eight forms of capital

The Eight Forms of Capital

I once got into an argument with a friend online over electric co-ops. They were his reason for not calling himself a “capitalist.” He explained how in his little town the adults had come together and set up a co-op to take care of their energy needs and in the co-op, nobody profited. I was dumbfounded.His perspective was understandable: “since no one made money, they didn’t profit,” but was surprised at his missing the elephant in the room. I politely asked him what he considered the electricity in this financial equation. It was clear he had never considered this! He was unaware that there are eight forms of capital, not just one.

The egregious error in his reasoning is on purpose and not his own. We are guided in a very specific way on how to think about capital because failure to understand its value limits our buying power. Many of the world’s problems are a result of ignoring the breadth of capital options out there. When the only thing we consider capital is money we are showing how little we value so much of our own lives. It’s also why so many people feel poor or unfulfilled. From my perspective, one of the biggest differences between wealthy people and poor people is a true understanding of the Eight Forms of Capital.

I first heard about the Eight Forms Of Capital on an episode of Jack Spirko’s The Survival Podcast. I was enamored with the idea and quickly began seeing the hidden value these new forms of capital represented in my life. Let’s take a look at these and see if we can’t find your hidden value.

 

The Eight Forms Of Capital

 

  • Natural
  • Financial
  • Material
  • Intellectual
  • Experiential
  • Social
  • Cultural
  • Spiritual

 

I chose to lay them out in this order because I feel as though many of them build off the previous, from Natural Capital through Spiritual Capital. There is even a value theory to how many levels you can jump at a time, but we’ll discuss that later.

While this might seem like a higher-order philosophical conversation, I assure you that learning these concepts will drastically improve your understanding of the world. It will open your eyes to options that were previously invisible and give you an understanding of self-worth more commensurate with what you truly have to offer the world. This article, if you find value in it, this pairs well with my article: My Ten Commandments For My Family. Both articles hope to help you properly understand what’s really valuable in this life and how to best invest your non-standard resources.

 

Natural Capital

I feel that the natural place to start is Natural Capital. (Does that qualify as a pun, or just a bad joke?) Natural capital, sometimes referred to as living capital, is all of the natural things you have access to. Plants, animals, soil, water, air etc. are all examples of things that occur in nature and hold an intrinsic value. The gifts of an ecosystem in other words. People are not included in this because my moral beliefs do not allow for any person to own another. Human value appears further up the chain.

An important facet of this tier of capital is that the individual elements are all able to be worked up into another higher form of capital. For this reason, I also consider time a form of natural capital. You’re probably familiar with the expression: “I can spend time or money, but not both.” The idea behind this is that, like everything else at this tier, time can be traded for financial capital (money,) material capital, or intellectual capital. Most of us aren’t born with large tracts of land so we start life with more time than anything else. We then begin exchanging time in an effort to upgrade it to a more valuable form of capital.

 

Financial Capital

Financial capital is obviously the easiest to wrap our heads around. It’s what we all generally think of when we think of wealth. It’s the cash and financial assets we have acquired.

Starting from birth with nothing this is the tier we tend to focus our attention on. We trade our time for money in the form of a job. Sometimes we’ll trade blood & plasma for money as well. We do this because it’s easy. Because it’s the easiest however it’s not the most valuable type of trade. It’s also the one the government created an entire bureau to monitor and steal from. Anything that touches the financial capital realm has this downside.

 

Material Capital

If you’re trading time for money I’d recommend trading some of that money on a shovel. I kid, but this brings us to our third tier, Material Capital. In economics, we refer to these as capital goods. These are the things we own that aren’t raw materials. They require fabrication and largely function as multipliers to production. With a shovel, you can make your time trade more lucratively.

With a little intellectual capital, it’s also possible to turn natural capital into material capital. If you have the iron ore on your property you can learn how to smelt it and create tools. You can fashion wood into many things. This was the basis of many economies for millennia.

 

Intellectual Capital

Next on our list is Intellectual capital. This is your accumulation of skills and information. This includes information acquired through formal education or through personal exploration. This tier of capital is extremely versatile. Not only is the information you hold able to be traded for currency or material wealth, but it also functions as a multiplier to other tiers.

Intellectual capital makes virtually every other tier more valuable. Knowledge allows you to find the best or more importantly the most lucrative applications for your time & resources. Your time is worth more as a skilled welder than as a fry cook. Knowing how to compost makes your home waste into a valuable fertilizer as opposed to trash you pay to have hauled away.

 

Experiential Capital

“Intelligence is knowing a tomato is a fruit, wisdom is knowing not to put it in a fruit salad.” Call it wisdom, call it street smarts, call it intuition; there is plenty of knowledge that doesn’t come directly from a book. “Knowledge” that can only be gleaned by performing a task for ten thousand hours or looking into the faces of clients for decades.

It’s valuable to have the skills to build a swimming pool.

More valuable to have the tools and resources.

