by From Neva Goodwin and RWER issue 106 A healthy economy is one that operates so as to achieve its goals, with relatively little of the overall economic activity working against them. There are obviously a great many things that can be said about what it takes to achieve this; here I will only address one set of requirements. This refers to the fourth essential economic activity mentioned above: maintaining the resources required for the other activities of production, distribution, and consumption of goods and services. This context brings into focus the capital stocks that produce productive flows. For something to be named, within the discipline of economics, a capital stock, it must have the potential to produce something that is economically desirable. Some people reasonably object
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from Neva Goodwin and RWER issue 106
A healthy economy is one that operates so as to achieve its goals, with relatively little of the overall economic activity working against them. There are obviously a great many things that can be said about what it takes to achieve this; here I will only address one set of requirements. This refers to the fourth essential economic activity mentioned above: maintaining the resources required for the other activities of production, distribution, and consumption of goods and services.
This context brings into focus the capital stocks that produce productive flows. For something to be named, within the discipline of economics, a capital stock, it must have the potential to produce something that is economically desirable. Some people reasonably object to the use of terms that describe nature, human beings, or social groups in terms of their potential to produce something economically desirable. The fear is that when we speak of natural capital or human capital, we might imply that nature, and human beings, are important only as productive resources. It is important to emphasize that these terms refer to much more limited subsets of the broader concepts with which they are linked.
With these cautions in mind, I will describe here the five kinds of capital that have become familiar, along with a sixth (systems capital) that is becoming increasingly essential in a world where the dominant economic system is destroying so much of its capital stocks.
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Financial capital is what people often think of first when we speak of “capital”; this is money, of various kinds. It facilitates economic production, but it is not itself productive until it is converted, via social systems of law and/or power, to the ownership or control of physical capital, both natural and produced.
- Produced capital consists of physical assets generated by applying human productive activities to natural capital. Produced capital may be understood as including embedded technologies; it is convenient to divide these into two types, ii or mm – information-intensive or mostly material[1] Given the deterioration in the global stock of natural capital (atmosphere, water, soil, species of plants and animals, etc.), information intensive technologies offer the hope of carrying on economic and other activities with less damaging effects on natural capital. Such technologies can be embodied in physical capital, as with a computer driven electrical system that uses only the amount of energy needed; or they can be disembodied, consisting of shared understandings and procedures for how to accomplish a task with minimum resource use.
- Natural capital is made up of the resources and ecosystem services of the natural world. Along with the expanding disasters of climate chaos, humanity faces critical challenges in the loss or severe damage of much natural capital.
The remaining three items on this list all have to do with how people, as individuals and in groups, accomplish valuable work. “Valuable work” may have obvious economic significance, such as building a business, or educating children, or organizing a system of voting; or it may be actions that people value, regardless of their economic significance, such as learning how to paint with watercolors, or organizing an amateur basketball competition, or winning a war.
- Human capital refers to the productive capacities of individuals, both inherited and acquired through education and training. They might include particular knowledge, learned skills, or in-born qualities, such as empathy, or the ability to do mathematics in your head. How could you become better at doing what you want to do – would this require taking lessons, or watching someone who is especially adept, or undertaking a course of therapy that would free you from some inhibition that was due to early life trauma? Any of these things might build your human capital. This is not intended to imply that human beings, and their capabilities, are of value only when they are used for economically valuable production. Rather the intention is to emphasize that things we value for other reasons may also be essential for the economic goals of surviving and thriving.
- Social capital consists of the stock of trust, mutual understanding, shared values and socially (as distinct from individually) held knowledge in a society or a social group. Our ability to purchase something in a deli depends on mutually held trust that both the money and the sandwich will change hands, regardless of which is handed over first. An especially nice piece of social capital is seen when two lanes of traffic converge and the drivers take turns joining the merged line. (I have never known why this pattern endures in some places, and not in others.) Recognition of the idea and the importance of social capital by economists is fairly recent, becoming prominent through Robert Putnam’s work,[2] and has been strengthened by the observation that variations in social capital across societies, such as tolerance for corruption, can help to explain some of the differences in their economic development.
- Systems capital refers to the qualities and relationships of economic actors within structured groups that allow these groups to work together for shared goals. It builds on the same stocks as social capital – trust, mutual understanding, shared values and socially held knowledge; however these stocks must not only be shared among individuals but also must be embedded and nurtured in organizations or political systems. If social capital supplies the notion that cooperation is worthwhile, systems capital is the ability of groups to cooperate and coordinate with other groups for the common good. The example I gave in a paper in which I introduced the concept of systems capital[3] was industrial ecology, which attempts to put producers (and to some extent consumers) into relationships (e.g., through physical proximity) that will allow economic systems to imitate ecological systems. Another example of systems capital would be the willingness of all, or most, sectors to work together to stave off the worst of climate change – and the ability of governments to ensure such cooperation.
[1] I first introduced these terms in Goodwin, Neva R., “Lessons for the World from US Agriculture: Unbundling Technology” in World Development, January, 1991 Vol. 19 no. 1.
[2] Starting in 1993 with Putnam, Robert D., et al. Making Democracy Work : Civic Traditions in Modern Italy. Princeton, N.J.: Princeton University Press.
[3] See “Consumerism and the denial of values in economics”. 2021, World Economics Association.