Basic Economics: Concept & Characteristics of Capital!

[team07]

‘Capital’ usually means money invested in a business. But in economics the word capital is used in a special sense. Capital in the economy refers to the resources that are produced by human labor and which people re-use to reproduce for higher production without using it for current consumption. Capital is a man-made element like land, it is not a natural resource. Machinery, mills, raw materials, etc. are the result of human labor. So, these are called capital. In short, the resources that are produced as a result of human labor are not directly consumed but are re-employed for higher production. That is called 'Capital'.

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Characteristics of Capital

Capital is one of the most important components of production. Capital has its own characteristics as an element of production. The main features of capital are discussed below.
(1) The main feature of capital is that it is the product of production. Capital is not a fundamental element of production. It is not a gift of nature. Natural resources are also capitalized on by the combined efforts of human labor which people use for future production without directly consuming them.

(2) Capital is the result of past labor. Mills, machinery, raw materials, etc., which are considered as capital, are created by human labor.

(3) Capital is the result of saving. Capital refers to those commodities that people use for future production without being directly consumed. Therefore, in order to create capital, people have to save a part of their income for the future without using it for the present. So capital is the result of savings.

(4) Capital is not a natural resource. Man uses his natural resources to create capital. There is a production cost of capital for this.

(5) Capital is productive, helps to increase capital production. Labor can produce much more than it can produce without the help of capital. The more the capital is increased in the field of production, the more the amount of production will increase.

(6) Capital is a temporary element. Although capital goods can be used longer than consumer goods, capital is not permanent. There is a loss of capital. As a result of continuous use of machinery, houses, etc., they become old and useless. For this, capital is considered as a temporary element.

(7) Capital is the commodity which is used for increasing production in the future without consuming it now. As a result, production increases and additional income is generated.

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