At the time that I originally wrote this, I was working toward my master’s degree in anthropology in college. In a theory class we were discussing world systems theory, global economics and money. At one point the professor made the point that there is profound difference between money and capital, and then posed the question “what is that difference?” I was surprised to see that within a class of intelligent and well educated blooming social scientists, there was little clear understanding amongst my peers as to what exactly the word capital means.
This is particularly perturbing considering the fact that the idea of capitalism or “free market economics” as it also known, is often maligned within this sphere of academia.
Money and Capital
Capital is not necessarily money, but it’s usually spoken of in that context. Money is a symbolic mode of exchange. In our society the simplest form of money comes in dollars and coins. People and governments agree that these particular bills and coins have a certain amount of value can be exchanged for goods and services that are perceived to be of a certain value in relation to money. Of course it takes popular support and trust in the currency for it to be of any perceived value, and that calls for regulatory mechanisms from credible governing authorities.
Capital is money or any other resources used for investment and for production of goods and services in order to make a profit in a accordance with the law of supply and demand. A portion of the profits are then reinvested in order to create even more profit. To be sure, even somewhat abstract concepts like education, experience and time can be invested and can be thought of as a form of capital. That old saying “time is money,” might better be thought of as “time is capital.”
Capitalism is a process or system that functions in terms of capital.
One of the biggest differences in the mindset of those who tend to succeed and do well financially and those who do not is that one of them thinks in terms of capital and the other thinks in terms of just money. Baring radical improbabilities, a person’s net worth is going to be in large part reflective of their knowledge and understanding of economics and finance.
Language and vocabulary affect our thought processes which in turn affect our behavior. Your life is your business. If you plan to succeed financially in that business, you must think in terms of capital rather than in terms of just money.