Even more valuable to know you’re likely not going to build one in the arctic.

This type of capital is great for multiplying your own productive capacity but also makes you valuable to others who might have knowledge and resources but want a competitive advantage.

 

Social Capital

Personally, I think of this tier as the most important. Social capital is the accumulation of goodwill and favors you have picked up over time.  Being a good friend, mentor, or community member is incredibly valuable. The idea of “vouching” even makes value transferable. Like some other tiers, social capital is both currency and multiplier. In the swimming pool example earlier, maybe it’s worth building a pool in the arctic. That is, if it’s for the government, since they don’t care that it’s expensive and useless. Besides, you know the guy signing the bid. Connections matter.

I teach my daughter how incredibly valuable this particular tier of capital is. There will always be value in being the guy who knows a guy. And while people might complain about nepotism, it’s generally because they haven’t cultivated relationships to capitalize off of. You can say it smells of politics but that’s a dirty word for “community” in most cases.

And here is where things start getting high concept!

 

Cultural Capital

Cultural Capital consists of the transactional elements of a given community. Works of art, music, and culture all add up to create an in-group. The knowledge and ability to trade adeptly in these gives you power and currency within the member group(s.) Value in this category is often determined by the taboo nature of the knowledge or by proximity to power. (I.E. knowing lyrics versus knowing the lead singer of a particular band, for example.)

A solid example of how this currency works would be the phrase “taxation is theft.” In many circles, this phrase will get you looked on as a heretic but it functions as a signal and buy-in to a particular group. I can name-drop writers like Rothbard & Mises and authenticate my membership in certain circles. Name-dropping Underoath & Blindside would signal to a different group as well.

While the examples I’ve used have been primarily based on sub-culture, the same principle applies further up the ladder to culture and super culture. I have some cultural capital as a Millennial, other cultural capital as an American, and when aliens come to earth I’ll have a shared cultural capital with other Earthlings. The overlap of these different circles of culture also signals positions ripe for deeper bonds. In the example above, if you knew every reference, we’d likely be fast friends.

 

Spiritual Capital

This brings us to our final Capital tier, Spiritual Capital. I’d describe it similarly to Cultural Capital but deeper. Because of the nature of religion, everything is turned up to eleven. In Spiritual Capital, you gain benefits from having participated in certain rites or rituals. There is a belief component that gives much of what’s here power. Karma is a solid example of how some people gain or lose in the realm of Spiritual Capital.

I look at this tier as the highest tier but due to its intangible nature, I won’t drone on.

 

Trading In The Eight Forms Of Capital

What is more important than understanding the eight forms of capital is understanding their trade. I mentioned a value theory earlier and we’re going to take a look at that now. Personally, I have attributed a hierarchy to the different forms of capital that I don’t believe anyone else has suggested. Each trade-up is a value jump. The bigger the jump, the bigger the value multiplier as well. We’re going to look at some different exchanges to illustrate this mechanic.

The most basic trade is time for money. This is a level one to level two trade. These types of trades are typically the least lucrative. Their value is largely only in giving you something easy to trade in. Trading like this is also the easiest to be exploited by power centers, specifically because it’s easy. A good rule is to avoid these types of trades as much as possible.

The second type of trade you could make is financial capital for intellectual capital. This type of trade ends up with you having more intellectual capital which can be used to multiply future natural capital trades. In this particular trade, you still allow the government to look into your business and take a piece. What’s a way we could improve this trade? We could make the gap bigger. Trade your time for intellectual capital. There are no prying eyes into how you spend your time generally, but more importantly, there is no cut being taken by a third party.

 

More Trading In The Eight Forms Of Capital

Hopefully, the last example illustrated the value inherent in the trade gap. Let’s widen it even further. Throughout history, there are entire groups of people who have managed to trade in favors. These individuals have managed to attain great power through social and cultural capital. They have traded their time and (sometimes) financial capital to build social and cultural currency.

The last example I want you to consider is the direct trade of natural capital for spiritual capital. This would be exhibited best by those who choose asceticism or monastic life to trade their time directly for spiritual capital. This is an incredibly difficult trade to muster! Even if you could find the opportunity, could you summon the will to see it through? I use spiritual capital as the end goal. We all work our way through life imperfectly trying to attain this type of capital. It’s in the trade of all your other types of capital that you live to find spiritual capital. As with all the trades, the biggest jump looks like the biggest reward. Who wouldn’t love to be able to trade time for self-actualization?

 

The Secret To Making The Most Out Of Financial Capital

I know I have been pretty hard on Financial Capital in this post and I feel that this has been with good reason. But, I’m not a dolt. I understand most of our transactions pass through this tier at some point. So, if we’re going be forced to participate in the least free part of commerce we might as well do it on our terms the best we can. This means using all the tricks the elites do to keep inflation from robbing them blind. Properly-structured, dividend-paying whole life insurance is the superior foundation for your financial life. When you are ready to take control of your financial life, let’s talk.

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