Five Kinds of Capital: Useful Concepts for Sustainable Development

The concept of capital has a number of different meanings. It is useful to differentiate between five kinds of capital: financial, natural, produced, human, and social. All are stocks that have the capacity to produce flows of economically desirable outputs. The maintenance of all five kinds of capital is essential for the sustainability of economic development. Financial capital facilitates economic production, though it is not itself productive, referring rather to a system of ownership or control of physical capital. Natural capital is made up of the resources and ecosystem services of the natural world. Produced capital consists of physical assets generated by applying human productive activities to natural capital and capable of providing a flow of goods or services. Human capital refers to the productive capacities of an individual, both inherited and acquired through education and training. Social capital, the most controversial and the hardest to measure, consists of a stock of trust, mutual understanding, shared values and socially held knowledge. In the course of economic history, the focus has shifted from material-intensive to information-intensive technologies. These technologies make it possible to economize simultaneously on the three classical factors of production: land, labor, and produced capital. Information technologies can be embodied (in physical capital) or disembodied, consisting of shared understandings and procedures (human and social capital). Sustainable development must maintain or increase all productive capital stocks, including natural capital, which is currently often depleted through economic production. The maintenance of stocks of human and social capital is equally important. Thus the traditional trio of essential economic activities – production, consumption, and distribution – must be supplemented with a fourth function, that of resource maintenance.