One has to be pretentious to reopen the issue after even Piketty could not say anything new about Marx’s infamous Das Kapital (1867).

It is not the purpose of this post to analyze the reasons why the capital, as presented by Karl Marx, seems to play the role of a snake in front of a mouse, the mouse being, in this case, liberals and neo-liberal economists. I intend to set aside the tragedy of the contemporary economy (leaving Ludwig von Mises and his heirs as the only ones who should not be condemned) and jump directly to a solution. For the solution, there is!

The solution lies before our eyes in the form of the basic concept of Integrated Reporting, which encompasses six capitals that serve as holders and levers for the added value produced by any organisation. As we shall see, I hope, the Marxists’ snake vanishes like a ghost only by a simple scrutiny of the six capitals.

Flaws in the IR Framing definition of a capital

But let me first share my surprise about the great minds behind The IIRC for their omission in conceptualizing what capital is from a value growth perspective. The Integrated Reporting Framework defines the capitals as »the stocks of value that are increased, decreased or transformed through the activities and outputs of the organisation«. (2C 2.11) While this statement is undoubtedly correct and is also an essential trigger for the global success of the Integrated Reporting practice, it is insufficient.

For that reason, it creates a considerable problem for all of us practitioners of IR. This insufficiency is seen even better through this statement (2c 2.15): »Financial capital – The pool of funds that is: …« This is not only an insufficient definition of financial capital but a misleading one, because financial capital is, from the standpoint of an organisation, primarily a debt to an owner.

Financial capital: an introduction

It should be clear without any further elaboration that to understand capital as »a pool of funds« in contrast to »debt to an owner« shifts a perspective from responsibility to» let’s have fun with pools that we possess«. At least financial capital is much more than a resource that allows the organisation to play with the other five capitals. I claim that it is precisely this shift that is the cause of the blame towards the neo-liberal economy, and it is just to blame. It is just blamed on neo-liberals, forgetting the primary function of financial capital, responsibility.

It is easy to understand such an omission from contemporary neoliberal managers, for the agent towards whom they should be responsible becomes increasingly obscure. That is why family-owned businesses, regardless of size, tend to act much more responsibly than publicly owned companies, including state-owned ones. It is namely still possible, at least in theory, to individualise public owners of stocks as agents. While publicly owned companies in a situation of dispersed ownership are at least detectable, it is entirely impossible to detect an agent behind a state-owned company. The governing body that »takes care« in the name of the State, namely, has no property of an agent, for it has no skin in the game. An agency, namely, comes with skin only, as Nassim Nicholas Taleb so clearly proves.

But then it should at least The IIRC and its IR Framework present a clear explanation of any capital as not only »the pool of funds, people, tools and so on«, but as a debt towards the owner of each particular capital.

Let me thus explain six capitals from the perspective of responsibility towards the owner, the agent that has skin in the game.

Das Kapital as a debt towards the owner

Concerning what has already been explained and accepted by international auditor expertise, financial capital is treated as a debt. However, one can often find that the overall financial transactions of a company are viewed as part of financial capital. In reality, they are not. Cash flow, EBITDA, and other debts, except those related to capital, are only possible indicators of capital. It is precisely the concept of »the pool of funds« that misleads to a comprehension of all financial transactions as being a part of financial capital. Financial transactions are technicalities and should be mentally separated from capital statements as much as possible, according to accounting standards. However, they are mostly not in the minds of professional managers (who have no skin in the game) and even less so in Marxist and neoliberal political economies.

Let me now jump to the other five capitals using the same methodology.

Human capital: the balance

It is pretty easy with human capital. Owners of human capital, workers in the company, are clear agents and owners of themselves. Debt towards human capital is compensated monthly with a salary, so the balance is perfect at least in everyday situations when a company is out of a major business crisis. The growth of human capital comes with either larger numbers of employees or higher per capita reimbursement in salaries. In the first instance, the overall human capital is enlarged by the quantity, in the second by the quality of each agent within the human capital.

Social capital and a negative capital

The real fun begins with the other four capitals.  Let’s start with social capital, also known as relationship capital. This one is the easiest to understand when it comes in the form of a negative capital. When a local community does not trust a neighbouring company, this is reflected in additional costs that such a company must incur to increase its social capital. Since numerous other stakeholders could act in the same manner as the mentioned local community, a company typically manages trust/reputation by investing in social capital to compensate for any actual or potential decrease in trust or reputation.

