Wall Street Journal article from July 17, 2014
Arguments for and against the idea that talent is replacing capital as the most important driver of productivity.
The arguments in this article highlight the difference between the economics and the lay definitions of ‘capital’. In economics capital specifically refers to durable goods used in production (e.g. a sewing machine is used to make clothing). So the ‘capital’ of capitalism does not refer to financial assets (money), as might be commonly believed; it refers to the physical machinery used in production. Capitalism is an economic system in which that machinery is privately owned; as opposed, for example, to socialism–where the means of production are socially owned.
In this sense, I don’t think capitalism is going to be replaced. We will continue to protect private property rights. However, if talent becomes more important in production than capital (due to the rise of service industries, perhaps), then the capitalist (the owners of physical productive assets) will no longer have claim to a lion’s share of output. How will the increasing importance of talent change our economy and economic outcomes? Time will tell…