Capital

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock… read more.

Updated: Aug 20, 2021

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The stock of goods which are used in production and which have themselves been produced. A distinction is normally made between fixed capital, consisting of durable goods such as buildings, plant and machinery, and circulating capital consisting of stock of raw materials and semi-finished goods, components etc., which are used up very rapidly.

The word capital in economics generally means real capital – that is, physical goods. In everyday language, however, capital may be used to mean money capital, i.e. stocks of money which are the result of past saving. Two important features of capital are

that its creation entails a sacrifice, since resources are devoted to making non-consumable capital goods instead of goods for immediate consumtion, and that it enhances the productivity of the other factors of production, land and labour; it is this enhanced productivity which represepents the reward for the sacrifice involved in creating capital. Hence, we can surmise that new capital is only created as long as its productivity is at least sufficient to compensate those who make the sacrifice involved in its creation.

Reference: The Penguin Business Dictionary, 3rd edt.