Having defined value in use as the ability of a thing whether, comprised of matter or not, to perform socially useful work that results in change, Part 8 in this series examines the foundational concepts of work and how the potential to do work is stored in capital.  

The Two Types of Value in Use

Value in use comes in many forms but there are two basic types:  work and capital, the stored potential to do work in the future. 

Value in Motion - Work

The first type of value in use is value in motion or work.  Work describes the process by which value in use is transferred from one thing to another to produce socially useful change.  If a thing cannot do work to produce change it has no value in use.   In this sense, value in use can be quantitatively measured in terms of useful work performed.  

In physics work can be described as the transfer of energy from one object to another.

 (work) is a measure of the quantity of energy which is converted from one form to another. It is a term usually associated with man’s use of energy, with a conversion for some useful purpose.  Work, therefore, represents a change in energy, or energy in transit from one form to another (Fowler).

Substitute with the word “value in use” with “energy” and this description approximates the concept of work in the context of value in use.   In basic terms, when work is done on a thing, value in use is potentially added to it. When work is done by a thing, it transfers its value in use to another thing.

Work is therefore a measure of the quantity of value in use available after work is done done by or a system or thing after a transfer or transformation:

• a thing does work when it is transferred for another thing- steel can be exchanged for money.

• a thing does work when it is changed into another thing-   iron ore can be changed into steel.

• a thing does work when used as tool or engine to transfer or change things.      The blast furnace turns iron ore into steel. The market turns steel into money.

These transformations represent a change in value in the system.  Value in use is transferred from one thing to another through transfer, change or for want of better words engines, prime movers or tools that make transformations possible.  Collectively transfer, change and the work done by an engine are described as “transformations” and are concepts to which I will return often in the remainder of this series. 

The concept of work is important because it highlights the relationship between things that accumulate value in use, transformations and resultant change. A process animated by the motive force of entropy discussed in Part 7 in this series.

However, not all work is socially useful.   For work to be socially useful the resulting change in value in use after work must be positive.  In other words, the work that can be performed after a given transformation must be greater than before before.  If the thing that is doing the work could do more work than the thing upon which the work is done or work could be done on another thing that could do more work than the thing that the work is done, value in use has been destroyed. To be socially useful use value must be created in the sense that there is more use value available to do work in the future.

Value at Rest - Capital in Use or Stored Value in Use

The second type of value in use is associated with the potential to do work in the future.  If things could not accumulate and contain value in use, life as we know it would be inconceivable.

To date, I have used the expression things to describe objects with such potential but its usefulness has come to an end. It is necessary to introduce a more familiar term to describe any store or fund of value in use - capital.  Not to be confused with the economist’s definition of capital discussed briefly below, capital has two meanings.  The first, are things that store exchange value, the second are things that store value in use.

Capital as a Store of Value in Exchange

Capital is a stock of anything that yields a flow of valuable goods or services in the future.

Costanza and Daly 1992

For many readers the expression capital will only describe things that can be produced and consumed or things that create things that can be produced or consumed.

Thomas Picketty defines capital as assets, tangible or otherwise, that can be traded in some market.  Hence, for Piketty, capital includes cash, bonds, and shares, collateralisable assets such as buildings, land, machinery, and intellectual property.   In this sense, Picketty and other economist tie the definition of capital to those things that can enter into a market relationship and can be expressed in terms of price.    By definition, from an exchange value perspective, only capitals that have a price can have value in exchange.

The idea that capital assets store wealth and generate production for future consumption (Hulten 2006) goes back to the 19th century reformulation of the Value Problem discussed in Part 1 of this series (Gaffney 2008). A conceptual framework for understanding value in exchange cannot be used to understand value in use.

To be clear, as this series is not concerned with value in exchange but value in use, I do not adopt the economist’s definition of capital or seek to extend it by way of metaphor (the subject of my next post).

Capital as a Store of Value in Use

From a value in use perspective, capital describes anything that stores the potential to do socially useful work in the future.   Things that can accumulate value in use and release that value in the future, in the form of work, are also capitals.   

Capitals include and transcend the economist’s definition of capitals.  Things that can be exchanged do work through exchange and are therefore useful - commodities and money. But, things that are not exchanged (or never come to market) are also socially useful - art, relationships, ideas and our common environment.  Converting the value in use of food into the value in use of human energy is socially necessary work that exist outside markets.  Likewise, the engines and prime movers that make transformations possible are valuable.  Markets are one engine that transfer money in to commodities. But other engines exist such as culture and law. These “engines of change” may never attract a price but do more work and for longer and are the most precious of capitals.        

The challenge is that the potential to do work being invisible, we cannot observe it directly as a physical property of a capital.   Value in use is not tangible.  We can’t just look or touch something and know it to be a store of useful work in the future.     Particularly, as many of the things with the greatest use value are also invisible.  Indeed, this invisible quality has led many to abandon the search for value in use as impossible.  

The trick to identifying stores of value in use is to recognize that change occurs in the presence of capitals.   By observing change and growth it is possible to suppose:

• before the change, the potential to do work was stored in one or more capitals;

• some work has been performed on or by those capitals;

• after the change, the potential to do work is stored in different capitals (and the cycle continues). 

In other words, change occurs in the presence of capitals and therefore capitals store the potential to do work or value in use.   Though self-evident, it is worthwhile pointing out that positive change doesn’t just happen spontaneously. It happens when capitals are brought into proximity and an engine of change is interposed.

Capital in Exchange is Not Capital in Use

The use of the term “capital” to describe both stores of exchange value and stores of value leads to confusion.  

The accountant’s and auditor’s tendency to expand capitals beyond things that can be exchanged in a market, such as social capital and human capital, confuses mainstream economists.  Unable to wrap their heads around the idea that a capital might store something other than exchange value.   But equally, the practice of ever-expanding capitals tends to tie accountants in conceptual knots.  Who must engage in futile mental gymnastics by trying to impute an imaginary price on things that are either not exchanged in a market or not exchangeable or being a tool, are never intended to enter into the market.  Introducing a fundamental anomaly that undermines the theoretical rigor of accounting practices and attempts to formulate accounting standards that account for all capitals.   Multi-capital accounting is intellectually doomed if conditioned upon the neo-classical idea of exchange value.

The source of the confusion is not the word capital, but the failure to grasp the inability to use the conceptual framework for understanding things that can be exchanged in markets, with things that have “value” but cannot be exchanged in markets. 

To avoid adding to the confusion I considered using Hirschman idea of “interests” to describe stores of value in use (Hirchman,1977).   The concept of an interest having a long intellectual history and entwined with reason (as opposed to passions/preferences) and is affiliated with a more scientific approach to value.    Moreover, the concept of interest in company law is identical to the idea of a capital developed herein.  Indeed, it can be argued that the familiar expression “best interests of the corporation” is nothing more than a manifestation of The Second Law of Thermodynamics in the context of company law.  A theme I will return to when applying the concept of value in use to the modern corporation and director’s duties in a future essay.   But for now, I’ve elected to stick with the term capitals.   Accountants being more advanced in their understanding of capitals, than lawyers of interests, I think the risk of creating confusion is less than the risk of being accused of inventing meaningless words.

In the remainder of this series I will use the expression “capital” or “capital in use” ( to distinguish from the concept of capital in exchange) to refer to some store or fund of value in use available to do socially useful work in the future.

In the next part, I explain why capital in use is not a metaphor for capital in exchange.