The Purpose of Capital by Jed Emerson

Late last year, I was having breakfast with Jed Emerson in a noisy restaurant on the East Side of Manhattan.

I asked him what he had been up to lately and he smiled, paused meaningfully, and plunged under the table. He pulled out a massive manuscript and thudded it in front of him, nudging aside a small collection of plates, coffee and cutlery.

“This,” he said. “This is what I’ve been working on for the last three years.”

It was a few weeks before Jed’s new book, The Purpose of Capital, was published. When I read the book I realized that it is not just the product of three years of work, it is a life’s work.

For those of you who don’t know Jed, he has for decades been a leading thinker in impact investing (he coined the term Social Return on Investing, or SROI), and he advises many individual and institutional impact investors about their strategies. The decades he’s spent discussing how to deploy hundreds of millions of dollars  to create social impact have given Jed a rare view into the strengths and limits of our current paradigms of deploying capital for impact.

Ultimately, this experience has led Jed to ask some fundamental questions about what it is that we are trying to do here.

Even if you’re not familiar with the phrase “impact investing,” what Jed has to say might interest you. He is asking where the assumptions of our current financial system came from, and why we take them as a given.

Unfortunately, such broad and deep questions defy a pithy summary—so I won’t attempt one. The good news is that questions this big shouldn’t be addressed in just a few paragraphs since, borrowing from Jed’s quote of Peter Orner’s, part of the problem of modernity is that we are living through “an epidemic of glib conclusions” about the answers to the most basic and important questions.

The biggest problem, according to Jed, is that we think we’ve answered the big questions underlying our work. In Jed’s words:

A central issue for many of us in impact investing is that we are operating within an assumption we’ve answered the question, Why?…

The question of why we are investing….is rapidly answered with an interchangeable set of seemingly self-evident answers:

  • To minimize negative impacts while creating positive impacts;
  • To do well and good;
  • To align money and mission;
  • To respond to climate change;
  • To advance a positive response to social/environmental challenges

These are not, in and of themselves, wrong answers. But they are light responses to what are fundamentally deep and profound questions of personal meaning and purpose. They are responses to the “why question” offered with a lower-case “w.” They are the easy responses one would expect from a first round level of conversation on the topic at a cocktail party…

[They are responses that let us] off the hook of accountability, slightly modifying our investment practices and capital allocation assumptions so we may think all the better of our selves and sleep more soundly….[knowing our capital] is proudly parading in the light of day, bringing good things to good people—including bringing good, clean profits to our own good selves.

The Purpose of Capital is the opposite of a cocktail party answer to this question, taking seriously the question of accountability for our actions.

The book digs deep into history and philosophy, touching on topics as varied as: where and why our society came up with the separation of Self and Other (in the Axial Age from 800-200BCE); the distinction between sacred and profane; the roles that Locke and Descartes had in laying the foundation for modern thinking; and the near-religious nature of our faith in modern capitalism (one of countless gems in the book, “That economists can’t measure any of their quantities even to their own satisfaction, can explain neither prices nor the rate of interest and cannot even agree what money is, reminds us that we deal here with belief not science.”)

While I admit that the depths of Jed’s inquiry led me occasionally to lose my bearings—if economics, the social contract, the pillars of capitalism, and dualism itself are called into question, you’re not left with much to stand on—I found deep wisdom in his pulling back the curtain on an important, unstated truth: there are some elements of capitalism that cannot be questioned lest one be called a heretic, and yet, if the system is fundamentally failing us, we have no choice but to leave no stone unturned.

Here’s Jed quoting historian John Reiger:

There is a firm belief in the moral benevolence of the free-market system and private property, combined with a common acceptance among liberal, neoliberal and neoclassical theorists that this is the only system that works. This system takes on quasi-divine and transcendent qualities when it begins to block any and all alternatives and challenges.

If we all, collectively and irrespective of where we stand on the political spectrum, have quasi-divine faith in market economics as morally benevolent (and I think that we do), then Jed is an intentional heretic. He calls upon “those who call themselves impact investors and social entrepreneurs [to]… recognize ourselves as members of a new Reformation. We are members of a happy heretical tribe advancing fundamental aspects of our central faith and creating new metrics to explore its implications.”


Like most important works, The Purpose of Capital tells us that we have been asking the wrong questions. It argues that impact investing is not simply a tweak or even a slow evolution of an existing system. It is, potentially, a full reboot of our current system and the orthodoxies that underpin it.

Yet that is not how impact investing is traditionally viewed. Indeed, in practice impact investing presents itself as a mere (and mild) extension of traditional investing, with the assumption that most of what “we” learned in business school and at investment banks applies.

As Jed states:

As impact investing continues to go mainstream, we now see a plethora of traditional investment strategies, tools and practices applied with even greater complexity in the name of impact, and a decreasing amount of innovation in how capital is structured to transfer the actual power of money to the objects of our influence.

