Economic capital is a term used to describe the amount of monetary or exchange value a person possesses. Money, stocks, real estate, artworks, and material possessions are all examples of economic capital.
It is a form of capital distinct from natural, cultural, and social capital because it reflects tangible value that can be transferred in a financial transaction.
However, according to theorist Pierre Bourdieu, economic capital is easier to attain if you have social capital and cultural capital because you can leverage them (e.g. social contacts, understanding of cultural norms) to get a good job or more easily make business deals.
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Examples of Economic Capital
- Money – Any item or verifiable record that is accepted as payment for goods, services, repayment of debts, and so on. This is the primary form of economic capital, according to Bourdieu (1987/2016).
- Real estate – Any property consisting of land and the buildings on it, along with the natural resources of that land.
- Personal property – Any movable property. Personal property can be understood in comparison with real property (real estate).
- Art pieces – Any piece of art, even though art ownership is also a form of social capital, is also a form of economic capital. This is because a piece of art can be sold. Buying art is itself a form of investment.
- Equities – Also known as stocks or capital stocks, equities are shares of ownership of a corporation or company. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares.
- Commodities – A commodity is an economic good that has full or substantial fungibility. This means that the market treats different instances of a commodity as equivalent, so they’re interchangeable.
- Bonds – A bond is a type of security under which the debtor owes the creditor (the holder of the bond) a debt, and is obliged to repay the amount borrowed and interest if there is any.
- Cryptocurrencies – A digital currency designed as a medium of exchange to be used through a computer network. These currencies are relatively independent of governments or banks.
- Futures – In finance, a future is a standardized legal contract to buy and sell something at a specific price for delivery at a specified time, between parties that don’t yet know each other.
- Business assets – if you own a business, you likely have many assets that you need to declare as economic capital to the government every year.
Economic Capital Definition
In sociology, economic capital refers to the sum of an individual’s economic resources. This includes their income as well as their assets.
The concept was popularized by the French sociologist Pierre Bourdieu (Jourdain & Naulin, 2011). He was also the one to introduce the distinction between cultural, social, and economic forms of capital (Bourdieu, 1986, pp. 241-58).
These three forms of capital can coexist and interact. For example, when a person purchases an expensive work of art, they turn their economic capital (the money they had) into social capital.
Unlike other forms of capital, economic capital is a material good. It is immediately useful and practical. Since economic capital is physical, it is the easiest form of capital to transmit from one generation to another.
The ultimate example of economic capital, according to Bourdieu, is money.
Since economic capital can provide access to previously inaccessible goods and increase one’s standards of living, it is a factor of social distinction (Bourdieu, 1987/2016).
Most Common Types of Economic Capital
1. Money
Money is any item or verifiable record accepted as payment for goods and services, repayment of debts, etc. This is the primary form of economic capital, according to Bourdieu (1987/2016).
Money has many functions in a socio-economic context. It can serve as a medium of exchange, a unit of account (a measure of value), a store of value, and a standard of deferred payment (standard of value) (Jevons, 1875). Modern economists often list only three functions of money: (1) medium of exchange, (2) unit of account, and (3) store of value (Krugman & Wells, 2006).
There are several properties money must possess to fulfill these functions: (1) fungibility, (2) durability, (3) divisibility, (4) portability, (5) acceptability, and (6) being limited in supply.
The value of money is a function of social conventions. To function as a legal tender, it must be declared by a government or regulatory entity to be an acceptable form of payment within the country (Mankiw, 2012). The total amount of money an individual has is one of the main parts of their economic capital.
2. Real Estate
Real estate is any property consisting of land and the buildings on it, along with the natural resources of that land. Sometimes referred to as “real property,” this technically includes land and any other tangible improvements that might be on, in, below, or above it.
It is, therefore, different from personal property because it is immovable. Residential real estate can contain a single-family or a multifamily structure that is available for business or non-business purposes.
There are four main types of real estate: (1) residential, (2) commercial, (3) industrial, and (4) vacant.
Residential real estate includes single-family homes as well as townhouses, duplexes, villas, vacation homes, and so on. Commercial real estate includes shopping centers, educational buildings, hotels, and offices.
Industrial real estate includes manufacturing buildings and warehouses. Vacant real estate includes lands such as working farms and ranches.
Real estate can be unimproved or improved, purchased or sold, government-owned, corporately owned, or privately owned.
