Impact investors seemingly have a great deal to celebrate. After decades of promoting the vision that capital should be managed with more than financial consideration alone, actors within sustainable, responsible and direct impact investing are now seeing their agenda embraced and advanced by mainstream financial institutions and investors. We’ve broken the barrier of billion dollar impact funds, our side bar workshops are now center stage discussions, and if you enter into your browser you’re taken to the website of the investment firm BlackRock. While we may not have won the war, all must admit we’re at the dawn of a new day for those concerned with doing well and doing good.

What is also true is we are at risk of losing sight of the foundational vision of what this all was supposed to be about. Some in our community appear to be confusing size with effectiveness, new eyes with true insight and knowledge with wisdom. In the process, we are at risk of losing our way as we become the impact version of that bumper sticker which reads, “I’m lost but, boy, am I making great time!”

What we are called to do is step back from our exploration and celebration of strategy and tactics in order to cultivate a deeper, more profound understanding of our intent, meaning, and purpose. In doing so, we may find the degree of clarity and perspective required to take our work simultaneously deeper and yet higher, to rise to our greatest potential as opposed to simply capture yet one more commercial market opportunity as we build the brand of Impact Investing.

I’ve spent the last three years in a process of reading and reflection on these issues, the product of which is my latest offering, The Purpose of Capital: Elements of Impact, Financial Flows and Natural Being. The book explores a wide variety of aspects of our current and historic journey. This excerpt describes the implications of our understanding of the purpose of capital for how impact investors are called to act in the world.

To facilitate wide discussion of this topic, the e-Book version of The Purpose of Capital is being offered free of charge at the book’s website,—Jed Emerson

The Chicago School economist, Milton Friedman, wrote a seminal piece entitled, Capitalism and Freedom, in which he describes the connection between democracy and capitalism. His focus on the interplay between the two as well as his understanding of the potential of capital to be a vehicle for freedom is insightful, yet the blinders of an old school, bifurcated economist with near-sighted vision limit Friedman’s perspective. His understanding of capital as freedom is correct but hindered by being couched only in individualist, economic terms (which we know is simply a construct, so we may critique it as such and add to it not only economic considerations but social and environmental ones as well).

More than economic principles and consideration drives capital. It is fuel and energy, a flow that when constricted is limited and inhibited from attaining its full freedom and value creation potential. It may be restricted to a single portfolio and set of practices and grow on economic terms but will never fulfill its real potential when understood on financial terms alone. It may be “successful” but not attain significance relative to overall human experience or the intentional generation of value beyond an economic understanding of what value is. A strictly economic knowledge of the purpose of capital is, by definition, one that will underperform its real potential.

One must take care, however, since when placed within a political frame, capital as freedom can take on a nationalistic bent, as expressed by investment firms such as Freedom Capital that seek to take the notion of impact investing and re-direct it toward an “America First” agenda, placing capital into investment strategies focused upon “national security,” economic “independence” for the United States and so on. Regardless of one’s individual, political posture, vision or agenda, as the Norwegian Philosopher Arne Naess, in Ecology, Community and Lifestyle, says,

“Any analysis of economic activity presupposes that there are certain norms which have to be satisfied in the analysis. The most prominent economists until this century, including Francois Quesnay, Adam Smith, John Stuart Mill and Karl Marx, have been engaged as much in moral philosophy as in detailed economic affairs. In this century there has been a dangerous narrowing of the scope of textbooks on economics, so that very little of the normative philosophical basis of the field is left. Economics is dried up. We are left with a kind of flat country of factual quantitative considerations, with no deep canyons or impressive mountain peaks to admire.”

Spinoza believed the legitimacy of the State comes from the self-interest of individual actors within society and that all beings are driven by self-interest and that this competing self-interest is best mediated via an ordered State, based upon a social contract, similar to that described by Hobbes. Spinoza, in Tractatus Theologico-Politicus, even went so far as to say that “the purpose of the state is, in reality, freedom.”

Similarly, we extend this notion of the role of the state to that of capital by saying the purpose of capital is freedom—to act as the fuel, if not vehicle, to support the creation of the world one seeks to create—and view that freedom as focused upon the individual but the individual in the context of community and planet. The values we embrace may manifest in a variety of forms as moderated by a democratic process—which, in its purest form, is our expression of and experience in community. Spinoza views his social contract as continually up for renegotiation, in the same way, the previously referenced impact term sheets outline specific conditions upon which each investment of capital is to be managed, deployed and its performance assessed.

Read the rest of Jed Emerson articles at Stanford Social Innovation Review