Capital

Capital (in Lean Logic) is a particular kind of arrangement of matter, energy and information. The default arrangement of these three elements is disorderly and diffuse — entropic — but sometimes, in the right conditions, they clump together in unlikely and interesting ways; as life, for example.C8

The key property for such ‘unlikely arrangements’ to qualify as capital is that of being of instrumental value to something. Something, somewhere finds them useful. This means that arrangements of matter, energy and information may move in and out of being capital, depending on context.

Examples:

1. A local herd of antelopes is capital to a local family of lions. It produces a flow of value in the form of food for the lions, without that flow actually diminishing the size and productivity of the herd itself. For the lions, the herd is definitely capital. But for a shoal of pink maomao fish off the coast of New Zealand, the antelopes are not capital.

2. Cars are capital, just as long as drivers can buy the fuel they need. If fuel were to become completely and permanently unavailable, cars would be reduced to rather curious objects, whose shape, though sometimes intriguing, had no particular meaning; like clouds.

3. The body of scientific knowledge and written culture in books and on the internet is capital, just as long as there is someone who can read it, understand it, and derive some use from it, even if that consists of no more than the pleasure of an interesting read. If the standards of education were to fall so far that no one could understand it, it would cease to be capital.C9

In each of these three examples, it is the existence of a user that determines whether the ‘unlikely arrangement’ qualifies as capital. But what about the user? Is he/she/it capital? Well, suppose the lions in the example were only useful to themselves—their bodies athletic sources of life: if the ‘unlikely arrangement’ is useful to itself then yes, it can be seen as capital: life lives for its own sake.C10

Such a utilitarian view of creation could seem improper: what about a tree, deep in the jungle? Or a starlit night? Well, the tree is useful to the jungle and to itself; the starlit night, among its many depths and uses, makes your heart leap. Utilitarianism in this sense is not a view of the world through the eyes of a predator: it is about interactions. The nature of capital is revealed most clearly when it becomes absent: a cathedral or a cantata which no one could make sense of any more would be in trouble: the cathedral would fall down since maintenance would be seen as a misuse of scarce funds which could be better applied to building prisons; the cantata, unregarded age in corners thrown, would not be heard. Capital is capital if someone or something is hungry for it.C11

 

Types of capital

First, a disclaimer, which applies to the remainder of this entry: there are fuzzy boundaries here; the types of capital are clusters around defining principles, rather than clearly distinct groups.C12

1. Natural capital is the living ecology which nature provides—and which it could provide more abundantly, if only we would allow it to do so. It includes soil fertility, water, fish stocks, material resources . . . The whole of the ecosystem and its climate; the essential conditions for a living Earth.C13

2. Human capital is embodied in people as inherited or learned capabilities and knowledge: health, intelligence, education, character, skills, beauty . . . A critical property of human capital is its potential for growth, in the form of both its ability to reproduce itself, and its potential to work, using up or altering natural capital in the process. And that work in turn has the ability to multiply by making tools, equipment and technologies, which in turn can produce more tools, equipment and technologies in a positive (amplifying) feedback. Natural capital, too, has the notional capability of reproducing itself in this way, but it is held close to equilibrium by natural balances: with rare exceptions, no single part of it can grow out of control, because the other parts will prevent it—and even the exceptions eventually get their comeuppance. The exception to this (but not to the endgame) is the case of species which, by migration or evolution, escape from the natural balances of the ecology.C14

3. The social capital of a community is its social life—the links of cooperation and friendship between its members. It is the institutions, the common culture and ceremony, the good faith and reciprocal obligations, the civility and citizenship, the play, humour and conversation which make a living community; it is the social ecosystem in which a culture lives. Some people might be startled by such an elaborate definition, which would be hard to summarise in an equation: the more typical textbook definition is “the set of institutions and customs which organise economic activity”.C15 The reason for the difference is that the textbook’s authors are thinking of the market economy, contained in well-behaved parameters, as the process by which society is sustained. For Lean Logic, by contrast, what matters is community itself. Social capital, the living essence of community, is the organ grinder; the market economy is the monkey.C16

4. Scientific/cultural capital is the information and culture which is available to be grasped in our minds, and/or applied (we may apply it without fully understanding it). Its status as capital depends on the ability of human society to understand and/or use it. If that ability were to decline, so would the capital.C17

5. Material capital: buildings, roads, equipment, materials, ships, computers and their networks, etc. Material capital provides the clearest illustration of why materials, energy and information are all important to defining capital: if new information comes to light about (say) a deposit of copper, and the energy exists to exploit it, material capital is increased. If the energy needed should become unavailable, the deposit would cease to qualify as capital; indeed, with energy-famine, most of the other forms of material capital, including the oil-fuelled equipment we use, would also cease to qualify as capital. Cars, as suggested above, would be just rather curious-shaped objects (and would only even maintain their curiosity value if they were reduced to rare examples).C18

6. Financial capital. There is a case for omitting financial capital, because its value depends on, and is a representation of, the existence of the other five forms. It is included because to some extent its existence is independent: a financial crash can occur for reasons notionally unconnected with the other five. The connections, however, would be revealed as the crisis rippled through to the point of greatly reducing, or destroying, other forms of capital. So it is useful to have it in the list, despite the double-counting.C19

 

Foundation capital and growth capital

A critical distinction within capital is that between foundation capital and growth capital. Foundation capital is the ecological context on which the community depends: chiefly soil, water and climate, and the information contained in various forms —tradition, identity and (literally) DNA. The loss of such information ripples out in the form of the permanent loss of species, cultures and ecosystems; failure to conserve it is tantamount to stealing from future generations. This is capital that needs to be protected at all costs.