Regardless of its specific nature and properties, all real estate is a form of economic capital since it can be used as an economic resource.
3. Personal Property
Personal property, in contrast to real estate, includes all types of movable property. It may also be called chattels, personalty, movable property, or movables.
Property that moves on land, livestock, for example, is not necessarily sold with the land so it is also considered a form of personal property. This is where the word comes from: cattle (Old French: chatel) was originally synonymous with movable property.
There are several ways in which economists classify personal property. The most common classification distinguishes between intangible and tangible personal property. Intangible personal property includes any personal property that cannot be physically moved because it is not a tangible object.
Examples include securities, services, intangible assets, and so on. Tangible personal property refers to any property that can be physically moved. Examples include vehicles, jewelry, clothing, furniture, art, books, household items, and so on.
It is important to note that in socialist, Marxist, and anarchist philosophies, personal property might be used with a different meaning.
In Marxist philosophy, personal property might mean any items intended for personal use. Both in mainstream economic theory and Marxist theory, personal property is a form of economic capital.
4. Equities
Also known as stocks or capital stocks, equities are shares of ownership of a corporation or company. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares.
Owning stock or equity entitles the shareholder (stockholder) to that fraction of a company’s earnings. Stock can be bought and sold either privately or on stock exchanges. Such financial transactions are generally heavily regulated by the government to prevent fraud, protect investors, and benefit the economy of the country it governs.
A business or company may declare different classes of shares, each having different ownership rules, privileges, etc.
Ownership of shares is typically documented through stock certificates – legal documents specifying the number of shares owned by the shareholder.
The two most common types of stocks are common stocks and preferred stocks:
- Common stocks typically carry with them voting rights which entitle the shareholder to vote in corporate decisions.
- Preferred stocks, by contrast, do not carry voting rights. All such stocks or equities owned by an individual constitute a part of their total economic capital.
5. Commodities
A commodity is an economic good that has full or substantial fungibility. This means that the market treats different instances of a commodity as equivalent, so they’re interchangeable.
The price of a specific commodity is typically determined as a function of its whole market. Most commodities are raw materials, resources, or products.
Commodities are typically divided into hard, soft, and energy commodities.
- Soft commodities are grown goods. Examples include wheat, rice, corn, cereal, and so on.
- Hard commodities are mined. Examples include gold, silver, bronze, iron, oil, and so on.
- Energy commodities include electricity, natural gas, coal, and so on. All types of commodities owned by an individual are a form of economic capital.
Conclusion
The way the term “economic capital” is typically applied in sociology and other social sciences differs significantly from the way it is used in finance.
The way it was coined by Pierre Bourdieu, economic capital refers to the sum of an individual’s economic resources. This includes their income as well as their assets. Its physicality and exchange value differentiate it from cultural and social capital (Bourdieu, 1986, pp. 241-58).
References
Bourdieu, P. (1986). The Forms of Capital. In Richardson, J. Handbook of Theory and Research for the Sociology of Education. Greenwood. pp. 241-58.
Bourdieu, P. (2016). Choses dites. Minuit. (Original work published 1987)
Jevons, W. S. (1875). Money and the Mechanism of Exchange. D. Appleton.
Jourdain, A., & Naulin, S. (2011). Héritage et transmission dans la sociologie de Pierre Bourdieu. Idées économiques et sociales, 166(4), 6–14. https://doi.org/10.3917/idee.166.0006
Krugman, P., & Wells, R. (2006). Economics. Worth Publishers.
Mankiw, N. G. (2012). Principles of Macroeconomics. Cengage Learning.
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Tio Gabunia is an academic writer and architect based in Tbilisi. He has studied architecture, design, and urban planning at the Georgian Technical University and the University of Lisbon. He has worked in these fields in Georgia, Portugal, and France. Most of Tio’s writings concern philosophy. Other writings include architecture, sociology, urban planning, and economics.
Chris Drew (PhD)
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This article was peer-reviewed and edited by Chris Drew (PhD). The review process on Helpful Professor involves having a PhD level expert fact check, edit, and contribute to articles. Reviewers ensure all content reflects expert academic consensus and is backed up with reference to academic studies. Dr. Drew has published over 20 academic articles in scholarly journals. He is the former editor of the Journal of Learning Development in Higher Education and holds a PhD in Education from ACU.
