25 Theories to Get You Started Supply and Demand

Financial Capital

Financial capital is essentially just money. It isn’t just money that is ‘in hand’ however. It refers to the ability to use money to acquire other forms of capital. In this way the ability to take on debt by borrowing from someone else is a form of financial capital. High value commodities such as gold are often considered as being another form of financial capital.

Physical Capital

Factories, roads, buildings, and tools are all good examples of physical capital. These are non-human, non-monetary objects that are useful for conducting valuable work.

Social Capital

A company that is well-regarded by the populace would have more ‘social capital’ than a company that is poorly regarded, all else being equal. Social capital refers to the power of social networks to accomplish work. This could be due to enhanced communication abilities, or it could be simply customer loyalty. There are many forms that social capital could take.

Natural Capital

Land, forests, rivers, rainfall, wind, sunlight, animals, and everything else that comprises the natural world is regarded as natural capital. One could think of this as the category that includes everything else other than the above forms of capital.

Externality

In economics, an externality is something that affects other people who are not part of a specific economic exchange/interaction, but is not accounted for in the price of the transaction in question. Externalities can be positive or negative. Positive externalities are good for people not involved in the trade in question, while negative externalities are bad. An example of a positive externality would be a nice office building in a city makes the city seem more prosperous and civilized, causing people to enjoy living there more. An example of a negative externality would be pollutants emitted by coal power plants. These pollutants can make people and animals ill, damage forests and crops, and damage buildings with acid rain.

Corporations are referred to as ‘externalizing machines ‘by critics of the corporate model. This refers to negative externalities that they do not want to pay for. The company that owns a coal power plant will do their best to not have to pay for the full costs of their effects on the environment, health, and infrastructure. Corporations are mandated with producing profits for their shareholders. In order to serve this mandate effectively they will make sure that negative externalities stay just that – external. If a company internalizes an externality, it means that they will be shouldering some of the additional cost being incurred to others. Some companies choose to do this for ethical reasons, or to gain additional social capital. Generally, it is the role of government to enforce policy that makes companies take responsibility for the full cost of their actions. An example of this sort of policy would be government forcing coal power plants to include scrubbers that remove some of the dangerous pollutants from the gases emitted from their plants.