Over generations we have come to embrace a notion that…the expert at navigating financial analysis and handling an investment tool knows best what the purpose of that tool is. In truth, tools are merely means to an end and nothing more.

Acumen, where I’ve worked for the last 12 years, wrote a manifesto six years ago, and one of its core tenets is to see “investing as a means, not an end.” This simply-stated inversion of means and end is a truly radical act, and I can say with confidence that it is no small feat to take a well-honed, sacred tool and say, “this is just a tool.”

Operationalizing this shift this is far beyond the scope of even this long blog post, but Jed at least gives us guideposts about what our underlying purpose might be:

Impact investing is, first and foremost, an exploration of the purpose of capital…[one that] seeks to lay the foundation for the emergence of new 21st Century forms of economics and capitalism…

Impact investing is also about mindful money that integrates the power of presence with considered intentionality within capital flows throughout the world. It places resources within new structures, pumping life-affirming blood into new organizations and corporate forms. Impact investing is about pursuing an array of related strategies that promise to optimize total performance of financial returns with the generation of social and environmental impacts. It is integrated impact, not disconnected from life, but life promotion, life affirming and life creating capital.

When understood at this level of purpose and meaning, those who continually question whether or how one may achieve ‘competitive’ or ‘market rate’ returns on impact capital are skating on the surface as opposed to delving into the greater possibilities of how we might optimize the total performance of capital in the fullest sense of the term.

Hopefully these excerpts have whetted your appetite for Jed’s book, which is available as a free ebook for download or as a hardcover on Amazon. It’s not a light read, but if you’re intrigued by some of the bigger questions, Jed’s book should be on your list. (Bonus: Jed just let me know that the book is being translated into Mandarin and he’ll be doing a book tour in mainland China this fall.)

Before wrapping up, I’ll share a few reflections on Jed’s core thesis.

First, I fully agree with Jed that we, the impact investing community, have let ourselves off the hook. We act like we know (and are living) the ‘why’ of impact investing. We don’t know the why, and we’re certainly not living it. Not yet.

I do believe we have the potential, as a community, for revolutionary change—if we have the stomach for it. Our job is to be willing to fundamentally question all the norms and rules given to us by traditional investing. While many of them might still be useful, none of them should be taken as a given. The criterion we must apply in examining each of these rules are: does this rule serve the change we hope to make in the world? That is, in most cases and for most investing ‘rules,’ a tricky question to answer.

In order to do this properly, I believe we, as impact investors, must understand much more than how to deploy capital and build companies: we must be from and deeply connected to the communities in which we deploy capital; we must be students of the history of social change; we must be willing to engage in conversations about what makes a good society; and we must be interested in looking in the mirror about our own privilege, biases and blind spots, and begin to engage in the slow, meaningful work of self-transformation. These are all new muscles, but necessary ones if we endeavor to make lasting positive change.

Second, while I firmly believe in the potential that Jed describes as the purpose of capital, I am left wondering about the seemingly-individual transformational focus of the book: my relation to my capital and my (and our) sense-making and meaning. That’s the right place to start, but what happens to these individuals, and their lone voice(s), as they move out of sync with a broader system?

Meaning: I agree that the first step is for each individual impact investor to have more fundamental conversations about the purpose of their capital. However, when they act alone and against the tide of the larger system (including the larger impact investing system), will they have the leverage to make meaningful change? If the locus of the changes they make are primarily: 1. Personal (their values and worldview); and 2. Strategic (how they deploy capital), does that run the risk of omitting the larger levers like norms, story, the rules of the game, what’s considered “standard” impact investing products, the metrics for social performance, and, ultimately, expectations for how the system operates as a whole? Jed’s book itself starts to bridge the gap between the individual and the system, by reframing the broader narrative about what we’re all doing here in the first place.

Finally, to take things a step further, I did find myself a bit surprised that impact investing seemed to be both the question and the answer in the book. For a book willing to be so radical, I was waiting for the moment that Jed would to look at the whole thing and say, “and even if we do all of this, it alone won’t be enough.”

If our fundamental problem is that we misunderstand our relationship to money, can a sufficient solution be recasting our relationship to money in the context of higher (personal and societal) meaning?

Perhaps I’ve been coming across Anand Giridharas’ Winners Take All: The Elite Charade of Changing the World too often, but it does echo in the in the background of this conversation. Anand’s thesis is that our current system of philanthropy and impact investing only exist to reinforce existing power dynamics. This makes them a generosity charade that undermines social justice. Anand challenges us to be willing to look at the fundamental power dynamics that created inequality of wealth and power in the first place: Jeff Bezos pledging $2 billion to fight homelessness is well-intended, but wouldn’t it make much more sense for Jeff to stop using Amazon’s clout to avoid local taxation and to fight zoning laws that make housing unaffordable in Seattle?

Knowing Jed, who has a much longer and deeper background in social justice than I do, I expected him to conclude that that better deployment of capital by the few is but a small part in the much bigger reboot of capitalism that we need to create a more just and inclusive world. That, at least, is where I’d like to see the conversation go from here.