Capital goods, or capital, are durable manufactured goods used as inputs for the further production of goods and services. An example is factory equipment. At the macroeconomic level, a country's capital includes buildings, equipment, software, and inventories.
Capital is considered as a special form of economic goods and material property, belonging to the basic factors of production along with land and labor. This approach to classification originated in classical economics and remains the main approach. However, personal goods such as houses and cars are not considered capital goods if they do not participate in the process of production.
From a Marxist perspective, capital is a social category and is divided into: fixed capital (capital goods), variable capital (compensation of labor), and fictitious capital (financial assets such as stocks and bonds). Adam Smith defined capital as a piece of property that generates income. In economic models, it acts as a factor of production and total physical capital is called capital stock.
↑ The views of different scientific schools on the phenomenon of capital
Classical and neoclassical economics consider capital as one of the factors of production along with land and labor. All other inputs such as entrepreneurship, knowledge and management are classified as intangible assets. Capital goods are unique, capital-intensive products, often made up of multiple components. They can act as production systems or services, such as machine tools, data centers, oil rigs, and wind turbines. Their production is organized in large projects involving multiple parties.
Capital goods are characterized by the fact that they are not consumed immediately in the production process, unlike raw materials and intermediate goods. They can also be produced or increased, unlike land and non-renewable resources. These characteristics have carried over into modern economic theory, which continues to view capital as a key factor in production and economic growth. Adam Smith specified that capital is a stock that can be valued at a particular point in time, while investment is a flow that increases that stock. Since the mid-twentieth century, economists have expanded the concept of capital to include human capital (education and skills), intellectual capital (patents and knowledge), and natural capital (natural resources).
The life cycle of capital goods encompasses the stages of design, procurement, production, commissioning, maintenance and, in some cases, decommissioning. They play a key role in technological innovation because any innovation, whether a new product or a cheaper production method, requires the creation of new equipment or production facilities. Capital goods are thus the basis of economic growth, income distribution and technological progress.
↑ Types of capital
Capital is categorized into several types. Financial capital represents assets traded in financial markets and is determined by expectations of return and risk. Social capital includes connections and reputation that motivate action similar to monetary rewards. Instructional capital encompasses transferable knowledge, and human capital combines talents, skills, and social connections. Public capital includes the infrastructure that supports the private economy, and natural capital includes the resources that sustain life. Intellectual capital related to patents and copyright is also distinguished. Recently, the concept of “culinary capital” has appeared, which defines status through the culture of food consumption.
Classical economics divides capital into fixed capital (durable assets like machinery) and circulating capital (expendable resources). Henry George criticized financial instruments as a form of capital because they redistribute wealth rather than create it. Sombart and Weber linked the emergence of capital to double bookkeeping. Marx distinguished between variable capital (labor that creates new value) and fixed capital (machinery that only transfers its value to commodities).
Investment in classical theory is the accumulation of capital, requiring the production of means of production rather than their immediate consumption. Böhm-Bawerk associated capital with “bypass” production processes. The theory of human development distinguishes social, individual and educational capital.
The Cambridge controversy concerned the measurement of capital: British economists argued that capital cannot be aggregated from heterogeneous objects. Nitzan and Bichler believe that capital is not a productive entity but an instrument of power of owners.
↑ Conclusion
Capital is not just money or physical assets, but a broad set of resources that affect production, investment and social relations. Different schools of economics offer their approaches to its understanding, which generates theoretical disputes. In the current context, the concept of capital continues to expand to include intangible assets, knowledge and environmental factors, making it a fundamental category for analyzing the economy of the future.
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