The most well known and sought after form of capital is financial capital. Yet, there are a number of other forms of capital and they are almost never mentioned in the FIRE realm. Admittedly, they are for the most part less tangible and fungible, but they are forms of capital that are convertible inputs into financial capital. In fact, it seems to me all financial capital, at least initially, came about as a result of the conversion of another form of capital into money or financial capital. Combining different types of capital creates value. Creating value is the basis of creating wealth. While they don’t necessarily fit easily into spreadsheets, opening our eyes and minds to these other forms of capital can bring us closer to true financial freedom as well as a more joyful, meaningful life.
According to the Oxford Dictionary, capital is “wealth in the form of money or other assets” as well as “a valuable resource of a particular kind.” In 2011, Ethan Roland and Gregory Landua published an article well known in permaculture circles entitled 8 Forms of Capital in which they compiled and synthesized the work of others into a list of eight forms of capital and their respective currencies, thus creating a very helpful holistic framework of wealth.
So what are these 8 forms of capital?
Let’s start with the one we are most familiar with – financial capital, which is the one most commonly used in modern society. This consists of money, currencies, securities, and other instruments of the global financial system. People wanting to retire early are most focused on this form of capital.
Another is material capital or non living physical objects such as stone, metal, bridges, tools, and computers. This form of capital is probably the next most obvious, tangible, and sought after. One benefit to this form of capital is that it can be an alternative way to store financial capital that can be converted back into financial capital relatively easily. This form of capital can be especially advantageous if utilized in conjunction with an activity that increases one of your other forms of capital. For example, a jewelry maker invests in specialized tools that help her create high quality jewelry. Then she can sell this jewelry for money – financial capital, quickly recuperating the cost of the equipment and owning the “stored value” of the specialized tools should she ever want to sell them.
In The Problem is the Solution – Waste Stream Diversion Part III I highlighted my dumpster diving forays and musings about the tremendous amount of unrecognized, untapped, unappreciated material abundance in our midst that ends up in dumpsters, alleys, roadsides, etc. I view waste as a resource in the wrong place. Scarcity is not the issue as the media and marketing would have us believe. What needs to be addressed is the poor distribution and reuse of the abundance that surrounds us.
Living capital is made up of what we think of as our natural resources like water, air, land, healthy soil, plants, and trees. I was fortunate to purchase a house on a property with a very healthy productive avocado tree that’s probably at least 50 years old and 40 feet high. The property also included a banana tree and a longan (similar to litchi) tree, both of which produce tasty fruit. Since moving in I’ve planted additional fruit trees as well.
And don’t forget about some of the edible “weeds” in your yard. Many people spend money purchasing the latest super foods such as acai, white mulberries, and chlorella. Yet right out your front door is likely a food that’s just as nutritious, if not more, and free. It’s called purslane and it’s is the most frequently reported “weed” species in the world. You’ve likely been mowing over or pulling out this storehouse of healthy omega-3 fatty acids and beta carotene. Instead you could be adding it to salads, pestos, and green smoothies for a nutritional boost. Many of the plants we consider weeds are actually packed full of nutrients. Unlike the produce in grocery stores these plants haven’t had the nutrition bred out of them in favor of a longer shelf life and large size. For a great resource to learn about more super foods to harvest in your yard check out Eat the Weeds. (Only consume plants from properties you know have not been sprayed with pesticides.)
Beyond food the shade provided by trees in your yard can help cool your house, significantly reducing your electric bill in the summer. If you have created a lovely outdoor sitting area in your yard surrounded by colorful plants that feels like an urban or suburban oasis I would consider this an example of living capital as well. Attractive landscaping almost always adds to a home’s value.
Some readers are probably familiar with the concept of human capital. In this framework we can think of that as intellectual capital combined with experiential capital. Intellectual capital is knowledge, resourcefulness, creativity, and innovation. Society puts a great deal of value on this form of capital, emphasizing the importance of getting good grades in school and getting a college degree. It is certainly another capital that can be somewhat easily converted into financial capital. More higher education often (although, not always and possibly less and less these days) translates into higher wages. Learning new skills can often lead to a raise or a successful side hustle.
Experiential capital is hands on knowledge acquired by actually doing things – riding a bicycle, writing a grant proposal, fixing something broken, etc. There are many people who can repair cars that don’t necessarily hold degrees from auto mechanics schools. They have experience working on cars and simply learned by doing.
Experience is just as useful as knowledge. Having a degree or reading many books can be helpful, but having actual hands-on experience can be just as valuable if not more because it makes you marketable. This form of capital goes hand-in-hand with intellectual capital, and we generally learn best when they happen in tandem. The richer we are in this form of capital the less we will need to spend paying handymen and others for their services.
I highlighted the value of social capital in my last blog post. This is another form of capital that can eliminate the need to pay handymen or others for their services. According to Wikipedia it is…
a form of economic and cultural capital in which social networks are central; transactions are marked by reciprocity, trust, and cooperation; and market agents produce goods and services not mainly for themselves, but for a common good.
This is my favorite form of capital. You can accumulate it while attending potlucks, volunteering at a beach cleanup, attending a neighborhood association meeting and doing so many other things. For me the classic example of social capital is the Amish barn raising tradition, during which families gather at one home in the community to collectively build that property owner a new barn. According to the Amish America website, this work event combines socializing with a practical goal. “The barn raising fulfills a practical need and also serves to tie the Amish community together, reinforcing Amish society through a very visible expression of the principle of mutual aid.”
I increase my social capital in numerous ways. One of my favorite involves using the extendable fruit picking stick my boyfriend salvaged and gifted me – material capital – to access the big beautiful avocados that come in high up on my 50 foot tall tree. I use that stick to pick the avocados to eat myself and share with neighbors and friends thus increasing my social capital. (Should avocado capital be added to this list?)
One accumulates spiritual capital through religion, spirituality, or other means of connection to self and the universe. This includes our connection to something larger than ourselves, our sense of our place in the world, our religious or spiritual practices. The Buddhist concept of Karma is an example of a spiritual currency.
Lastly. cultural capital is exemplified by things shared by groups of people such as music, a common history, food, theater, and holidays. It is the only form of capital that can not be individually owned or cultivated. When thinking about where we want to live many of us consider the cultural amenities available in a particular city. Popular tourist destinations often have a strong sense of their local history and culture and create sites and attractions to share it with visitors and locals alike. Inventive entrepreneurs in the gig economy are finding ways to tap their city’s cultural capital to create a unique Airbnb experience for tourists.
Many of us on the journey to FI get laser focused on a magic dollar amount, hunkering down earning and saving until we reach it. Taking an inventory of all the many forms of capital in our lives can show us how much real wealth we already have access to and alter our sense of how much money is enough to feel financially independent and retire early. Pondering these forms of wealth and their related currencies can grow and shift our understanding of the world and the transactions we engage in. Hopefully, when you take a closer look you’ll see that in many ways you may already be truly rich beyond measure.
And now a word from you….
What forms of capital do you use most frequently?
What forms of capital are you rich in?