What the heck is capital?

Defining and deploying durable capacity to make art work.

"…capital is currency with potential."
—Architect Bill McDonough (Walker 2011)

When you live and work in a capitalist economy, it can be useful to know some fundamentals. One of those fundamentals is “capital,” a word that often appears but rarely gets clearly defined. Most people know it has something to do with wealth and ownership. But when you’re working in a nonprofit arts organization, neither wealth nor ownership seem like appropriate frames.

There are (at least) two scales required to meaningfully define the term: the scale of whole economies and the scale of a single enterprise.

At the scale of economies, capital is one of three “factors of production,” or building blocks for societies to make goods and services. The other two are land (including all natural resources) and labor (including human effort and skill).¹ Through this lens, capital includes any and all human-made resources used in production – buildings, equipment, financial investment.

Capitalist economies favor private ownership, and therefore private capital, to determine what goods and services to make. But the “human-made” nature of capital has led many – including Abraham Lincoln (1861) – to suggest that even capitalist economies should care more about labor:

“Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”

At the scale of an enterprise, capital is any durable capacity used to make that business work. It is “durable” because it supports production without becoming part of the product, and without being significantly transformed in the process.

In a painter’s studio, for example, the building and its infrastructure are capital while the canvas and the paints are not. The money that bought the building is capital while the revenue from sales and contributions is not (unless it’s used to build or buy something durable).

Nonprofits, of course, have no owners (or, rather, they are held in trust). Any wealth they accumulate is for advancing the mission not enriching the team. So, how should a nonprofit arts manager think about and allocate capital?

For one, even for a nonprofit, capital is a necessary part of creative production. It’s a unique and demanding companion to the people, stuff, and money that move inspiration to living practice. For another, nonprofits often seek out and secure private capital for their public purposes – in the form of major gifts or foundation grants. Nonprofit arts managers therefore live at the interchange of private ownership and public trust.

And finally, any arts manager needs to remember that capacity (including capital) always comes at a cost. Before you engage more capital to advance your mission, be sure know what it will demand from you in return.

Andrew

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From the ArtsManaged Field Guide

Function of the Week: Finance
Finance involves designing, maintaining, and sustaining systems of money and stuff.

Framework of the Week: ​Statement of Financial Position (Balance Sheet)
The Statement of Financial Position (also known as the Balance Sheet) is one of the three primary financial statements used by (and required for) formally organized business entities in the United States. The Balance Sheet reports a company’s Assets, Liabilities, and Net Assets at a specific point in time. It offers a “snapshot” of what a company owns and what it owes to lenders and investors.

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1. Some frameworks include “entrepreneurship” as a fourth factor of production. But I consider that a form of labor.

Photo by Mathieu Stern on Unsplash