I often hear people talk about "capital destruction" but have been wondering of late if its really possible or if its really a case of the capital concerned was just over-valued in the first place. To my mind "Capital" is a 'abstract construct' assigning storable or transferable 'value' that comes in many forms; Social Capital, Human Capital, Capital Equipment, Financial etc. If capital equipment gets old or run down, or loans go unpaid (due to a bankruptcy for instance) it is typically described as an event that destroys capital. But doesn't it really mean a revaluing (in $ terms) of the value of the equipment/$ invested? Has capital really been destroyed? Sure, in $ terms the number is lower than originally assigned... but is that a true loss. If you save up your capital and invest $100k to buy a widget making machine... use it for 2 yrs making $1m dollars worth of widgets in the meantime, the machine may've depreciated by 50% in value, but have you really destroyed your capital... or has it been transfered to the widgets? A good example of how the 'value' of Capital can change is the varying pay rates in our society. 3 employees in the same company can each spend 1 hour at work and each be rewarded with vastly different $ amounts. Perhaps the problem with capital gain/loss is the $ valuation we put on the capital on the first place...and the fact that this value is in a constant state of flux?
Thats some deep thinking claw...mushrooms for lunch ? : A bit deep for my little brain i only speak about capitol as financial as in $ initially invested then returns on said capitol in % . If its sub 5% its a dog....but im old & simple
If I have a block of land that I've subdivided off that is costing me $50k. I build a house on it for $200k so total cost $250k I rent it out for $385/week for a gross yield of 8% or 6.5% nett return on capital invested. The market value of the property is $450K so the yield on current value is 4.4% gross or 3.6% nett. Is it a good return on capital or a dog? Half of me thinks it's a good return on actual capital invested and the other half thinks it's a dog of a return on $450k and that I'd be better of selling and reinvesting it elsewhere. Which half of me is right? C
~ ~ "Although the words "capital" and "wealth" appear to have similar meanings, they are actually different. The word "capital" (noun) implies a large amount of money used for producing more wealth or for starting a new business, for example, "She invested 20,000 capital into the business, but is unlikely to see any return for the next few years." However, the word "wealth" (noun) refers to a large amount of money or valuable possessions that someone has and uses for personal consumption, for example, "He has inherited a lot of wealth and hence has a lavish lifestyle." Inflation destroys capital. Slowly. Methodically. Bad luck destroys wealth. In a flash. Overnight. Before one can liquidate, and convert back to capital. But of course, there are many acceptable meanings to these terms.
It can be a bit meaningless term. Capital can refer I think to pretty much any physical thing or financial instrument. Financial instruments are obviously not really physical things, apart from cash which is kind of physical but a bit unusual in that regard because it doesn't represent gold any more. So say if you have a car and it gets destroyed, you can call that capital destruction. I think a lot of what is referred to as capital destruction is revaluing of financial instruments (whether it be debt, shares, or whatever). These usually reflect things in the physical world to some degree. Shares represent a companies assets to some degree but also it's potential. Bonds represent future cash. Mortgages are attached to property. etc If you have a bunch of financial instruments that the market values at 500k one day and 100k the next then that is technically a lot of capital destruction for you. But I think it's really got more to do with debt than anything else. When debt is paid off (through repayments or by bankruptcy) that credit is removed from the system. This is why the money supply which measures credit is fluctuating all the time as new loans are taken out and old ones are paid off. But the total amount increases faster than decreases because most people are taking out loans faster than they others are paying them off. If you have a sudden huge liquidation then the amount of credit can decrease thereby leading to "capital destruction". Not sure if that helps or not, it's a bit all over the place because I'm trying to think about it and write at the same time. Maybe someone else might be able to clean it up or tell me I'm completely wrong.
Does capital have to have a dollar value attached? If you help me move house with the promise I shall return the favour in the future... and it takes all day, I owe you 1 days labour. You've saved it up for future use....isn't that true capital? It can't be destroyed (short of me dying/getting sick/moving away from town). Its leading me to this question; If the dollar died tomorrow wouldn't we still have 'capital' to use? For instance, Your house has capital even outside a dollar value. How about the rent value without an actual currency income. Eg your tennants could perform labour for you in lieu of cash payments... if its raining and they can't work... you can save the days owed for later use... just like cash. However unlike cash... these can never be devalued. Or a car ride to the airport Or a nice cake Or professional legal services Don't these all have a capital value... that doesn't have to be measured in $ ?
6.5% nett is ok any positive cashflow from the start is fine . I wouldnt even look at the market value unless i was looking to get out of it & reinvest / retire/ take profit for another project . If you sold it the profit % would be enough to make most investors smile . Hmmm choices ....choices... for me it was always take profit & lessen debt exposure .only because i hate debt many people love it but i hate owing anybody a cracker .I always felt better when there was less debt ....even if it was easily serviced .
I see your usage as too generic. It is like politicians who have "political capital". They will get the support of the voters or the party because they did something right. Or they can step out of bounds briefly, and have no repercussions. Political capital, like money in the bank. In a financial sense, political capital has no monetary value. In a financial sense, 'capital" has to have a currency equivalent, if not actual currency or it's digital equivalent (ledger credits), or so I would argue. "Do you have the capital I need to get my business running?" "Sure, Bill owes me a lawn mowing, Sue owes me one fish entre, etc, etc, etc. We will use that to start your business." Don't think so. Terms mean whatever we what them to mean, or what we agree they mean. For they purposes PM discussions, your usage is too watered down, IMO. Your examples are a form of wealth, as far as I am concerned, but not capital.
Easy, Buy a nice new car for $37,000 and keep it for a few years and it will be worth a 1/4 of that. OC
This. Let's define capital as the goods that are used in intermediate stages of production which do not directly satisfy consumer needs. That is, they are things used in the process of obtaining what we actually want. This covers a plethora of things including factories, mines, buildings used to house the HR managers of the people who work in the factories, the prefabricated steel stockpiled before being converted into car bodies, the sugar bought by Coca-Cola before mixing to make their soft drinks etc etc. All capital goods are perishable. The few products that are not perishable but permanent become, to all intents and pur-poses, part of the land. Otherwise, all capital goods are perish-able, used up during the processes of production. Some capital goods are used up in each production-event. Other capital goods are also used up, but not as suddenly; they may last many years. Each particular capital good has a different useful life and therefore a different rate of depreciation, of being used up. Money (which people often call "capital" because it can be used to buy/create capital goods) is the grease. More specifically, money is a ledger account saying that Person A is owed resources from others as a result of them selling their products but not yet receiving the other side of the barter arrangement. It helps enable physical capital to be created. The monetary value of capital goods changes often and unwanted capital can actually become worthless (at which point they simply become consumption goods). The capital goods themselves are not destroyed (but they do depreciate). Does that help?
Yes In fact... that was brilliant... cheers Bordie Thanks for the replies guys I guess if we accept this definition (that all capital is perishable) then the answer is "Yes" capital CAN really be destroyed. Something to really think about !!! :/
