Capital (economics)

From Simple English Wikipedia, the free encyclopedia

Capital has a number of related meanings in economics, finance and accounting.

In finance and accounting, capital generally refers to financial wealth, especially that used to start or maintain a business.

In classical economics, capital is one of the four factors of production. The others are land, labor and organization. Goods with the following features are capital goods as opposed to consumer goods or durable goods:

  • Goods that can be used in the production of other goods (this is what makes it a factor of production).
  • Goods made by humans, in contrast to "land," which refers to naturally occurring resources such as geographical locations and minerals.
  • Goods not used up immediately in the process of production, unlike raw materials or intermediate goods (e.g. machinery).

The third part of the definition was not always used by classical economists. The classical economist David Ricardo would use the above definition for the term fixed capital while including raw materials and intermediate products are part of world life in which they can easily spend their life.

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