by From Blair Fix – http://www.paecon.net/PAEReview/issue97/Fix97.pdf Putting a fence around something and calling it “property” is step one of capitalization. But property alone is not enough. Romans had property. So did most feudal kingdoms. But these societies did not have capitalization. To capitalize property, there is a second step. You must mix property with finance. The word “finance” evokes a sense of awe – a sense of other-worldly complexity. But at its heart, finance is simple. It is the act of reducing property to a number – a price. Merge property and finance, and you have capitalization. How this merger happened historically is complicated. But let’s again reduce history to an apocryphal story. To paraphrase Rousseau: Having enclosed a plot of land, the first capitalist took
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from Blair Fix – http://www.paecon.net/PAEReview/issue97/Fix97.pdf
Putting a fence around something and calling it “property” is step one of capitalization. But property alone is not enough. Romans had property. So did most feudal kingdoms. But these societies did not have capitalization. To capitalize property, there is a second step. You must mix property with finance.
The word “finance” evokes a sense of awe – a sense of other-worldly complexity. But at its heart, finance is simple. It is the act of reducing property to a number – a price. Merge property and finance, and you have capitalization. How this merger happened historically is complicated. But let’s again reduce history to an apocryphal story. To paraphrase Rousseau:
Having enclosed a plot of land, the first capitalist took it into his head to put a number on his property and found people simple enough to believe him.
This act of giving property a number, Jonathan Nitzan and Shimshon Bichler (2009) observe, is the central ritual of capitalism. It is the ritual of capitalization … and it comes with a problem.
Because “capitalization” is literally just slapping numbers onto property, any number is as good as the next one. My property could be a 23. It could also be a 1023. In other words, property can have any conceivable price. But which price is “correct”? Ever since our apocryphal capitalist put a number on his property, capitalists have agonized over this question: “what is the true value of my property?”
Like so many human-created enigmas, the scientific answer is that the question has no meaning. Determining the “true” value of property is like discovering the “true” nature of the Holy Trinity. It cannot be done because there is no objective “truth” to uncover – there are only subjective human beliefs. The “true nature” of the Holy Trinity is whatever church clergy define it to be. The same holds for capitalization. The “true value” of property is whatever capitalists define it to be.
This arbitrariness is why capitalists need a ritual.
If you are going to answer unanswerable questions, there is no better way than through ritual. Think of a ritual as a mystified habit – a repetitive behavior that you reify with significance. As an example, take the ritual of gesturing the cross. It is a reified habit that Catholics use to symbolize both their faith in the Holy Trinity, and to remind them of how the Trinity has been defined (the Father, Son, and Holy Spirit).
Rituals are surprisingly powerful, especially when ingrained during youth. I will use myself as an example. During my childhood, my family went to a Catholic church, and I attended Catechism (Sunday school) weekly. I learned all the rituals that are part of Mass. After being “confirmed” as a Catholic at age 13, however, I stopped going to church. Today I am an atheist who is skeptical of religion. Yet if I hear the words “in the name of the Father, Son, and Holy Spirit”, I have the near-irresistible urge to gesture a cross. That is the power of ritual.
Capitalists have invented a similar ritual, but it is not physical. It is mathematical. Faced with the desire to know the “true value” of their property, capitalists have invented a formula that defines it. A property’s capitalized value is the discounted value of its future income:
