Welcome to Finance and Fury.

Quick announcement – only episode this week – have my FASEA exam coming up so need to spend spare time studying for that – back to normal next week – sorry for any delays getting back to any of you

In this episode – I walk to talk about different forms of capital –

What is the first thing that you think of when you hear capital – outside of finance, might be capital letters or a capital city – but capital as an economic definition – consists of assets that can enhance one’s power to perform economically useful work – and this can range from many different forms beyond the financial

  1. Going off of pure financial topic today – I find these topics incredibly interesting –
  2. Came across this concept of additional forms of capitals that builds upon Bill Mollison’s original conception – Bill was an Australian researcher, author, scientist, teacher and biologist – passed away a few years ago but his works were massive in developing and promoting the theory and practice of permaculture – which I have been studying for the past few months
    1. Permacultureis a set of design principles centred on whole systems – mainly focusing on simulating the patterns and resilient features observed in natural ecosystems – It uses these principles in a growing number of fields from regenerative agriculture, rewilding, and community resilience
    2. in Permaculture – there are many valuable assets to an ecosystem which categorized non-monetary forms of wealth by their potential – interesting on a conceptual level – but not easily applied to the real world as value and capital are fairly engrained into society to mean monetary wealth
  3. However – brings up a number of points on what isnon-monetary capital
    1. Example – might be a stone or an arrow is capital for a hunter-gatherer who can use it as a hunting instrument – or might be the knowledge to combing the two and know how to shoot the completed material
    2. Capital is anything that is useful that can be brought to society that is of some worth – doesn’t necessarily need to be have a monetised value
      1. Concept of give someone a fish, they are fed for a day – or you could sell someone fish or be the purchaser of the fish – go to Coles and buy 1kg of Barramundi for $32 –
      2. But granted for the resources around them – tech someone to fish – they are fed for a lifetime – but the need forms of capital to achieve this – the capital in the form of tools, capital in form of knowledge

By viewing the financial system through the lens of all forms of capital – there can be unique forms of currencies –  Financial, material, living, social, intellectual and experiential

  1. Financial Capital – This is the one that we are all familiar with – one that I talk about most on this podcast –
    1. It is a core component of the modern financial system – so hard not to – it is the means by which pretty much all exchange goods and services occurs within society –
      1. If you need to buy anything – you use money as a medium of exchange to do so – the more money that you have at your disposal the more you can purchase
    2. When the world is viewed solely in financial capital terms – you have the pure materialistic – but it ignores all other forms of capital
    3. Not saying that it isn’t important – but if you could purely have money and nothing else – doesn’t put you in a well rounded position – so what other forms of capital are there
  2. Material Capital – Beyond money, it is easy for us to conceptualize physical goods and objects that we own as being their own sort of capital
    1. When this is brought up – most people will think of materialistic concepts – like cars, possessions, etc.
    2. But the real concept of this goes far beyond – it can be extended to the raw materials extracted from the Earth and are developed into more complex forms such as houses, cars, consumer goods, etc.
    3. In a society where financial capital falls through – material capital becomes one of the more important factors – for instance bater economies – the stories of trading a wheelbarrow for bread in hyper inflated Germany
      1. In parts of the world right now – those that have fallen due to centralise power of governments with price controls – like Venezuela – have black markets of material capital for food and other resources
    4. Living (Natural) Capital – This form of capital is closely related to material capital – but involves both the living organisms upon which we depend and necessities of life which sustain us
      1. For example – things like plants, animals (foods), water – this form of capital comes back the abundance or quality of these resources that you have
      2. Here – Land, water and power is the best example – do you have the ability to produce something that can be traded for financial capital
      3. Are these things being provided by yourself or something else – where you exchange financial capital in return
      4. Also goes into food produce – especially land and water in combination – if you produce some of your own food or resources – can reduce the financial capital you need
    5. Social Capital – What is your friends and family network like?
      1. Specialisation of services is a key component of modern society –
      2. If you were to be viewed as having large social capital – or be wealthy in social capital – would be described as being well connected within social standings – where within your network of friends and family and neighbours – you have a strong support network –
        1. individuals in a community can help to provide support to one another
      3. people can trade in gifts and favours – IOUs with friends or family – where you help someone to move, then you should be able to ask them to help you move down the road in return – save on financial capital
      4. The more interpersonal connections are the currency of this form of capital –
    6. Intellectual Capital – This is the knowledge that you possess, acquire, and exchange with others
      1. In the education system – we are taught specialist knowledge – that intellectual capital is a factor for generating financial capital – if you have a specialist job – that is where this can be traded for many things
    7. Experiential Capital – this goes hand in hand with intellectual capital – it is the practical side to it –
      1. I can know in theory how to build a house – but the practical application to this comes with experience –
      2. Comes in the form of skilled trades – where individuals who have acquired experiential capital can become very valuable – especially if they choose to trade this in the form of financial capital –
      3. Lots of jobs have this component to them – this form of capital goes hand-in-hand with intellectual capital
        1. I know I learn best when theory is combined with practical

