CapitalIdeas

The "new economy" is scarcely new --- but it is widely misinterpreted and mythologized. One way to see through the fog is to examine capital, the net stockpile of non-consumer goods. Consumer goods are valuable in and of themselves; they provide direct services to meet people's needs, and their value is determined by market sales to end-users. Clothing, shelter, food, and entertainment are examples of consumer goods. Capital goods, in contrast, are worth something only inasmuch as they can be used to produce consumer goods. No (normal person!) wants a sawmill or a C compiler. People want the outputs of capital investments --- wooden boards (or, more accurately, houses made of wooden boards) and useful computer applications such as video games, word processors, etc. (Yes, the boundaries do at times get fuzzy. Some durable consumer goods can be used for a while and then re-sold; in that case, they take on certain attributes of capital goods. Some capital goods are enjoyed for themselves, by odd individuals or under odd circumstances. It takes all kinds!)

The big ruckus of the past few years boils down to movements of capital. Folks have decided, rightly or wrongly, that the Internet and other information technology developments will let them meet human consumer needs more efficiently. Investors thus have chosen to let many capital goods deteriorate (or depreciate, or wear out). They have channeled resources into laying new fiber optics lines, building TCP/IP packet routers, installing file servers, launching satellite relays, and gathering "content" to sell. Some of these investments will pay off, and others will turn out to have been huge mistakes.

This is nothing new. Similar shifts in capital investment occur every few generations, as populations grow and move, as natural resources are discovered (remember the Gold Rush?), and as practical ideas (technologies) are tested and implemented. No big deal.

Saturday, April 08, 2000 at 10:29:29 (EDT) = Datetag20000408

TopicSociety


(correlates: LessonsOfTheMarathon, High Voltage Fiberoptic Cable, PlagueOfEmoticons, ...)