Categories
All posts

The Different Forms Of Capital

I love the recent vlog by Curtis Stone, the Urban Farmer. He breaks down the various forms of capital that a person possesses. It’s what all human beings have in common ever since a functional society has been in existence.

In this post I would like to break down the various forms of capital that a healthcare professional possesses. We often only place emphasis on the first 2 forms of capital.

  1. Financial capital
  2. Material capital
  3. Social capital
  4. Experiential capital
  5. Intellectual capital
  6. Spiritual capital

 

1. Financial Capital

  • money
  • securities

Financial capital is made up of mostly cash or accessible savings you have on hand. For the healthcare professional it would include your emergency fund and the cash value of your investments – whether from retirement accounts or from your private brokerage.

Financial capital is fickle on its own but is probably one of the most potent of all the different kinds of capital when it is invested. It is also the one form of capital that most other forms of capital are traded for.

Negative financial capital is achieved through debt. If you owe more to creditors than you have in financial capital then you will have a negative financial net worth.

 

2. Material Capital

  • house
  • tools
  • car
  • collectibles
  • cultivated land

I view material capital as the stuff you own. If you own your home, car, clothes, collectibles, and tools then you have material capital.

I may have no money but I have a MIG welder that I can use to earn a living. That’s one way of turning material capital into financial capital.

I don’t know of any homesteading healthcare professionals but the last bullet point is in regards to what you can produce on/in your land. If you own a home and you can grow vegetables, fruit trees, collect rainwater, and turn solar energy into electricity on your property then you have a great deal of material capital.

I can’t make a case for negative material capital. If you don’t own anything then you wouldn’t be negatively affected unless you also have no other forms of capital. The minimalist movement is all about getting rid of as many possessions as possible.

 

3. Social Capital

  • friends
  • family
  • ability to make connections

This is your network of friends and colleagues and includes your family. If I lose all my possessions today, I’ll know that I can rely on my social capital to help me back on my feet.

I think the last bullet point, the ability to make connections, is commonly neglected. It’s great if you have family and friends on whom you can rely upon but what if you move to an all-new location? What if you get divorced and your previous network decides to stay with your ex-partner?

If you are able to make new connections among a diverse group of individuals then you have a very stable and powerful social capital.

Negative social capital would be having friends/family who affect you negatively. Or perhaps not venturing out far enough past your immediate group of friends which would prevent you from growing as a person.

 

4. Experiential Capital

  • experience in a particular subject/field
  • hands-on knowledge

You may not have a degree in auto mechanics but you can repair a car. You don’t have a medical degree but you know how to eat/live in a manner to save on healthcare costs.

I have experiential capital in finance; I practice it, I write about it, and I have had both failures and successes in the field.

Experience is more useful than knowledge. Having a degree is helpful. Having read a lot of books is beneficial. But having actual hands-on experience is a lot more powerful because it makes you marketable.

There is not such thing as negative experiential capital. In fact, the more negative experiences you had in a particular field, the more likely it is that you would improve and gain even more experience.

 

5. Intellectual Capital

  • knowledge of a specific topic
  • professional license/degrees
  • higher education

Think of this as the “licensing” capital. If you have an MD degree, a CPA, or CFP degree then you have intellectual capital.

Intellectual capital is also achieved by going to school, getting a college degree, or reading about a topic in-depth.

If I am really efficient and proficient at doing taxes then I have experiential capital even though I may not have intellectual capital in form of a certified public accountant.

 

6. Spiritual Capital

  • outlook on life
  • ability to deal with adversity

This one is weird because it’s a state-of-mind sort of thing. One good way to explain it is the optimistic, easy-going employee who sees all changes as positive and isn’t negatively affected by anything at work.

This rosy person has a lot of spiritual capital. They can trade this capital in for social capital by having happy bosses who will recommend them for future endeavors.

But another form of spiritual capital is your outlook on life. If you are someone who isn’t very greedy and can deal well with life’s common adversities then you have a lot of spiritual capital.

If you contract a fatal illness you may not waste all your savings and energy to gain a few extra months to live. And if you are comfortable living a simple life without extravagant luxuries then you’ll probably live a less stressful life that’s more resilient.

You can certainly have negative spiritual capital. Any kind of self-destructive behavior or a pessimistic view on life will hurt your life and lifestyle. Negative spiritual capital might push you to drain your financial capital to look younger through plastic surgery or acquire more possessions to impress others.

 

Discussion of Capital

I appreciate the intellectual capital of being a healthcare professional. I can earn an income as a doctor in the US and a few other countries. This form of capital isn’t affected by inflation since my wages would be adjusted accordingly.

Our net worth is calculated off of our financial and material capital. Placing value mostly on these 2 capitals is as helpful as looking at a skinny person and deducing that they will live a long life.

Financial and material capital are the easiest to accumulate and for the savvy healthcare professional these are often all you need to live a comfortable life in a modern society.

As we are closing on recent tax law changes (pdf), it’s important to point out that IRS and tax rules can change, turning an otherwise lucrative asset into a financial liability. If I can take advantage of all forms of capital then it’s less likely for one law to affect me adversely.

Diversifying Capital

I would make the case that if you can structure your life in a manner to take advantage of the other forms of capital then you’ll not only enjoy a much more bountiful existence but you’ll also have a much easier time to be truly wealthy.

Furthermore, you’ll need to trade a lot fewer hours of work for income in order to become financially independent by taking advantage of all forms of capital.

Negative Capital

In our modern society, a homeless person with schizophrenia and/or a major substance abuse disorder would be an example of someone without any value – devoid of all capital. A sad fact but such is the value an advanced society places on its citizens.

This is probably the saddest state of the human race that unless you create some sort of value, you have no capital. Each one of us propagates this when we think that we are wasting time or producing no value unless we are working a job or producing a good.

Some negative capital can be compensated for by accumulating other forms of capital. An incredibly wealthy person can essentially seclude themselves in their mansion and never have to rely on any social capital.

Ideal Capital Portfolio

To make this discussion even more weird, I think there is an ideal capital portfolio for every single person, though it will likely changes as you get older. Achieving this ideal capital portfolio means that you’ll make it through life that much easier.

Early in our healthcare professional careers it’s beneficial to focus on gaining experience and putting our medical license to work in order to minimize our debt and maximize our savings.

By learning more about investing and personal finance, we can become that much more effective at growing our net worth. We may even trade our less valuable material capital for more productive ones.

By cutting back on work we free up extra time to obtain more intellectual and experiential capital. This can then be put to further use to increase our social capital.

Social capital tends to lead to spiritual capital. The more humans you connect with and the more experiences you share with others, the more positive your spiritual outlook can become.

 

Privilege Capital

It’s sad that as human beings we have to have capital to be of value. Not only is it sad but it is the driving force for oppressing people of color and women.

There is one last form of capital which I didn’t include because you cannot develop or create this capital – it’s privilege capital – the ultimate privilege capital is being a male white person in this world.

Oh, oh, Dr. Mo is getting controversial. Please! Everything on this site is controversial so don’t go flaring up your rosacea over this. As an example, I have the privilege of being male – an insane privilege which I acknowledge but don’t condone.

Privilege capital also can be had by being obscenely rich, have political connections, not being a person of color, being male, and growing up without abuse/violence.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

× How can I help you?