The real fun begins when we try to understand the owner of social capital or who the agent behind it is. In many cases, stakeholders —those who genuinely have a vested interest (skin in the game)—are represented by a governing body that may not have a genuine stake in the game, which is not the actual owner of social capital. That is why many sponsorship programs fail to compensate for the loss of trust and thus do not expand social capital.

Who is the owner of social capital?

Let us be precise in addressing the owner of social capital. Since it is also rightly called relational capital, it is truly co-owned by a company. This complicates the transaction part of this capital even further. And there is one other peculiarity of this capital, namely that it is intangible. It means that co-owners might evaluate value exchange differently. Most often, the company underestimates the added value of the social capital created through its core activity. Companies, for this reason, overcompensate for the nonexistent loss with excessive sponsorships and donations. On the other hand, stakeholders, by definition, do not see the benefits they already receive from the regular operation of a company, so they expect more than is necessary. The problem with such overcompensations is that the surplus does not accumulate as capital but instead vanishes.

However, some companies have an inexplicable surplus of trust, resulting in a surplus of social capital, which is typically visible through the rise of their financial capital, as evidenced by the higher price of their shares. The debt of social capital towards the co-owners rises in such situations by definition. Let me mention Tesla as a recent example of such an imbalanced situation of its social capital.

Natural capital slipping into social capital.

I shall now jump onto natural capital, for it is strongly tied to social capital as we shall see. Why? Because natural capital lacks a clear agent or owner. It is said that all of us own the Earth, meaning that it is impossible to even, in theory, individualise the ownership and single out agents. This is the reason that various »agents« emerge that are in fact fake agents, for they have an equal share of this capital as anybody else or even less, for they are generally compensated for their activities (donations and other activities of professional NGO, for instance) while the rest of us with the same share in the natural capital are not.

That is why natural capital is, in practice, distorted into social capital. Companies do not relate to nature, but to stakeholders from the social environment who have taken possession of natural capital as their ownership. Thus, they own social issues and are compensated for them, while the natural capital stays unguarded. Unfortunately, it is not just various NGOs and Greta-like individuals who have taken possession of the natural capital, but also various supranational and national institutions. For this reason, the compensation for so-called climate change, paid by all of us as dictated by the EU Commission, for instance, has more to do with social engineering than with the climate itself.

It is thus a long way to accurately evaluating the value of natural capital for each particular company. So far, I have not been able to prove that it is the market that should make the final evaluation of natural capital, the same market that sets prices for products. However, my belief rests on the fact that all humans have an equal share in natural capital, meaning that no artificial or central authority can perform such an evaluation instead of the market itself. I am well aware that such a conception contradicts the prevailing ideologies of progressivism and social constructivism, but why not if it is true?

Peculiarity of productive and intellectual capital

The last two capitals are productive and intellectual. Their common peculiarity is that they are both owned by the company itself. Productive capital is all non-human means of production, like tools, IT, real estate, and vehicles. In contrast to natural capital, productive capital is of a human-made nature. However, it is sometimes difficult to differentiate the natural capital of water from a human-made water supply, for instance.

Intellectual capital encompasses everything that remains with the company after all human capital has been depleted. Goodwill, brands, and patents, as well as procedures and even internal culture, although the latter is inseparable from the activation by human capital.

According to the capital nature, productive and intellectual capital are directly indebted to the company represented by the agency of management. The management has a stake in those two capitals and thus serves as the agent of ownership, evaluating the point of view of the other four capitals; in reality, through the remuneration awarded by the owners of financial capital. It is precisely this point that makes Integrated Reporting such a powerful tool —the point at which all six capitals converge in interdependence.

Interplay

It is clear, I hope, that the capital is neither a pool of funds nor, even less, Das Kapital, later being defined as an evil that holds humans in its greedy grasp. Humans are agents as teleological beings that tend to activate means (capitals in this respect) to achieve goals (added value). It is evident in the picture of the six capitals that no player is exploited by another, and that the complex interplay between the value of the capital and the debt owed to an owner constitutes the unique property of civilization.

Such interplay, which is dubbed by the interrelational nature of truth within the construction of an individual, represents a foundation of Homonism.