Types of Capital

Types of Capital

(Source: Flickr)

There are different kinds of capital that individuals and organisations use to pursue their goals and deliver value.

Employees usually trade human capital (their individual time, talent and efforts) and intellectual capital (their thoughts and ideas) in exchange for financial capital (money).

Effort, ideas and money are not, however, the only forms of capital that exist.

There are at least six (6) different types of capital that individuals and organisations can use to achieve their objectives:

  1. Financial Capital – money, stocks and bonds. These are the most obvious forms of capital and some people focus on acquiring them to the exclusion of everything else.
  2. Human Capital – the time, energy and effort of individuals. Management consulting firms hire the best and brightest students and use them to produce new insights (and charge clients correspondingly high fees).
  3. Intellectual Capital – Ideas, knowledge, literature, software, proprietary technology and trade marks. Intellectual capital might be used as a substitute for human capital or to augment human capital and make it more productive and valuable.
  4. Material Capital – plant, property, equipment and computer hardware. The manufacturing industry often uses a lot of material capital in order to turn raw materials into finished products in an efficient way.
  5. Natural Capital – the farmland, hills, valleys, rivers, fresh air and oceans. Natural capital is the first and most fundamental type of capital upon which the other kinds are built. Unfortunately, profiteering capitalists and short sighted financiers often destroy natural capital in order to produce financial capital and maximise short term profits for shareholders.
  6. Social Capital – relationships, connection, recognition and prestige. Universities and religious institutions often produce large amounts of social capital. This form of capital would appear to be the glue which holds individuals, families, organisations and communities together.