In Part 8 of this series I introduced the notion of a capital in use. Defined as a thing with the potential to do work in the future, financial, manufactured, human, intellectual, natural, and social capital and a host of other capitals are useful because they possess the same property - the capacity to bring about socially useful change.
But what is it about a capital that makes it useful?
I don’t mean in an instrumental sense. While each form of capital can be used for a specific end or objective, this only confirms that the capital is useful. It does not explain why the capital is useful. What is it about capitals that distinguishes these things from things that have no value in use?
What properties must a capital possess in order for it to to have value in use or be useful.
Meditating on this question might seem tedious. Why try to understand what make a capital useful when, intuitively we know, that the answer to collapsing confidence in corporations and capitalism, accelerating bio-diversity loss and irreversible climate change is instrumental. Just change the way we use the capitals to create “shared value” and create profit with purpose. According to economists and accountants all our problems can be solved if we continue to organize society around exchange value but with a different end. In otherwords, we will do it “right” this time.
The point of this part, and indeed the Millennia Challenge Series as a whole, it is to provide a solution to the use value problem if the instrumental answer to the exchange value problem continues to be wrong. And while the rules of exchange value can be summed up in a tweet, the rules of value in use can’t even begin to be understood without first understanding this most basic of questions
What Makes a Capital Useful
At the most basic level, there are two essential characteristics or properties that make a capital useful. The first is the ability to store value in use or the capacity to effect change in the future and the second, is the ability to be converted from one form into another. Both are required for a capital to be useful.
The Ability to be Stored
Value in use must be capable of being conserved within a thing. If this was not true, all possible social changes would occur in an instant. That social change occurs over time implies value in use is capable of being stored in capital and released at different times. All forms of capital constitute a form of “accumulated history” ( Nahapiet and Ghoshal 1998);
A capital is a store of value in use must therefore have the ability over a period of time to:
accumulate value in use at one point in time;
store value in use;
under certain conditions, “release” the accumulated stored value at another point in time.
By release I mean that the stored value in use is used to perform some form of work that results in a change. It ceases to be stored and becomes value in use in motion. The point of release is when a capital’s usefulness manifests itself. Before then, a capital only stores the potential to be useful. Time has a critical relationship with each of the capitals and the processes by which value in use accumulates therein.
Time also has a relationship with the way value in use is released and the rate at which a capital discharges its value in use. A capital must also have what I call a “"value gradient”.
Each capital in use can be expressed as a gradient made up of a y axis representing the accumulated value in use and an x axis representing the total amount of time between the initial release of the the value in use in the capital and the point in time when the value in use is no longer available for use by an individual (or system). The line between the two represents the rate at which a capital produces a given change. The steeper the gradient the less time it takes to exhaust the value in use stored within a capital.
The existence of value gradients with in capitals is alluded to by Coleman in the context of social capital and financial capital (1990):
One way in which the transactions that make up social action differs from those of the classical model of a perfect market lie in the role of time. In a model of a perfect market, transactions are both costless and instantaneous. But in the real world, transaction are consummated over a period of time.
The same idea can be expressed in terms of gradients.
When financial capital is used by an individual for exchange, the value in use in that capital collapses in the instant of exchange. It ceases to be available for use by that individual. The financial capital gradient is therefore steep. Whereas, in the case of social capital the gradient tends to be gradual. For example, the value in use in relationship tends to endure over time and tends not to exhaust by use ( Nahapiet and Ghoshal). in other words, the value in use stored in social capital can be used more than once. The social capital gradient therefore tends to be long and gradual. Only collapsing in the presence of abuse. For example, a breach of trust or social norm.
Each form of value in use must posses a gradient in order to be useful. If something cannot be represented in terms of its gradient it cannot be considered a capital. However, the ability to store and release capital is not enough to identify a capital in use. The rate of change does not explain the process by which the change occurs. We must also be able to identify what is is about the release of value in use that makes a store of value useful.
The Ability to Convert or Be Converted
The second property that a capital must have to be considered useful is the ability to release the stored value to perform the work of change.
Though this process is not entirely obvious from daily life ( and therefore difficult to explain), the release of value in use and usefulness is always associated with the conversion of one form or example of a capital into another. Some obvious like the transfer of cash for a commodity. Other subtle, like the joy we experience in presence of great art. In both cases value in use is converted from one form into another. Indeed, in the case of art, we even say the we are moved. The purpose of the following paragraphs is to explore what is moved in a conversion.
At this point, I want to make clear that conversion is not something I’ve made up and turns up periodically in the literature (Podilinsky 1880) (Bourdieu 1986), (Adam and others 2015), (colemen 1988) (Ghoshal and Moran 1996), (Nahapiet and Ghoshal 1998), (Pret Shaw and Dodd 2016) . I’m just building on this work by substituting the value in exchange foundations with a, new and arguably far more solid, value in use foundation.
For example, Moran and Ghoshal argue that all new resources (capitals), are created through two generic processes: namely, combination and exchange. To this we must add a third process, movement. Capitals do not combine or exchange spontaneously. Work must be done on existing resource to affect their transfer or exchange. If no work is done on a capital, its value is trapped and can only be described as potential value in use.
Implicit in Moran and Ghoshal’s proposition is that the new resources (the product or out put capital) must be generated from the combination or transfer of existing resources (the input capital). Put another way, the value in use in existing capitals must be “converted” or “capitalized” through a process of combination, exchange and movement in order to generate value in use in the form of work or the generation of novel capitals.
Pierre Bourdieu (1986) describes this process in terms of the convertibility of capitals
capital can present itself in three fundamental guises : as economic capital, which is immediately and directly convertible into money and may be institutionalized in the form of property rights; as cultural capital, which is convertible, on certain conditions, into economic capital and may be institutionalized in the form of educational qualifications; and as social capital, made up of social obligations (“connections”), which is convertible, in certain conditions, into economic capital and may be institutionalized in the form of a title of nobility.
Though some scholars believe that Bourdieu was pursuing an economic metaphor by using the nomenclature of capital and conversion, we know this to be partially incorrect. Bourdieu himself warning against assuming the primacy of economic capital and exchange. In a statement that echoes Hauriou's call in the 1890’s, Bourdieu makes clear that the field of economics:
has prevented the constitution of a general science of the economy of practices, which would treat mercantile exchange as a particular case of exchange in all its forms.
We must therefore establish a new science, that brings all forms of capital, not just those that have an exchange relationship, into a single analytical framework if we are to solve the problem created by trying to govern the planet using exchange value as the organizing principle.
Moreover, while the sociologist thought that the universal measure of equivalence between the capitals was accumulated human labour, he also describes the different types of capital in terms of power, which he says “amounts to the same thing”.
Bourdieu’s use of the term “conversion” and “Moran and Ghoshal” use of terms “exchange” and “combination” invokes another science that points towards using thermodynamics as a framework to understand the relationship between the various forms of capital. Indeed, Bourdieu admits as much when he says the law of conservation governs “the real functioning of capital, the conversions from one type ( of capital) to another”.
The law of conservation is of course, the first law of thermodynamics that states that energy can be transformed from one form to another, but it cannot be destroyed. A central metaphor in neo-classical economic thinking, economists find comfort in the second part of this sentence. Ignoring entirely, the first part. Energy is not just transferred between objects (exchanged) but can transform from one less useful form into another which is more useful. Consider the transformations of sunlight into chemical energy by plants and chemical energy into motive force by engines.
Likewise, if value in use can be conceived of in terms of the capacity to effect change or is energy in social form, we should see in each form of capital the same ability to be converted or to convert into more useful forms. Human capital into useful social capital and social capital into useful intellectual capital. I propose that a capital in use must, in addition to having the ability to be stored, possess one or more of the characteristics associated with stores of physical energy: the ability to be transformed, the ability to to be transferred and/or the ability to do transform or transfer. And like energy conversions, some transfers and transformations are possible and others are not.
Ability to be Transformed (Combination)
In a transformation of value in use, the value in use embodied in a capital changes form. Typically, a capital is combined with other forms of capital when transformed. An animal can be transformed into a hide, and the hide can be transformed into leather and the leather transformed into a shoe. Nahapiet and Ghoshal describe transformation in this way:
Combination is the process viewed by Schumpeter as the foundation for economic development - “to produce means to combine materials and forces within our reach (1934)
Whether we call it transformation or combination, a characteristic of some, but not all capitals, is the ability to be transformed. Money cannot be transformed.
Once a capital in use is transformed the value in use in the input capital is generally no longer available for use. An animal slaughtered for its hide ceases to store value in use as an animate being. The original form of capital ceases to exist and is replaced with a new form of value in use. Transformation tends to exhaust the value in use accumulated in a capital quickly. In other words, transformation produces a steep capital gradient.
There is however an important exception to this obvious rule.
Whereas physical capitals in use exhaust their value in use when transformed, there are a range of capitals in use that either do not lose their value in use through use or may even increase their value in use through use. These forms of capital include, social capital (Nahapiet and Ghoshal 1996) and intellectual capital. Both can be transformed and combined without necessarily collapsing their value in use.
The implication is that transformations involving capitals with gradual gradients tend to produce, in gross terms, greater value in use. This is because the value in use is preserved in its original form and simultaneously a new store of value in use is generated in the novel capital.
Ability to Be Transferred (Exchange)
In a transfer of value in use, the values in use embodied in a capital moves from one person to another, but stays in the same form. For example, a shoe can be transferred for money, but the value in use remains in the shoe and the money. The value in use in the shoe is now available to the transferee and the value in use of the money is available to the transferor.
The ability of a capital to be transferred is subject to two rules and their exceptions.
The first rule, is that capitals with the ability to be transferred tend to exhaust their value in use when transferred. The most obvious example of this phenomena is financial capital. When an individual spends a dollar that dollar is no longer available to the individual for use.
However there is exception to this rule. The value in use in intellectual property can be transferred from one individual to another without the value in use being exhausted. Owing to the properties and characteristics of intellectual capital, the value in use contained therein may be available to both the transferor and transferee to use.
The second rule, is that forms of capital in use that can be transferred, tend to be transferred in exchange for another form of capital. Again using the example of financial capital, money tends to be exchanged for a thing or a promise.
However, it is important to note that there are a class of capitals that can be transferred but not exchanged. “Social capital” which includes the relationship between individuals can be transferred. For example the transfer of trust from family or religious affiliations into work situations ( Fukuyama 1995). However social capital can not be readily transferred from one person to another for money. The money may be transferred but the social capital, being personal to the individual, does not. In this sense, socially capital is appropriable without a corresponding transfer of value “out” in return.
Likewise, those things described as “the commons”, transfer their value in use without the need for exchange. Natural capitals such as air, water, and a habitable planet all transfer their value in use without any pre-condition of exchange.
Whereas theories of exchange value focus on the two rules outlined above and largely ignore the exceptions. Exceptions are critically important to developing a theory of value in use . If a capital does not exhaust its value through use, can increase its value in use through use and is freely available, the obvious conclusion is that these forms of capital accumulate greater value in use than other forms of capital. Put another way, these forms of capital appear to do more work for longer than others.
Ability to Transform or Transfer (Move)
Capitals in use do not generate value in use through transformation of transfer spontaneously. In the absence of another capital in use with the ability to affect a transfer or transformation, the value in use of a capital is trapped within that form of capital.
Capitals with the power to transfer or transform function as a “capital engine”, “capital prime mover” or capital converter that make conversions possible. The role of the capital converter is to transform the primary or input capital into a different form of capital.
Markets are the most obvious capital engine. Transforming physical and manufactured capital into financial capital. But there are many more less obvious capital converters. For example, social capital operates as a capital prime mover. Financial capital and manufactured are transferable but, it is widely accepted in the literature that, in the absence social capital people are less willing to engage in exchange. In this sense, in the same way as the steam engine is interposed between the chemical energy of coal and motive energy, social capital is interposed between the value in use of financial and the product of exchange, the value in use of manufactured capital.
The role of the capital engine is essential to understanding value in use. Indeed, history can be analyzed from the perspective of the invention of new capital converters that convert primary capitals into change and/or more useful forms of capital.
But in the same way as a steam engine cannot convert light into chemical energy, prime movers are specific to the input and out put capital. A market can transfer intellectual capital but it cannot transform that intellectual capital into another capital. It follows that the same capital can be converted in different ways. But it does not follow that each process or use will generate the same value in use.
Seen in this way, value in use is not created in the same way as exchange value. Value in use must always be generated by a prime mover from existing stores of capital that are also available for use (an important concept for another time). A conversion cannot occur without an input capital being available and a prime mover that has the ability to convert that capital into another capital or example of that capital.
Typically, made up of a combination of capitals, the role of the prime mover is to generate value in use by enabling the conversion of forms of value in use. Expending their value in use to “power” the transfer and transformation of other forms of capital. Animate corporeal (with a body) prime movers include the person with the skill and know how to transform the leather into a shoe. Inanimate incorporeal prime movers include the market (comprising various forms of capital) that affects the transfer of the shoe. And the shoe itself. Transferring the value in use of the wearer into the work of movement and the skill of the shoe maker into reputation.
Indeed, I propose that that the modern corporation can be understood as a prime mover. An energy system, invested by law with a combination of abilities that enable the conversion of capitals thereby increasing the value in use available to a society to do the work of social change. The dominant exchange value theories of the firm, rooted in the theory of value in exchange, propose that corporations exist to reduce transactions costs. This new perspective on the corporation is grounded in the theory of value in use developed in this series, and proposes that corporations exist to increase available value in use.
The purpose of prime move is to use a capitals power to transform or transfer its value in use to convert other capitals. The value in use in a prime mover does work on other capitals to affect there conversion from one form to another. Capitals configured as prime movers are the engines of change. However ever it is important to note that prime movers are not a “universal resource”. A given form of prime mover can convert use full forms of capital into use less capitals. If the output capital can do less useful work than the input capital the prime mover is not an value in use generator but a value in use sink. Effectively removing the available value in use from a given individual, company or society. The implications of this ability are profound in the context of value gradients. Destroying a capital with a long gradual gradient in return for a capital with a short steep gradient is another definition for short termism.
However, As Bourdieu noted , there is a “cost” to conversion, measured in terms of a reduction in available value in use (the value in use expended), when capitals are used to convert other capitals. Adam Smith recognised this “cost” when he said of the performance of services that:
[it will ] perish in the very instant of its performance, and seldom leave any trace or value behind them for which an equal quantity of services could afterwards be procured”
One way to recognize a prime mover is that it must be “fed” in order to continue to do work on other capitals. Human capital in the form of employment, must be paid to do the work of converting capitals. Even social capital must be worked at to be maintained or it tends to erode. Bourdieu emphasizes that social capital is the product of endless effort. Compare this to financial capital that takes no effort to maintain but equally can only be transferred.
The vital role of prime movers as the engines of capitalization will be examined in more detail in future parts.
The Forms of Capital In Use
Before naming and describing each of the forms of capital in detail in the next part in this series, it is important to stress that the feature or characteristics that makes a capital in use are different to the feature that makes a capital in exchange. That is, its ability to either be exchanged or used in the production of goods or the provision of services.
Typically, taxonomies of the capitals emphasis a particular relationship between a particular form or category of capital held by an organisation or firm and the production of commodities (IIRC, Jane Gleeson White). While Aristotle noted that exchange was a use, the practice of defining a capital by reference only to its relationship to exchange value is highly problematic for a number of reasons:
it only captures one use, that of exchange, and a capitals other powers of transformation and to move. Powers that may generate greater value in use than the power of transfer.
it marginalizes those capitals whose relationship with exchange is unclear or indirect. Simultaneously prioritizing capitals with obvious exchange relationships i.e., financial and manufactured capital.
it ignore conversion of capitals that have the power of transformation and/or movement but no power of transfer.
Bourdieu succinctly captures the dire implication of narrowly defining capitals in terms of exchange value as follows:
It is in fact impossible to account for the structure and functioning of the social world unless one reintroduces capital in all its forms and not solely in the one form recognized by economic theory.
He then begins the process of reconstituting the make up of the world by identifying three capitals unified around the idea of conversion of three capitals; financial, social and cultural. Bourdieu’s adopts the standard universal measure of equivalence between all forms of capital adopted in marxist theories of exchange value. He states that all capital store value in terms of “accumulated, human labour” which can potentially produce different forms of profits (1986). What Marx called “congealed labour”. But unlike Marx, who located this invisible substance in commodities like coats and yards of linen, Bourdieu thought it possible to recognise accumulated labour in “intangible” things such as cultural and social capital.
But in doing so, Bourdieu follows Marx into the rabbit hole of of trying to solve the the exchange value problem. Thinking it possible to to find equivalences between these forms of capital. Even going as far as to say all forms of capital can be converted into financial capital. This is unhelpful when trying to solve the problem of value in use that is based on a universal measure of equivalence that exists in all things but in different proportions. This is not human labour. It is energy. Something that Ukrainian socialist and physician, Sergei Podolinsky, tried to convince Marx and his followers in his essay "Socialism and the Unity of Physical Forces" (1880).
Fortunately, Bourdieu’s conversion methodology can be used to reconstitute the world from a value in use perspective. However, instead of using accumulated labour as the measure of equivalence between capitals, we can use the idea of value in use or the capacity of a thing to effect socially useful change as the measure. If each capital possesses value in use it should be theoretically possible to determine the value in use available to an individual before or after a given conversion from one form into the other.
We can then begin to examine and categorize capitals according to their accumulated value in use and, based on the notion of conversion, tabulate the way in which one form of capital is converted from one form into another to generate less or more value in use. An accounting based on something real and measurable rather than, as discussed in the last part, a poor metaphor.
In the future, by using the properties of the capitals, such as their liquidity, convertability and exhaustability (gradients), we can even start to visualise how capitalization and the increase in available value in use occurs. And perhaps more importantly, identify those prime movers that exist (or are even promoted) that are systematically destroying the value in use available to power social change. Bringing us one step closer to understanding what the best use of capital is.
In the next part I identify and describe the capitals that possess both the ability to store value in use and the ability to be converted or to convert. These are (in no particular order): financial capital, manufactured capital, human capital, social capital, intellectual capital and promissory capital, the value in use stored in our promises and commitments.