Question

Try to organize what we understand capital to be based on the different readings in the course. Try to explain why we keep inventing new forms of capital such as human capital, social capital, and cultural capital. (2-3 pages) (cite your sources do not plagiarize)

Answer 1

In economics, capital consists of assets that can enhance one's power to perform economically useful work. For example, a stone or an arrow is capital for a hunter-gatherer who can use it as a hunting instrument; similarly, roads are capital for inhabitants of a city.

The following are different examples of types of capital:

1. Financial (Economic) Capital

Financial capital is necessary in order to get a business off the ground. This type of capital comes from two sources: debt and equity. Debt capital refers to borrowed funds that must be repaid at a later date, usually with interest.

Common types of debt capital are:

• bank loans
• personal loans
• overdraft agreements
• credit card debt

Equity capital refers to funds generated by the sale of stock, either common or preferred shares. While these funds need not be repaid, investors expect a certain rate of return.

Economic capital may also take the form of cash or other assets like real estate, commodities, equipment, vehicles, and so forth which may be disposed of for cash in the market.

2. Human Capital

Human capital is a much less tangible concept, but its contribution to a company's success is no less important. Human capital refers to the skills and abilities a company's employees bring to the operation.

Though it's hard to quantify human capital in dollars, most companies know that employee performance can be greatly enhanced by continuing education classes, professional development seminars and healthy-living programs. Many businesses choose to invest in the happiness and well-being of their employees because this investment indirectly benefits the bottom line by cultivating a happier, more efficient workforce.

3. Social Capital

Social capital is an even more intangible asset, referring to the relationships people have to each other, and the desire they have to do things for and with others within their social networks. People tend to do things to help and encourage those in their same social network, creating a cycle of mutually beneficial reciprocity. In an individual's social network, social capital is the value of the content of the relational ties between people and not a product of the members of the network in and of itself. For instance, if you have a wealthy uncle in your network, knowing he could lend you money in a pinch would be to leverage that relationship's social capital.

In business, a person with high social capital knows many influential people within his industry and may have more opportunities for advancement and development than someone whose social circle is small. People with high social capital may also have an easier time accomplishing things, both personally and professionally, because they can draw on the strengths and resources of others within their networks.

Capital and Capitalism

While we have listed several general forms of capital here, it says very little about what the economic system of capitalism actually is. In its most basic form, capitalism requires the separation of capital from the labor that uses it in the production process. For instance, a business owner and his investors (which constitute the capitalists) jointly own the entirety of the company - its assets, property, equipment, raw materials, and final product for sale. As such, capitalists are also entitled to 100% of the profits that accrue from selling goods in the market.

Experiential Capital

The things that you do comprise your experiential capital: work, travel, build, cultivate, etc. When I set off last year to learn some skilled trades, I was more interested in acquiring experiential capital than financial capital – none of the jobs paid well in terms of cash, but I gained an enormous amount of experience.

This form of capital goes hand-in-hand with intellectual capital, and we generally learn best when they are combined (another blow for the conventional education system, which tends to offer little in the way of practical experience).

Spiritual Capital

Your understanding of yourself and your place in the universe can be measured in terms of spiritual capital. Most equate “spirit” with religion, but this need not be the case – when you’re out in the woods soaking up all the good vibes, you’re accumulating spiritual capital.

For me, Zen offers a wealth of this form of capital to pursue; in fact, Buddhism even has its own spiritual currency in the form of karma. Your actions – and thus, your intentions – always have consequences, and the energy you put out into the world will be returned in kind. Other religions trade in things like prayer and faith for currency.

Cultural Capital

Unlike all previous forms of capital, which are held and exchanged by individuals, cultural capital can only function on the community level. Think of it as “zooming out” on social capital and observing the bigger picture of interactions between people. The currency of cultural capital is things like art, music, stories, history, and holidays.