As a result creating and destroying money doesn't create or destroy wealth.
I'll give you a MacBook, which is a durable good you can use to produce goods and services, if you go to the bank, withdraw all of your money, and then set it on fire. This is a good deal for you. Your wealth will not change from setting the money on fire, as destroying money does not destroy wealth, and you will have a capital good that will increase the amount of wealth you have.
If you set your own money on fire, the amount of wealth in the economy won't change. However you'll be worse off, because your share of the total wealth is now smaller (and everybody else's share is bigger).
> However you'll be worse off, because your share of the total wealth is now smaller
So you're worse off because your share of the wealth is smaller... if only we had a way to describe that. Perhaps you could say that you're less wealthy and by burning your money, you've destroyed your capital?
Look, I get what you're trying to say. The value of each currency unit is roughly the total amount of economic value divided by the number of units of currency. So the sum of the value of all the currency units doesn't change as you add to or subtract from the money supply. The piece you're missing, though, is that the VCs didn't create the money they invested in BlockFi. The money came from investors and partners. So in a very real sense the capital of those investors and partners was destroyed.
Destroying money doesn't destroy capital. It doesn't matter who created it. Money is not capital. You're mistaking a claim on a good for the good itself. These are completely different things.
Again, you're using a totally non-standard definition of capital. Google "capital definition"
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
So yes, if you redefine the word capital to fit whatever you like, then sure, I agree with you.
I'm not redefining anything. I'm an economist, and I know the terminology of economics well. Capital can refer to two things, either 'capital' (or 'real capital') or 'financial capital'. The definition that you've posted matches (more less) the definition of financial capital. But, either way, this is not complicated. The fact remains that destroying money doesn't destroy wealth. Mistaking money for real wealth is a common mistake.
Ok, so I think we’re in the same page: there is a definition of capital that includes money but is for some reason not applicable to this conversation because you’re an economist and know better. And if you burn your money in your bank account, then you’re less wealthy but that cannot be referred to as destroying [your] wealth or capital.
To help out a little - money is only a signalling protocol for resource allocation. Nothing more. Burning the money in your bank account does not destroy any resources anywhere. It does, however, rather screw with being able to get some of those resources allocated to you.
Resource. Noun. a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively.
Even if the commonly accepted definition of "resource" didn't explicitly state that money is a resource, the ability to acquire resources is itself a resource.
No, it isn't. Let's say I take a piece of paper and write:
"I will give the bearer of this piece of paper my car."
Do I have created a new car? No. The piece of paper is still a piece of paper, and there aren't any more cars in the economy than there were before. And likewise, if I proceed to destroy the piece of paper no cars will be destroyed in the process.
Have you created value by writing on the piece of paper? No. But if the entire world agrees that your piece of paper has value, then you would lose wealth by giving away the piece of paper and the person you gave it to would gain wealth by receiving it.
When we talked about burning money you said: "[burning your money], however, rather screw with being able to get some of those resources allocated to you." If you burn your "car IOU", does that screw with your ability to have resources allocated to you? No it doesn't. So you can see that your car IOU is not an appropriate analogy to money.
Because this only happens once the IOU has been put in circulation. In my example, the paper money I created was not put in circulation, consequently no redistribution effect took place. The analogy is solid and appropriate.
Ok, so what would be involved in putting it into circulation? In your original analogy, you simply you said you wrote an IOU. Unless putting it into circulation is trivial, then your analogy is neither solid nor appropriate. A substantial amount of work goes into providing a stable currency.
Just being perfectly honest here, I think your position has been shown to be logically inconsistent in multiple ways.
1. We started this discussion by talking about whether or not investment in BlockFi represented a destruction of capital. You said it didn't because money invested is not capital. You then later admitted that there are definitions of capital that include money. I would consider this an uncharitable reading of the initial point regarding investment in BlockFi. If there is a valid definition of the word "capital" in which the original point is true, that it is charitable to assume that was the intended definition.
2. You agree that burning money in your bank account would make you less wealthy, but somehow disagree that you cannot consider this destroying your wealth. That's inconsistent.
3. The "car IOU" analogy has an obvious flaw in that burning it does not reduce your wealth as was the case in the burning money example. Despite this absolutely crucial difference, you maintain it is somehow valid without an explanation of the difference.
You put the IOU in circulation by selling it or by giving it away. (I don't know what's so hard about that.) The point is that the act of writing the IOU doesn't create any new cars. And likewise the act of destroying the IOU, at any point in time, and regardless who's holding it, doesn't destroy any cars either. This simple example shows that no actual resources (i.e. capital) are destroyed as a consequence of IOUs being destroyed. If you still don't understand why this is the case, I don't know what else to say to you.
If you smash your machines, you destroy real capital.
If you burn your money, the financial capital doesn't just go away. It's effectively reallocated to everyone else via deflation. That's why "destroying capital" isn't a good way to describe it.
If you destroy half the machines in the world, evenly distributed, the economy crumbles. If you destroy half the dollars in the world, evenly distributed, nothing really happens.
And back to this case, the VC money wasn't burned at all. It went to paychecks and service providers and customers and scammers. It didn't disappear, it moved.
You’re conflating the money supply with money. The inherent value of the money supply is constant. That’s why you could halve it uniformly without impacting much. But that also necessarily means that each unit of currency does in fact have value. So if you invest it in scams, you can call that destroying wealth.
Also worth nothing that we’re not really talking about money. We’re talking about equity in companies with the statement that billions of capital was destroyed by investing in BlockFi.
Capital can mean money. It was mentioned elsewhere in this thread, but Google "capital definition"
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
There is even a bank called "Capital One." Originally, Capital One's only product was credit cards, i.e. providing monetary loans. It feels like this entire thread has been arguing about what people "feel" capital should be. In the case of BlockFi, capital has very much been destroyed. Company equity going to 0 is the ultimate capital destruction.
The status was destroyed, the assets were not destroyed.
Take my last post and replace the word "capital" with "money", and I would say that version is just as true.
You can destroy money, but that's a totally different topic. The money that was invested in this exchange didn't get destroyed. It went to other people.
Remember that the original post wasn't talking about 'wealth'. You can't come in and say "capital=money=wealth, and investor wealth was destroyed, therefore investor capital was destroyed". That's like saying "nothing is better than happiness, and a sandwich is better than nothing, so a sandwich is better than happiness". The meaning of "nothing" changes halfway through, like the meaning of "wealth" changes halfway through.
Whether "capital" includes or excludes "money" is a distraction that doesn't really matter.
It matters, because if you aren't careful you'll jump to the wrong conclusion (such as thinking that capital was destroyed, when in fact no capital was destroyed at all). Resources can be bought with money. Someone who has money can be thought of having resources. However convenient this simplification may be, it's not true that money is itself a resource. And this is especially important to bear in mind when we're assessing the amount of resources in the economy (in order to figure out if any resources were in fact destroyed). Counting money as a resource is an accounting error known as double counting, which occurs when the same thing is counted twice.
