What Is Income Capitalization?

Currency capitalization is a process and mechanism by which people in economic life convert part or all of the monetary wealth they obtain into means that can be used to multiply and bring more wealth. Currency capitalization is actually making money into a means that can bring more wealth and benefits, and transform monetary assets into multiplying financial assets.

Currency capitalization

Monetary capital refers to capital that exists in the form of money. Under the capitalist mode of production, as industrial capital has achieved a dominant position, monetary capital is mainly manifested as the first of three functional forms taken sequentially in the cycle of industrial capital.

All means that can bring wealth and benefits can be called capital. These ones

Profitability

It can also be called profitable or proliferative. Since capital is used as a means to obtain more wealth, once it is invested, that is, it moves as capital, it must inevitably obtain more than its original amount of income, otherwise, it cannot be called capital. This is the profitability of capital and the most basic function of capital. The so-called profitability refers to the expected growth of capital from the movement of capital, such as corporate profits, savings interest, stock dividends, bond returns, etc. Profitability emphasizes the ability of capital to multiply. Therefore, to measure the size and amount of capital gains, the absolute index of returns is usually not used, and the relative value index of return is used.

safety

Since capital is used as a capital and means to obtain more benefits, it must inevitably guarantee its own security. Otherwise, even if the capital is lost, what is the proliferation? These are the two indivisible aspects of regression. The so-called security means to avoid investment risks and ensure the safety of funds. If it is said that profitability emphasizes proliferation, then security is focused on capital preservation. Of course, there is a close relationship between the two. Generally speaking, security and returns change in the opposite direction. Investments with high security may have low returns, and investments with low security may have high returns. As mentioned earlier, things can also go the other way. Therefore, we must fully consider the optimal combination of security, liquidity and returns in the investment. In addition, the security and capital preservation here are not only the absolute amount that cannot be reduced, but also the security of its relative value. For example, under inflation, investors will lose money due to currency depreciation. For example, if an investor purchases a security with an annual interest rate of 5%, if there is no inflation, the annual rate of return is 5%; if there is 2% inflation, the actual rate of return is 3%; if there is 6% inflation , Its actual yield is -1%. In international investment, in addition to general credit risk, there are also exchange rate risks, which are greater than domestic investments. In addition, strict capital preservation must also consider various social and psychological losses and costs. Therefore, the content of capital preservation is quite complicated. Capital preservation is the basic indicator of the art of capital operation.

fluidity

As a representative of the original wealth, in order to obtain new wealth, capital must be achieved through flow. And the faster the flow rate, the more fully the past is used, the more possibilities and opportunities it has for profit, and the higher the return on capital, on the other hand, if the movement is sluggish, it means that the role has not been effectively played. Therefore, in this sense, the nature of capital requires full freedom and high-speed flow. It is precisely this requirement that has led to the trend of securitization and made high-speed capital flows a reality. The so-called liquidity of capital refers to the ability of capital to securely return from its starting capital, and to earn wealth by repeatedly profiting in the movement. Generally speaking, liquidity and security change almost in the same direction. The stronger the liquidity, the better the security, and the weaker the liquidity, the worse the security. In the real capital movement, personal and corporate capital are more focused on profitability, and financial institutions, because most of their assets rely on liabilities to maintain, value liquidity and security. From a social point of view, the reason why the economy does not develop is that the capital turnover is slow, the use efficiency is low, and the returns are poor. The reasons may be that the supply and demand sides of the capital cannot find a suitable match, and the shortage of capital cannot be reasonably allocated. In general, regressiveness, profitability, security, and liquidity constitute the organic whole of capital characteristics, and they mutually restrict each other and work together. Therefore, an excellent capital manager is to form the best combination among the four. This is the art of capital operation or investment.

Since the creation of money, especially with the acceleration of the process of asset monetization, people may obtain and use money more and more in economic life. Of course, people have different purposes and ways to obtain money income, but people use money for no more than three reasons: First, consumption. In a commodity economy and society, people have made money income, which is actually a means to enjoy wealth. Therefore, a certain proportion of people's money income must be used for consumption.

Second, saving. In the process of creating and realizing wealth, it is impossible for the wealth obtained to be used for consumption or investment. Part of it must be used for savings in case of various risks, disasters and emergency. Of course, this part of currency savings may be mobilized by society for investment, but as far as individual people are concerned, it is still pure savings. Saving does not equal investment.

