Types of Capital

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Capital is a type of good that can be consumed now, but if consumption is deferred an increased supply of consumable goods is likely to be available later. Adam Smith defines capital as "That part of a man's stock which he expects to afford him revenue is called his capital." Capital is derived from the Latin word "caput" meaning head, as in "head of cattle". The term "stock" is derived from the Old English word for stump or tree trunk, i.e. something that grows over time. It has been used to refer to all the moveable property of a farm since at least 1510. In Middle Ages France contracted leases and loans bearing interest specified payment in heads of cattle.

Modern Types of Capital

Detailed classifications of capital that have been used in various theoretical or applied uses generally respect the following division:

1. Financial capital, which represents obligations, and is liquidated as money for trade, and owned by legal entities. It is in the form of capital assets, traded in financial markets. Its market value is not based on the historical accumulation of money invested but on the perception by the market of its expected revenues and of the risk entailed.

2. Natural capital, which is inherent in ecologies and which increases the supply of human wealth, e.g. trees.

3. Social capital, which in private enterprise is partly captured as goodwill or brand value, but is a more general concept of inter-relationships between human beings having money-like value that motivates actions in a similar fashion to paid compensation.

4. Instructional capital, defined originally in academia as that aspect of teaching and knowledge transfer that is not inherent in individuals or social relationships but transferable. Various theories use names like knowledge or intellectual capital to describe similar concepts but these are not strictly defined as in the academic definition and have no widely agreed accounting treatment.

5. Human capital, a broad term that generally includes social, instructional and individual human talent in combination. It is used in technical economics to define balanced growth which is the goal of improving human capital as much as economic capital. A far less common term, spiritual capital, refers to the power, influence and dispositions created by a person or an organization’s spiritual belief, knowledge and practice, which is also an aspect of human capital that may not be easily captured as a component social, instructional or individual element.

Public and private sector accounting differ in goals, time scales and accordingly in accounting. The ownership and control of some forms of capital may accordingly justify differentiating it in an economic theory. A blanket term that attempts to characterize all that clearly physical capital that is considered infrastructure and which supports production in unclear or poorly accounted ways is public capital. This encompasses the aggregate body of all government-owned assets that are used to promote private industry productivity, including highways, railways, airports, water treatment facilities, telecommunications, electric grids, energy utilities, municipal buildings, public hospitals and schools, police, fire protection, courts and still others. However it is a problematic term insofar as many of these assets can be either publicly or privately owned.

Separate literatures have developed to describe both natural capital and social capital. Such terms reflect a wide consensus that nature and society both function in such a similar manner as traditional industrial infrastructural capital, that it is entirely appropriate to refer to them as different types of capital in themselves. In particular, they can be used in the production of other goods, are not used up immediately in the process of production, and can be enhanced (if not created) by human effort.

There is also a literature of intellectual capital and intellectual property law. However, this increasingly distinguishes means of capital investment, and collection of potential rewards for patent, copyright (creative or individual capital), and trademark (social trust or social capital) instruments.

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