Types of Capital

Capital is a factor of production with a specific, changeable value attached to it that could, potentially, provide its owner with more wealth.  It is an abstract economic concept, and, as such, has many different definitions and classifications, but the unifying feature of capital is that it has a certain value, so it in itself is a type of wealth, and it has the potential of generating more wealth.  It also can't be a raw material, it has to have been developed into the capital it now is.

If you are starting a business, you will need basic types of capital in order to generate an income.  Here are some examples:

Human Capital - Certain aspects of the business will require a worker with special skills (accounting, legal defense, etc.).  These skills are referred to as Human Capital, because they were developed by the person to make themselves valuable and capable of generating wealth for a company.  So when a person goes to college or develops trade skills, they are developing human capital.  This differs from labor, which is the ability to perform work, rather than the possession of skills required to perform that work.  The ability to work on an assembly line is labor, the training to operate a machine is human capital.  Human capital can also be considered "talent."

Social Capital - There must be a basic trust between the company and the society they are living in.  For example, no one is going to fly on an airline that hires untrained pilots and crashes their planes all the time.  A good flight record, provision of proper services, and working to please the customer and the society they work with as a whole is a type of capital this company must build up and develop, thus making it social capital.

Organizational Capital - A company must be well organized and have solid leadership to function at maximum efficiency and, as such, become competitive in the marketplace.  The type of capital that consists of the ability of the leaders of the company to integrate the skills and talents of their employees and bring them together in a manner that makes them greater than the sum of their parts, is considered Organizational Capital.

Financial Capital - Any business, of course, needs money to start.  The money they use to build their business, make it work, and then expand their business, is referred to as financial capital.  If, for example, you were opening a grocery store, before you had made any money, you would need to be able to procure a loan or already have enough money to buy or rent a lot of land to locate the grocery on, and enough money to stock the grocery with food and drinks and bubble gum and whatnot.  This money, provided by lenders or investors, is the financial capital.  The investors or lenders put this money into your business in the belief that you will be able to generate income from this money and, in the end, make them money through interest or shareholding.  This is the type of capital that tends to spring to mind most immediately when discussing economics.

There are other types of capital that may also come into play in the economics of business, but may not necessarily show up in every situation.  Here are some of them:

Intellectual Capital - The existence of intellectual capital has been something of a controversy recently, with the dawning of the internet and the blurring of what belongs to whom.  A good example of this is branding.  McDonald's has poured millions of dollars into developing its image around the world.

You know when you're at a McDonald's because you're eating a Big Mac in front of the Golden Arches, and have that catchy "bah-da-bah-bah-bah" jingle playing in your head.  McDonald's has consciously developed this brand so that when you think of places to eat, McDonald's burgers pop to your mind before Wendy's or Burger King does.  So if another company were to name themselves McDonald's and sell burgers under a giant "M" sign, they would be capitalizing off of McDonald's intellectual capital, or the McDonald's brand.  In law, McDonald's owns this brand, and permission must be given from McDonald's to use the brand to sell anything that isn't being sold by McD's itself.

This debate hits grayer areas when it enters into the field of art, because it's hard to pinpoint exactly who owns a song.  Is it the writer?  The singer?  The studio that produces and releases the song?  For example, before he died, Michael Jackson owned most of the Beatles' catalogue, even though he was still a kid in the Jackson 5 when the Beatles broke up.  He was making money off of the Beatles sales, though he had nothing to do with their production.  The concept becomes more controversial with the internet, which has given people all around the world the ability to download almost any song illegally for free.  That music and art are capital is not the question - they have a value and can generate wealth - who owns that type of capital is.

Capital Stock - Capital stock are the machines that are used for the production of the goods being sold.  If you are a writer, the machine you use is your computer, your typewriter, or your pen and paper.  If you are making a delicious breakfast at the IHOP, your capital stock is your grill, spatula, and waffle iron.  These are separate in concept from financial capital or the other types of capital in that their value isn't in the ability to liquidate them into cash, but in their practical use for the creation of your goods.

Capital can be differentiated from the other factors of production as such:  The Labor is the actual action of work.  The natural resources are the raw materials required for you to create your product.  And the types of capital are the elements that combine to create that product and generate revenue for your company.  Without any of these elements, your business will not be able to function, but without capital, it will not be able to make money.