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the title of thomas piketty's book is capital in the 21st century so it's probably worth having a conversation about what capital is so if you're going to produce anything so you want to produce anything you need some input you need some factors for that production so you would put them together so let's say that you're you are a farm you are a farm your output is food well what are your inputs going to be so this is a farm right over here let me draw a little circle here farm and your output is food what are your inputs going to be well you're going to need some land you're going to need you're going to need some water you're going to need some you're going to need some equipment equipment equipment and then you're going to need some some maybe you might need some seeds and animals and so I'll just put generally here supplies supplies and of course you're going to need people to put all these things together and essentially work the land dough to plow the soil and plant the seeds and harvest the crops and manage the whole operations so you're going to need labor you're going to need labor as well so you take all of these factors of production together they essentially represent a farm that is going to output food so when people talk about capital is a factor as a factor of production sometimes they talk about it in a fairly narrow way they'll separate things like land and resources is something separate but and they'll say capital is hey that's you know your equipment and your supplies but when people talk in more general terms especially in the focus of this book when we were people talking about labor versus capital capital when we just group things in only those two categories and that in that context capital would essentially represent pretty much everything else so this right over here would be capital and one way to think about capital it's the things that you could maybe you our assets that you have that can be valued that will give you future benefit these are thin you can buy and sell those assets and we can think about other businesses here or other other things that are trying to produce something so let's say you have a let's say that you have a mine a mine so a mine so this is the operation and it's going to produce let's just say it's a gold mine so it's going to produce gold so what are the inputs that you would need there well you're clearly going to need some labor you're going to need the miners and the people who would manage the operation of the gold mine but that's not that's not all you need you also need energy maybe to operate some your equipment and actually I would put energy in here too some of which comes from the Sun but some of which you might have to might have to purchase or have somehow and then you would also need equipment equipment and you would need supplies I mean we could consider energy supply if you like or you need a supply of energy but you also might need a tires or something like that you might need food in order to to provide for the laborer who knows what else you might need in your mind and you also would need of course land you need access to land to actually mined so here if we think in very broad terms you could view you could view all of this as the capital all of this as the capital and of course you have your labor and you put your labor and your capital together and you produce you produce the gold now another idea that you will hear in well you'll hear in life a lot but obviously in a book about capital this will come up a lot is the idea of return on capital return return on capital and this is just a measure of given a value of capital that you have employed how much income are you getting for that capital so for example let's say that let's say that let's say this farm the total value of this capital let's just say it is I don't know I'll make up a number here let's just say it is 1 million dollars 1 1 million dollars is a total value of the land and maybe you have access to your own lake and the equipment and the supplies here it's one it's 1 million dollars of capital the value of that capital is 1 million dollars and let's say that this the the income of the farm after you pay the labor so let's actually let's let's do this in a little bit a little broader term so let's say the foods value the food that's produced is has a value of $100,000 in the market now out of that hundred thousand dollars you obviously have to pay your labor so let's say that 50 thousand dollars of it goes to the laborer fifty thousand dollars goes to the laborer and like we were saying this is in a given year so you use the capital to labor you produce a hundred thousand dollars worth of food fifty thousand dollars goes to the labor what's going to be return on capital well you have another 50 thousand left over for the capital for the owners of the capital whoever owned the farm so the owners of the capital would get the other would get the other fifty thousand dollars so your return on capital is going to be fifty thousand dollars that's what the owner of the capital gets and it's the return on their investment of 1 million dollars 1 1 million dollars and this is going to be this is going to be the same thing as 5 divided by a hundred or it would be five percent you have a five percent return on capital you invest a million dollars you're going to get $50,000 so who's the six percent return on capital you invest a million dollars you get sixty thousand dollars now that we've kind of thought about that a little bit let's actually look at a pretty neat chart from the book and once again it's pretty neat he has a if you look right over here at picady dot psee nsfr capital 21c he has all the charts from his book which is which make for interesting analysis at minimum and and and he's gathered all this all of this information this is pretty interest is capital and slavery in the United States and what's interesting about that is you when you study American history you talk a lot about slavery but you to realize that in the time of slavery as abhorrent as it as it is and was people viewed slaves as capital not as labor as they view them as something that they could buy or sell that they owned and that would create future income for them and this just gives us a sense of kind of the breakdown of capital over history you see down at least in the United States you see agricultural land in 1770 it was a reasonable percentage is the value of capital as a percentage of national income so the value of the land is a percentage of national income was much higher than it is today and we see the other trend that the other domestic capital has become much more much more volume and say well what is this other domestic capital well this could be things like like infrastructure it could be technology it could be mechanical technology things like trains and cars and trucks and buses or and factories or it could be it could be it could be software it could be computers whatever else and as we see as we went through the Industrial Revolution the value of other forms of technology became or other forms of capital other than land became more and more important for for our economy and obviously slavery ended slavery ended in the late 1860's made it mid late 1860's and obviously that went away but just an interesting way to think about macroeconomic trends in the United States land in 1770 was a major factor of production and still is obviously we still need land in order to produce things especially agriculture well this is agricultural and you still it's still it's still a major part of a land has disappeared it's just that the economy has grown to be much more than just agriculture so in 1770 agriculture was a big part of our economy now agriculture is a much much smaller part of a car our economy so this is just a an interesting way to think about well okay this is that all of the capital and this is both public and private capital included here so public capital would be something that is owned by the public by the government while private capital would be something that is owned by by private individuals or corporations or whatever else but you see on average you have had kind of a fairly constant you know give or take a little bit that the total value of the capital has been around four to five times the value of the total productive output four to five times the value of the total productive output of the country