Growth capital, on the other hand, needs to be limited, for its growth—rising numbers of people, cattle, technology, machines—produces more growth. This is the intensification of the intermediate economy, and unless its growth is constrained, it will become ever more expensive to maintain, while its swelling numbers and the demands it makes on the ecology will in due course erode and ultimately destroy the foundation capital. Resilient societies are as meticulous about limiting or destroying growth capital as they are about conserving foundation capital.

All the six forms of capital listed above have some part to play as both foundation capital and growth capital, but there are big differences of emphasis:

Natural capital is the condition on which all other capital depends. It would be reasonable to argue that this is the only form of capital which can justifiably be called foundation capital. But Lean Logic takes a cautiously broader view, recognising that for a human ecology, some broader foundations are needed.

Human capital is foundation capital in terms of its capabilities: the talent, creativity, insight, emotional qualities and so forth that make a society. Growth is enabled by human capital in this sense.

Yet the multiplication of the number of people among whom such capabilities are duplicated is growth capital (the fuzzy boundaries, overlaps and dependencies between the two kinds are, of course, acknowledged). Growth is driven by human capital in this sense: large numbers of people applying their capabilities to do work, much of which involves drawing on, or actually reducing, natural capital.

Social capital, similarly, is foundation capital that can become a driver of growth as a society’s population increases and its reach extends.

Scientific/cultural capital can also be seen as foundation capital: every society, no matter how small, needs its culture. Scientific knowledge can deepen quality without producing growth. Even technical knowledge can be innocent of any growth programme. There is no essential (as distinct from economic) reason why technical advance should produce growth either in GDP or in environmental impact. And technical knowledge can be merely decorative: the East Anglian Traction Engine Society has lots of it.C20

And yet, the reasonable presumption is that such technical expertise is of a kind which is indeed part of the growth problem. Technical capital clearly implies growth. If we know how to do it, we will do it. This sequence from knowledge to action is regrettable, leading to technologies such as genetic engineering, nanotechnology and nuclear energy which we would be well advised to forgo, but it is hard to stop.C21

Material capital. Any human society will have at least basic equipment and housing which could, on some interpretations, be recognised as foundation capital; it is consistent with maintaining the foundations of a social order rather than building on them without limit. But the extended range of manufacturing, plant and equipment consists of growth capital.

Financial capital? Here we must remember the double-counting problem (money is only a representation of the other forms of capital). Money is not therefore included in this distinction between foundation capital and growth capital.

The entry on Intentional Waste describes how stable societies avoid getting stuck on the spiral of compound growth by either preventing the formation of growth capital, destroying it, or keeping it occupied with the production of goods and services which they then proceed to squander. This prevention or culling of growth capital is central to resilience in any of its forms. Reason does not need to define the difference between the forms of capital exactly, so long as, by instinct or accident, the society limits its growth.

 

The capital stock principle

If capital is of utilitarian value to something, somewhere, there must be a sense in which it produces a flow of value. There are two ways in which it can do this. One of them is the case where the stock of capital is destroyed in the process. For example, a domestic coal-heap is capital so long as it lasts. The other is the case where the stock produces a flow of value without being destroyed—as in the case of an apple tree, in that it (and its progeny) produces apples without being destroyed. Or the case of financial stock, which produces a flow of income and may maintain or increase its value at the same time—the principle of capitalism.

The idea of capital of the second kind—that which produces a flow of value without being destroyed in the process—is central to one interpretation of sustainable development. This view argues that a defining aim should be (by the use of technology and structural change) to learn how to live on the flow derived from our capital stocks—notably the endowment of the natural environment—so ensuring that the stock remains unchanged for as long as possible, if not indefinitely. This is the core of the argument developed by, for instance, Kenneth Boulding in his famous essay “The Economics of the Coming Spaceship Earth”, and by Jonathon Porritt in Capitalism as if the World Matters.C22

There is nothing in principle wrong with this, other than a practical difficulty. A large system, finding itself committed to growth, is all too likely to continue to grow well beyond the point at which it can continue to live on the flow generated by its stock of capital, and it will press on to the point at which it finds itself feeding on the stock of the capital itself. The result, of course, is that the capital shrinks, while the system itself continues to grow, and then it will consume the capital even faster. Arguing that we should subsist on the flow derived from a deeply depleted capital has right on its side, but it is problematic. It is reasonable and sensible to argue that we should not kill the goose that lays the golden eggs, except when it is even more important to wake up to the fact that the goose is already dead.

Anyway, we would be better off trying to get along with ordinary geese that lay ordinary eggs—not all that many of them, but enough to keep body, soul and community together. Golden eggs are no use to a self-reliant economy. Real geese, unlike magic ones, produce edible eggs, and bring together the three elements of capital—matter, energy and information: goose-capital for a small system.

« Back to List of Entries
David Fleming
Dr David Fleming (2 January 1940 – 29 November 2010) was an economist, historian and writer, based in London. He was among the first to reveal the possibility of peak oil's approach and invented the influential TEQs scheme, designed to address this and climate change. He was also a significant figure in the development of the UK Green Party, the Transition Towns movement and the New Economics Foundation, as well as a Chairman of the Soil Association. His wide-ranging independent analysis culminated in two critically acclaimed books, Lean Logic and Surviving the Future. A film about his perspective and legacy - The Sequel: What Will Follow Our Troubled Civilisation? - was released in 2019, directed by BAFTA-winning director Peter Armstrong. For more information, including on Lean Logic, click the little globe below!

Comment on this entry: