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Wednesday, October 18, 2017

The secret to turning capital into something sustainable and useful

Posted by steve on May 9, 2012

This is interesting. I started out to make capitalism my hobby and have got stuck posting about what capital is. My revelation from the last post was if you add up all the debt in the world, and then you add up all the money people possess in the world you get – zero.

This is because money nowadays is created as debt. A plus on someone’s back account becomes a minus in the bank’s account.This is essentially a pyramid scheme, albeit a legal one and if that is capitalism then give me whatever the alternative is. But that’s the problem. It isn’t capitalism. There is no definition of capitalism, rather it is a set of things. Rather like doctors give names to things they say aren’t sicknesses as we know them, but  a collection of symptoms.

I digress. I wanted to stick with the idea of financial capital. Remember, financial capital is backed up by debt – or claims on other kinds of capital; I like to call this real capital. Now, to look at this from a sustainability point of view you need to realize that there are different kinds of substances that are vital to our way of life.

  • Some are non-renewable, finite, and if released into nature degrade the eco-system’s maturity, or affect it functioning to deliver eco-system services. Example: oil and coal.
  • Some are in short supply, hard to get and cause a problem if released into eco-systems by reducing ecological maturity. Example: phosphorous.
  • Some are abundant, but if they accumulate in wrong places affect the performance of eco-systems. Example: nitrogen.

So if you are investing in a sustainable society, that is, spending money to create infrastructure, you will want to invest in one which 1) Uses renewable sources of energy2) Recycles elements that are in short supply3) Ensures abundant, essential elements circulate.

Before we consider this further we should look into how capital is turned into services.

First, using human, natural, social and man-made capital minerals and biomass are extracted. These natural capital elements are converted to man-made capital. Examples could be to make a building . Using the input of human capital and natural capital it can provide a service, like a hotel.

Let us imagine that man-made capital consists of many different connected objects. Any object could be represented usign the diagram below. The social capital is the company, the human capital is supplied by employees, the input is natural capital and the man-made capital is the machines to drive the processes.The prodiuct in the end is a service, as shown above.

Each of these objects will require an input of energy and materials to construct them, and an input of energy and materials to operate and maintain them. Essentially we could construct a matrix representing the four different classes of objects. The horizontal axis represents the energy needed to operate the object, and the verticla represents the energy needed to construct it.Let us examine the four categories. As energy is expensive, much financial capital to be converted to create this man-made capital.

The first category is expensive to run and expensive to make. The best example is the car. Costs a lot to buy, a lot to run and all you have after 12 years is a rusty, broken-down car that is worth very little. This category of object is the “convert to another category type of object”.

One that costs little to construct, but uses a lot of energy in use is like an oil lamp. This category is also a convert category. One example from Bangladesh is where people gave a micro-lending bank what they spent on oil as a part payment on a solar panel. Cleaner and cheaper in the long run. This was a conversion to the “expensive to buy but cheap to run category”. Or I call it build once, use for a generation.

The last category is cheap to make and cheap to use. Baskets are wonderful examples of this category. They are easy to recycle too, just put them in the earth and they help make soil. All products in this category are great if they are soil-builders.

So, this is as far as I can go on how to view the combination of the different types of capital to create services sustainably. Quite simple really. You could use it to expand on the earlier idea of assessing performance of a society. For example, looking at financial capital vs man-made capital.

Top left we have a situation where financial capital is low, but man-made is high. Depending on what objects have been invested in, this is a good situation.  Action: build financial capital, ensure the objects are build once use a generation.

If financial and man-made capital are both high, this is cause for celebration. Action: enjoy whilst ensuring resilience and capability for future generations.If man-made capital is low, and financial capital is low there is a problem situation. In this case, there needs to be a societal pooling of all resources to remedy the situation. Food and water security need to come first, then housing.

If man-made capital is low, but financial capital is high the action is spend wisely. Choose build once – use a generation solutions and find cheap to make and cheap to use solutions as well.

Let’s make an index table like the one in the previous postHere we see three different countries and I think they figures tell a story. I’d love to do this for real countries.

So there is the secret: invest in build once use a generation, and concentrate on having the infrastructure recycle precious elements using renewable energy.

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