Capital is as defined in the textbook is not only financial resources, but it is any resource that is valued for its potential economic contributions. There are two main different types of capital called stock and flow. Stock of a capital is the amount of a resource at any given time. Flow is the change in the amount of resources over a given period of time. To put theses definitions into real life terms a good example would be to use a business such as a small fishing company. A stock can be seen as the amount of fish the company has to sell after one days catch but a flow can be seen as the amount of fish that was obtained and sold over a month. There also different forms of capitals that are categorized by their different types of resources and their economic contributions.
The first of the five forums of capital is natural capital. Natural capital is resources or physical assets that are provided and found in the natural world such as trees and livestock. With the fishing company a stock of natural capital would the fish they are trying to catch and sell and a flow would be using the fish to sell allowing the company to invest in their business. Flows can increase and decrease depending on how the resources are being used. If the fishing company over fished in their area, it would decrease the flow because there would not be as many fish to catch anymore. If the company fished sustainably it would increase their flow or maintain it by keeping plenty of fish in the water for them to catch.
Manufactured capital is the physical assets produced by humans using natural capital. Things like buildings and machinery are examples. The boats, fishing nets, and even the gas used to power the boat are just some of the manufactured capital stock the fishing company would have. Manufactured capital can increase efficiency in catching the fish and increase production rate for the company. The fishermen with the manufactured capital are able to catch the fish which is the flow. To increase this flow, the fishing company could invest in new technology such as new types of fishing nets that are more efficient at the job. Replacing old equipment to keep the manufactured capital maintained like replacing parts of the boats to keep them working. For them to add a decreasing flow they would have to depreciate their manufactured capital by not replace parts and old out dated equipment.
Human capital is the capacity of people to engage in productive activities. Human capital is not just the quantity of people though. It is their skills, knowledge, physical health, and mental health. The crew members on the on the fishing boat are an example of human capital. There skills, knowledge, experience, and everting that makes up human capital is the fishing company’s stock of human capital. With the skills knowledge experience and mental and physical health brings greater productivity and efficiency for the fishing company. Hiring people know what they are doing or creating workshops to educate employees of the company on how to perform the job well is just some of the ways to have an increase flow. Another way is to have higher wages to keep employees on staff for longer creating experience for them. If the fishing company were to disinvest in their workers it would decrease their flow because their workers would not the skills experience and knowledge making them less productive and efficient.
Social capital is stock an of relationships among people that creates economic activity this includes shared norms, values, and trust. The reputation of the fishing company how they are perceived by other people on the quality of their fish how they fish and their fishing techniques whether and how they treat the fish they catch is their stock of social capital. Social capital can be increased through networking and communication with the community and other businesses. This allows the company to make relationships and increase productivity with their business. If the fishing company lacks communication and networking, it will give them a decreasing flow because there are less people to conduct business with.
Financial capital is made of resources that purchase goods and services. Examples of financial capital are forms of money, stocks, bonds, loans and credit cards. Financial capital does not cause any direct production but it does give people incentive to produce goods and services. The fishing company would obtain financial capital buy selling their fish that they catch. The amount of money the company has at a given point is an illustration of a stock of financial capital that the fishing company can have. The company can use their financial capital to reinvest in themselves to maintain or grow their business. The investment of financial capital goes towards the production of other forums of capital. For instance, If the fishing company needed a new fishing boat they would use their finical capital and invest it the manufactured capital of the production of a new boat. So even though Financial capital is not physical it is the incentive that drive the production of the other forums of capital.
Capital is a very key aspect to our economy. It is what drives productivity and motivates people to be productive giving them something to work for. Capital is what creates businesses and companies such as the fishing businesses. Without value of resources and finding ways to make use of them society would not be able to function because nothing would be done which is why capital is much more than just money or any sort of financial resources