Capital isn’t just money.
If we reduce everything to financial capital—the money in the bank, the assets on a balance sheet—we miss the entire web of value that makes societies and economies function. This is where most economic models fall short. They take a narrow view of capital and then act surprised when the world refuses to behave according to their equations.
But capital exists in multiple forms:
- Financial Capital – The most obvious kind. Money, assets, investments.
- Human Capital – Skills, knowledge, talent. A country with educated workers has more human capital.
- Social Capital – Networks, relationships, trust. A well-connected entrepreneur often has more access to opportunities than someone with just money.
- Cultural Capital – The shared knowledge, art, and ideas that shape how people interact and create value.
- Political Capital – Influence, ability to mobilize people, access to power structures.
- Natural Capital – The environment, raw materials, and biodiversity that underlie everything else.
- Technological Capital – The tools, infrastructure, and innovations that amplify productivity.
These forms of capital don’t exist in isolation. They interact in complex ways, and yet, when we try to mix economic systems like socialism and capitalism, we tend to reduce everything to financial capital. That’s where the problems begin.
The Temptation to Simplify
Both socialism and capitalism, at their extremes, try to impose a single logic onto the entire system.
- Pure Capitalism optimizes for financial capital, assuming that if money moves efficiently, everything else will take care of itself. It undervalues social, cultural, and natural capital—treating them as externalities or as things that will “somehow” adjust.
- Pure Socialism optimizes for social capital (and sometimes human capital), assuming that if resources are evenly distributed and planning is done rationally, everything else will follow. It often underestimates the role of financial and technological capital in driving innovation and long-term sustainability.
Neither system holds the full picture, and yet the real world demands a balance. Most modern economies attempt some form of mixed capitalism—welfare states with market-driven economies—but the balance is fragile.
Why the Mix Fails: People Can’t Hold Complexity for Long
The biggest challenge in mixing socialism and capitalism isn’t the theory. It’s the fact that people don’t like to hold multiple, conflicting truths in their minds for long periods.
It’s cognitively exhausting to acknowledge that:
- Markets work—but also need regulation to prevent abuse.
- Welfare programs are essential—but too much redistribution can stifle innovation.
- Public goods need government support—but too much state control can kill incentives.
- Inequality is a problem—but some level of it drives ambition and progress.
Instead of embracing this tension, people (and policymakers) tend to simplify:
- Socialists start advocating for “free everything”, ignoring the fact that resources are limited.
- Capitalists start pushing for “cut all taxes”, ignoring the fact that societies need infrastructure, safety nets, and public investment.
The complexity of managing multiple forms of capital gets lost in ideological battles where both sides pretend the world is simpler than it really is.
The Real Challenge: Thinking in Systems
If we want to create a functioning economic model that works in the long term, we need to:
- Acknowledge that multiple forms of capital exist and are interdependent.
- Accept that no single model—pure capitalism or pure socialism—can optimize for all of them at once.
- Stay comfortable with contradictions. The real world doesn’t fit into simple categories, and successful policies often require trade-offs.
The hardest thing about governing, building businesses, or even just thinking deeply about society isn’t coming up with solutions. It’s resisting the urge to simplify too quickly.
Holding complexity in your head for long periods is uncomfortable—but it’s the only way to make sense of the world.