Are you burning capital or spending currency?

An important concept in wealth management is the difference between capital and currency. Currency is an exchange, something you have of value, that you can use to get something you need. Once you have spent or consumed it, it no longer exists as useful to you. Capital on the other hand is something that produces currency — and properly looked after it can going on producing that currency indefinitely.

Take the example of an apple. It exists as either capital or currency. As currency you can eat it for energy, or trade it for something else you want. Once you have done either however you have spent the currency and it is no longer available to you. You could however sacrifice the short term benefit it could give you and instead plant the apple. Hopefully with care the seeds grow into trees, the trees an orchard. This now represents significant capital which can be tendered ad infintum to produce a continuous source of wealth.

So much of the wealth generated over the past 150years has been the relentless consumption of currency. Currency that with a different lens could actually be treated as capital, or through the use of alternatives saved for future generations.

William McDonough and Michael Braungart write in their book — The Upcycle: Beyond Sustainability — Designing for Abundance —

People are currently burning, burying, and otherwise dispersing and contaminating their earthly capital. We’re treating capital like currency.

Fossil fuels are actually capital, and we could be using currency. Now that photovoltaic panels and wind turbines have become cost-effective commodities, they can be considered part of our real estate, or capital, that creates currency, whereas burning fossil fuels is capital used as short-term currency without accounting for liabilities — its deleterious effects to the climate and human and ecological health

The Upcycle: Beyond Sustainability — Designing for Abundance 

Through their book they highlight the concept of upcycling, which seeks to enhance all of earths functions through the creation and use of a product. Not the wasteful destruction of currency in our linear economy, but rather the respectful use of earths capital in a virtuous cycle that endlessly improves the world we live in.

Key to implementing this is understanding needs of people using a product or service, For instance:

A person turning on a lamp is not asking for 100 watts of energy; the person is asking for beautiful light by which to read a book. If one can address that core need in a delightful way, the person is happy (McDonough and Braungart)

Through identifying these core needs and working through solutions that enhance capital stocks McDonough and Braungart provide a pathway to protecting key values and sustainably reconfiguring the system we currently live with .

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