finance – Stephen Hinton Consulting

How to use the Real Capital framework on national budgets

Most national budgets tell us how much money governments plan to spend and collect. But they rarely say anything about whether the nation’s forests are thriving, its infrastructure is decaying, or whether citizens are healthy and capable of sustaining the next generation’s wellbeing.

In other words, the budget tracks the money — but not the real foundations of value that the money is meant to mobilize.

That missing link is what the Real Capital Framework was created to address.

Latest on the Real Capital Framework

The Real Capital framework bridges the gap between scientific insights and policy-making. It critiques traditional economic models for undervaluing non-monetary assets (e.g., ecosystems, social systems) and proposes a methodology to quantify and manage Natural, Built, Human, and Social Capital for sustainable decision-making.

Where to Download the Methodology Briefing- applying the Real Capital Framework to influence policy

Communicating science to policy makers in a way they will understand and action science-based insights requires more than just presenting figures. The process is multi-layered, multi-dimensional and multi-discipline.

Our methodology briefing brings together all the tools needed to develop your abilities in this area.

Put Real Capital into national accounts, not just the money

In the face of ecological degradation, infrastructure stress, and social fragility, national budgets remain mired in outdated accounting frameworks. They report in money terms only, largely ignoring the real capacities that sustain economic life. But what if we treated the productive and regenerative capacities of Real Capital—ecosystems, infrastructure, human health, and institutional systems—as central to budgeting itself?

Real Capital supports Modern Monetary Theory

Modern Monetary Theory (MMT) and Real Capital Frameworks both stress the importance of understanding the capacity of the economy to deliver, using real resources.

MMT demonstrates how the economic system works: a government budgets for a year at time, planning its expenditures and expected levels of tax returns. The expenditures are calculated on resources being available to purchase. Real Capital frameworks offer ways to measure production capability and capacity, and the status of the real capital that will be employed through the budget year. This article explores how MMT and real capital align.

Representing Real Capital in Asset Liability Equity tables

Applying ALE tables to the material world: an introduction.

You’ll need to be familiar with the concepts of real capital and systems dynamics from previous posts, if you are not already.

The Assets – Liabilities – Equity (ALE) accounting method is a fundamental approach used in financial accounting to record and report the financial position of an organization. It involves the classification and measurement of an organization’s resources (assets), obligations (liabilities), and owners’ interests (equity). This method is widely appreciated by businesses, non-profit organizations, and governmental entities as it provides a comprehensive and transparent overview of an organization’s financial health.

The approach therefore, is favoured by economists advising policy makers. However, not just money, but physical resources – their function, availability, capacity, etc. are vital to the workings of society. This dimension can be lost when looking through an economics-heavy lens. What is needed is the robustness of the ALE method applied to the material world. Let us present it here:

Applying Real Capital to the Circular Firm

Several thinkers (including, for example, Boyd 2020 and Hazel Henderson) have suggested that the concept of real capital – or multi-capital – be introduced into the political economy to aid decision-making at policy level as well at corporate level. This may overcome one of the failings of standard economics: Policy makers often rely on economists to provide their decision bases. However, one of the failings of standard economics when preparing decision bases for policy makers, is that anything that cannot be valued in money is seen to have no value or little value. The Earth does not send a bill for the use of its atoms so the stewardship of the material world is left out. Without a comprehensive valuation framework, policy makers and strategists are likely to miss the full picture by just relying on monetary values and make decisions that could be detrimental to society, counter to the intentions of the policy.

This article gives a general explanation of the category of real capital that is built capital, and how to use its valuation in preparing decision bases. The Real Capital approach gives a more robust decision basis, helping identify long term investment needs and policy that steers investment and activities to avoid capital degeneration and promote capital regeneration.

Not degrowth, but economic maturity

Economic growth sounds great! But as with all growth you have to ask yourself what it will look like when it’s fully grown. So too with the “economy”. I’m not talking about the monetary system that produces tokens and circulates these tokens around between citizens, companies, governments and back. I’m talking about the arrangement for keeping a roof over your head, food on your table and a load of other essential services.