Capital can be practically defined as “concentrated productive capacity.”
Understanding this definition is absolutely critical if you are to embark effectively on the road to financial freedom.
Let’s examine carefully the expression “concentrated productive capacity.”
“Productive capacity” means the ability to act so as to generate a result.
(In a separate chapter, we will examine the 4 realms in which a result can be produced, namely, the subjective, objective, systemic and cultural realms).
“Concentrated productive capacity” then refers to productive capacity that one has accumulated. This accumulation usually occurs in time and space, and to a lesser extent, in the mind (in the short-term and long-term memories).
An easy example of capital, or “concentrated productive capacity”, is the good old hammer.
Indeed, any hammer can allow a person to hit on nails and thus generate a result.
Think of capital, then, as a tool.
In the case of the hammer, you can’t really significantly add more “productive capacity” to it.
But in the case of a laptop computer, you can add more productive capacity by installing more software applications.
Yet, in both cases, we are dealing with capital since a person can use the hammer or the computer to accomplish some work (i.e. produce desirable results).
The reason why most people do not achieve financial freedom (which we usefully define as the point when your passive income per year equals or exceeds your living expenses — so you no longer have to “work for a living”) is that they spend their intellect, energy, efforts and creativity NOT in the direction of capital creation or refinement.
The bottom line is that you are creating capital when you create tools.
You can then either sell those newly created tools and receive income in return, or you can use those newly created tools to increase your productivity (as an employee or free agent or entrepreneur) in order to earn more money from clients.
In conclusion, “capital” is a tool, and the more tools you create, the faster you will head toward financial freedom.