Capital

Capital in a man-made material. Man produces capital equipments or goods to help him in the production of other goods and services. Capital is, therefore, defined as “the produced means of further production”. The word ‘capital’ is often interchangeably used for concepts like money, wealth and land. Hence, the definition of capital is made clearer in the following section:

a) Capital and Money: Money can be used to buy consumer goods (rice) as well as capital goods (tractor). Money used to buy capital goods is also called capital, while money used to buy consumer goods is not capital.

b) Capital and Wealth: Wealth included both consumer goods and capital goods. Hence, all capital is wealth, but all wealth is not capital.

c) Capital and Land: Land is a free gift of nature but capital is man-made. Capital is perishable, i.e., it can be destroyed. But land is indestructible and permanent. Capital is mobile when compared with land. The quantity of capital can be changed depending upon its price. But the land area is fixed and limited in supply.

Characteristics of Capital

• Capital is man-made (artificial)
• It increases the productivity of resources
• Supply of capital is elastic. It can be produced in large quantity when its requirement increases.
• Capital is perishable as it can be destroyed.
• Capital is highly mobile.