Capital Forms are Ambiguous
To date, we’ve identified 15 types of capital that are broadly discussed in business or academic literature. Some types of capital, like political and intellectual capital, have clearly-defined meanings that bridge multiple contexts. Others, like economic and working capital, have more nuanced meanings that vary across contexts. These factors can make even our simplified list of definitions a long and at times confusing read.
Why is this a problem? Capital management is an essential business function! Just think about the resources organizations invest in managing financial capital, intellectual capital and even human capital. If we can’t simply and consistently define the forms of capital we’re managing, how can we measure them or know that we’re using them effectively?
We think that better capital management starts with a precise definition of “capital.”
A Framework for Categorizing Capital Precisely
We propose a new framework for categorizing capital that centers around the following two questions:
- What is the resource involved? Is it primarily material (tangible) or human (intangible)?
- Where does the resource involved exist? Is it primarily within an individual entity (something I own and am free to use) or a social relationship (something you own that I can use only if you allow it)?
The matrix below illustrates this proposed framework with a a few capital examples.
|Individual Capital||Social Capital|
|Material Capital||Example: land (natural capital) that a person owns and builds a house on for his family||Example: venture capital funding (financial capital) that an organization uncovers through a founder's trusted relationship|
|Human Capital||Example: proprietary processes (intellectual capital) that an organization uses to launch a new product ahead of the competition||Example: reputation and status (cultural capital) that a person uses to get a job for a friend|
We intend to use this framework moving forward to be more precise in referring to different forms of capital, and we will refine it as we recognize challenges in its application.