Third, investment. It is human instinct to continuously accumulate and pursue wealth. Therefore, after obtaining money income that can represent wealth, people must not consider how to use it reasonably, that is, let them do their best without affecting basic consumption and necessary living savings. Probably multiply and bring more wealth. Moreover, for some economic entities, their desperately acquiring currency may have been to accumulate greater capital to invest in order to earn more currency income and wealth.

Among the three motivations and processes of people's use of money, the third case, that is, the use of money for investment, is a pure process of capitalization of money. For these people, the currency in their hands is not just a universal symbol of wealth, but a means of struggle, entrepreneurship and capital. It will be integrated with other means such as land, houses, machinery and equipment to create new The process of wealth became a standard capital. Here, the so-called capital, in the original meaning of the Chinese language, is the capital and means for profit.

As for the second case, savings, there are two cases. The first is to save for the sake of saving. These people are for the urgent need or storage of wealth in the future, and neither intend to consume nor to become a means of getting rich and multiplying. If you do not consider whether the value of depreciation and depreciation and deposit money into the bank purely out of trust, buy money to buy gold and silver jewelry, jewelry. As for some people buying a house, the motive is only to maintain value, not to multiply, and it can only be a pure saving behavior. The second case is to save for investment. The ultimate purpose of saving is to invest. Savings can be used to accumulate more capital for greater wealth. This latter situation is the basic aspect of the currency capitalization process.

Currency capitalization includes two basic meanings.First, currency capitalization is a process that is completed through a series of transformation links and movements.For example, a part of the currency is extracted from the overall currency and transferred to savings. Then, after several conversions and continuous movements of intermediaries such as banks, they entered the capital field.Secondly, currency capitalization is also a mechanism, that is, it is a society that continuously converts currency into a means of wealth proliferation. mechanism.

The difference between capital and money

It is precisely because of the existence of the above characteristics of capital that it is distinguished from its parent, money. Specifically, there are the following differences between capital and money:

First, they exist in different forms

Money as money only exists in the form of money; capital exists in many forms such as money and capital goods (that is, means of production), and reflects the specific material content. Although the basic form of capital still exists in the form of money, since its function is to seek more capital and means, other means, such as manpower and material resources, that have been adapted to it have also been capitalized.

Second, they are used for different purposes and results

As a currency, the currency can be used as a general means of purchase and payment functions, as well as the exchange of media commodities.

The conversion of currency into capital has mainly experienced the following forms:

The first stage is interest-earning capital. Some early currency holders used their monetary assets as capital and borrowed them out to earn interest on their own savings. Because under the conditions at the time, the people who had saved money were generally a few powerful people, they obtained

Like the process of asset monetization, most western developed countries have embarked on the path of currency capitalization directly from the beginning, and their currency capitalization process has naturally unfolded along with the process of economic marketization.

However, in many developing countries, due to economic, cultural, and political reasons, currency capitalization has progressed.

The core of financial market formation: currency capitalization

Money is a special commodity fixedly serving as a general equivalent. At the end of primitive society

Currency capitalization

With the development of social division of labor and commodity exchange, it spontaneously separated from the commodity world. In general, what kind of commodity the fixed effect is is accidental. Some of the main consumer goods, foreign objects, or some decorations, such as livestock, animal skins, fufu, jade shells, and metals, all served as money in the first place. Later, with the development of social productive forces and the expansion of the exchange range, precious metals such as gold and silver gradually replaced other commodities as currencies. Because of the natural attributes of gold and silver, such as quality, separability, easy storage, small size, great value, and portability, they are the most suitable materials for currency. Marx said: Gold and silver are naturally not money, but money is naturally gold and silver. "Since money is a commodity, it has the attributes of a commodity, and has value and use value. But it is a special commodity, and it is a commodity that is a general equivalent.

Correspondingly, the definition of capital is according to Marx's Theory of Surplus Value:

foreign exchange reserves

Factors of production (including manpower) are capital.

Austrian economist Bombavik: "In general, we call products that are used as a means of obtaining goods" American economist Samuelson: "Capital is a different form of production factor, and capital is a This kind of produced factors of production is itself a durable input of economic output. Therefore, a simple understanding: currency is a special commodity with fixed value in exchange for other commodities. And capital (which can include money) is the general term for the factors of production provided for production.