The Lifestyle Illusion of Working Capital Requirements

How might one contrast the productivity gains of fixed capital, with the expectations and requirements for personal time as working capital? Prior to the Industrial Revolution, working capital was far more widespread than fixed capital. Consequently, populations expended tremendous efforts, for levels of aggregate output that were not always enough for survival.

Even though widespread abundance is now taken for granted (since the Industrial Revolution), extensive requirements for personal working capital, are beginning to eat into the gains made possible in recent centuries through fixed capital. While these shifting ratios may not be obvious at high income levels, lower income levels - in spite of post Industrial Revolution abundance - face working human capital requirements which - once again - don't always take care of basic needs.

What this boils down to, are ratios of aggregate input, in relation to aggregate output. Remember that time based product includes human capital as both input and output. Product formation for the latter - due to intangible quantification - also makes extensive hidden demands on output. Even though automation ultimately strikes at the heart of skills based requirement expectations, automation cannot address the necessity of maintaining humanity as integral to supply and demand processes.

As luck would have it, automation versus time based economic effort, is a decision making process which populations will need to address via their own unique sets of terms. Whether or not we can experience gains in productivity in the near future, comes down to all of us. Otherwise, time based product - in times of economic stagnation - could claim such so much revenue in the form of required input, that lower income levels lose the ability to successfully coordinate for services, via the monetary representation of other existing output.

Input requirements for human capital investment, lead to substantial lifestyle illusion. This, in turn limits both discretionary time and income for broad swathes of the population. While reading the first edition of "Before the Industrial Revolution: European Society and Economy, 1000-1700", by Carlo M. Cipolla, I've thought about the relationships between fixed/working capital and aggregate input/output. He has an interesting perspective on economic processes which encouraged me to consider various contexts for fixed and working capital in macro/micro settings. How might fixed capital reduce the need for time or resource capacity? Cipolla writes:

Fixed capital consists of those economic goods produced by man which are repeatedly used in the course of a number of productive cycles.

While technological innovation quickly comes to mind, Cipolla stresses that technology is not the only form of fixed capital, and I would also add that time replication patterns have the capacity to contribute to output gains. He discusses how prior to the Industrial Revolution, the greater abundance of working capital in relation to fixed capital, accounted for the fact that no matter how hard people worked, they struggled to meet even basic consumption needs. As the British economist John Hicks also noted, it was when fixed capital assumed a central position in production "that the revolution occurs". Finally, progress spread far and wide, once societies gained enough confidence in fixed capital constructs, to stabilize and increase output gains.

Despite the tremendous gains of the Industrial Revolution, we have inadvertently lost some of that additional capacity, by requiring ever larger components of working human capital (in relation to fixed aspects of human capital) for time based services production. Consequently, for a substantial part of the population, many of the forward steps of progress via tradable sector production, have been followed by the backward protectionism of our non tradable sectors. Not only have these sectors required unnecessary working capital in services generation, but also in multiple aspects of building and infrastructure requirements.

Without a marketplace for time value, the working capital costs of time based services product, could eventually limit time based services to higher income levels. Lest anyone hasn't noticed, services generation for middle income levels has been counted one of the greater achievements of our age. How would policy makers and economists successfully defend free markets, should this capacity be lost?

It's time to include human capital as a fixed capital component in relation to working capital, so that low income levels are not overcome by working capital requirements which in some ways resemble those of earlier eras. I believe that time arbitrage could provide a useful form of fixed capital. As applied human capital, service generation would finally be recognizable as a tangible good. Best, this version of fixed capital would allow knowledge application to occur within a broader economic context.