All of these are interrelated – and everyone has some value of each of these aspects – and without everyone having their primary form of capital – society wouldn’t function so well – need a good spread of it – like a good ecosystem for society to function well

  1. Example of these working together in society – I go to markets each Sunday – there I spend some money (financial capital) to buy food – exchanging financial capital for natural capital
    1. One of the stalls –become friendly with the guy who runs the stall (social capital) – has rhubarb – wife was talking to him about what to make out of it and started talking about jam and how to make it (intellectual capital) – now she knows how the make the jam and when she made it (experiential capital) – but he mentioned that he love that type of jam and said he would give us the rhubarb for free each week if we brough him back some jam every now and then
    2. So end result – win win – get free rhubarb to bring him some jam (material capital)
    3. This is how society functions – off the back of all forms of capital – however the driving factor is seen as financial capital –
    4. Makes us very reliant to this one form of the capital forms in the system
  2. But like investing in financial capital – have to invest in all forms of capital – learning, social, experiences

 

Why It Matters

  1. Humans are pretty complicated social animals – and having an understanding of all forms of capital reduces the reliance of money being the sole acceptable medium for exchanging value
  2. Financial independence – Someone might need $100,000 in income to be financially independent – or $10,000 if they produce all their own food, can trade their intellectual or experiential services in a bater economy and have a good social capital – there is no one right path to FI
  3. wealth can be measured as a form of total wealth – rather than just pure financial – it is just easier to count dollars than try to put a monetary value on your friends and family – probably should do
  4. Example – someone who lives completely off the grid – what do they care if the dollar collapses?
    1. I find this fascinating –think about if we were to experience an extinction event – where a solar flare knocks out all electricity overnight – in cities – means financial capital is gone, material may shut down as well – even natural is supply chains get massively disrupted – what cultures would survive – people living in the amazon –
  5. The more that you can build all forms of capital – the more resilient you will be – might sound weird for me to day – but the more you can strengthen the other forms of capital – the more you can minimize your reliance and need for financial capital – plus helps to build more well-rounded individuals and society
    1. Technically – someone might be below the poverty line but could be immensely wealthy in other forms of capital
  6. Having other forms of capital can help to reduce financial stress or worry about collapses within the financial system
  7. Also happiness – For instance – how do you monetize happiness – a lot of people try – ends up on the hedonic treadmill – but meets the phrase that money cant buy happiness –
    1. Money can provide security – but a greater purpose is needed – many studies and real world examples illustrate that once someone has enough annual income to meet all of their needs – additional income starts to not be factor in levels of happiness –
      1. Example – Someone earning $10,000 to $75,000 – someone on the $75k may be likelier to be happy – due to being less financially stressed – as essential things are covered
      2. But the difference in happiness that $75k to $750k p.a. yields is mixed – especially when it comes to the nature of getting the additional income –
    2. Yet – people remain unhappy in many jobs for the pursuit of money due to many outside factors
    3. What about a capital pursuit of happiness – What would that something else look like, and how would it function?

Thank you for listening to today’s episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

 

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