A simple definition of “business” is the conversion of human energy into money and vice versa.
Below are examples of this definition using the classical three sector theory of the economy: 1) Raw Materials, 2) Manufacturing, and 3) Services.
- Raw materials example. A mining company converts money into human energy by paying workers to extract iron ore from the earth. The mining company sells the iron ore, thus converting human energy back into money.
- Manufacturing example. A steel manufacturer converts money into human energy by paying workers to cast iron ore into building materials like beams, rods, tubing, etc. The steel manufacturer converts human energy back into money by selling the building materials it produces.
- Construction example. A real estate development company converts money into human energy by paying workers to assemble building materials into high-rises. The real estate development company sells the high-rises and converts human energy back into money.
Money is the potential for human energy to be expended. Money becomes “capital” when it is earmarked for business, which we have defined as the process of converting human energy into money and vice versa. Consequently, capital is not business–only the potential for business.
What could the results be if those who manage capital try their hand at managing business?