Capital Definition : Capital refers to all man-made goods which are used in the production of goods or services. According to Chapman “capital is that part of a person’s wealth which yields an income and which aids in the production of further wealth“. It facilitates the production of goods and services. It is produced by man with the help of Nature.
Meaning: Thus capital is described as “produced means of production”. It is a man-made instrument of production. Machinery, tools, factory buildings, raw materials etc. are examples of capital.
The Characteristics of Capital :
The following are the characteristics of capital :
1. Produced means of production : Capital is a produced means of production. Individuals produce capital goods like machinery, buildings etc. with the help of natural resources.
2. Further production of wealth : Capital is used for further production of wealth. Machines, tools, buildings etc. help to increase the production considerably.
3. Creates and yields income : Capital creates income as it enables further production of wealth. Similarly it also yields income to those individuals who possess it.
4. Result of Savings: Capital is the result of savings. If people save more portion of their income then their savings will become a main source of capital.
5. Makes production round about : Capital makes production round about and continuous. Machinery and tools which comprise capital help in producing goods without any interruption.
Is Money Capital ?
Some Economists considered money as capital. But their view is not completely correct. All the money available at the disposal of the people for revenue expenses is not capital. Only that portion of money which is used for buying capital goods is considered capital.
Different Types of Capital :
Economists have classified capital into several types. They are mentioned as follows
1. Fixed capital and variable capital : Fixed capital consists of buildings. machinery etc. which are employed in the production process. They have durability. As against this variable capital consists of raw materials, wages paid to the temporary staff, electricity expenses etc. These expenses vary with the level of production. Variable capital is also described as circulating capital. When the level of production increases, the fixed capital per worker will decrease, and the variable capital per worker increases.
2. Social capital and private capital : Capital owned by society like parks, roads. railways. Post and Telegraphs etc is considered social capital. All the members of society can enjoy the benefits of this capital. On the other land capital owned by individuals is called private capital. Buildings, cars, furniture, the shares and debentures etc of individuals are examples of private capital.
3. Consumption capital and production capital : Capital meant for consumption purposes come under the category of consumption capital. For example, Food, clothes, houses etc. Goods and services meant for the production of a particular commodity or commodities are described as production capital. i.e. Machinery, raw materials etc.
4. Sunk capital and floating capital : When a durable capital good is used for only one purpose, it is described sunk capital. It can he used for the production of a particular good only. It is not useful for other purposes. For example, a Bulldozer can be used for leveling the land only. It cannot he used for carrying or transporting goods. In the same way a camera is used for taking photographs only. All these goods which have a particular purpose come under the category of sunk capital. As against this if a good is used for several purposes it is known as floating capital. Coal and Electricity are the best examples of such capital. Coal is used in several fields like Railways, Shipping, Power generation, factories etc.
5. Remunerative capital and Auxiliary capital : Capital is also classified into remunerative capital and auxiliary capital. When capital is used for paying salaries and wages, it is called remunerative capital. On the other hand, when capital is used as an aid of laborers in production, it is called auxiliary capital.