This is post is the fifth in a five part series on Capital, and You.

Previously, I defined capital as potential power, and argued that the primary optimization objective of the venture capitalist is to acquire more capital. Further, the board is the embodiment of the Corporation, it is made up of people who represent the Venture Capitalist, the Founder(s), other shareholders, and by proxy, Capital, and it is obligated to behave in a manner that increases capital accumulation. If the Board and the Founder are aligned in the pursuit of increasing capital, great capital may be accumulated. If they are not, doom.

This fifth and final post expands on the relationship between Capital and the Citizen.

Should citizens of a liberal-democratic society be concerned with the state of capital accumulation in their country?

Capital that is at work is symbolic of optimism. It’s optimism that tomorrow will be better than today. It’s optimism that people can change their environments, and change reality. Capital represents a form of power that’s different from other forms of power.

In aggregate, capitalists believe that liberal-democratic societies are better off because of capital accumulation.

Firms grow large. They stagnate. They capture regulators. They often capture politicians. Startups emerge. They disrupt. Technology advances. They grow large. They stagnate. They capture regulators. They capture politicians. The cycle repeats.

A foundational idea of liberalism isn’t so much that there should be an aristocratic class, it’s that the aristocracy should be based on merit and be dynamic, as opposed to being based purely on birthright and be static. Many capitalists want to transmit their power to their children. (The sustained assault on estate taxes is the most visible example of this, the capture of university bureaucracies is another.) Maybe some of them believe they have earned the privilege to destroy public institutions?

Bad actors abuse their power and then become de-legitimized, fueling pessimism.

Many citizens are becoming pessimistic. This should be a cause for alarm. If people don’t feel as though they can play fair and win at the game of capital accumulation, they will, at best, disengage and harm themselves, and at worse, harm others. We’re enriching our stocks of capital as we draw down the Earth’s resources. We continue to believe that technological innovation will pull us out of environment crisis, even though every technological innovation leads us towards a new environment crisis. There’s a lot of insecurity around automation, and the general feeling that the state is just as predatory as Capital is.

Capital tends to become concentrated in few hands over time. It used to be that the sovereign simply requisitioned capital, fought wars, and reneged on their debts. Later on, there were a few problems with people literally losing their heads over it. There was the innovation of financial panic and collapse would reset the system by making everybody poorer simultaneously. Since the 1980’s, it’s become common practice in many liberal-democratic states to resort to bail outs. As a result, capital has become extremely concentrated in the hands of just a few tens of thousands of people. Power laws cause Power Laws.

When people aren’t optimistic, capital doesn’t accrue. People stop participating. Less capital is put to work. Things get worse. Institutions fail. Things get worse. Kings are crowned. Things get worse. It can take two generations to recover. And recovery is rarely linear.
But people can learn and institutions can adjust.

When startup founders learned that the game involved Venture Capitalists firing them after the second round of funding, many founders stopped playing the game. Deal flow dried up. More entrepreneurs bootstrapped. VC’s had to change their behaviour to regain trust and earn their way back into the lives of founders.

What I watched in Davos and on Bay Street is similar. A lot of people don’t feel like the game is fair, so they aren’t going to play. They have to understand that those feelings are legitimate and real. If people stop participating, less capital is put to work, and things get worse. I heard a transition in Davos, that they’ve gone from denial to bargaining.

Capital is power, but it isn’t freedom. Everybody citizen has freedom. And in general, the amount of freedom we have is increasing. You can choose, if you wish, to play the game of capital accumulation. You can also choose to not participate. If you don’t like how those with power are using it, you can choose to organize and run. As a founder, you can choose to try to become rich, or you can choose to retain control of your firms fate. You can choose community. You can choose be a vulture. You have a lot of freedom.

Should citizens of a liberal-democratic society be concerned with the state of capital accumulation in their country?

Maybe that depends on your level of optimism?