Capital is an important and necessary component of factors of production. Generally, capital is taken in the sense of money. But in economics, capital refers to that part of wealth that is used to create more wealth. In this, only that part of wealth is called capital which becomes a means of generating more income. Therefore, apart from natural endowments, all the goods which are helpful in the process of generating wealth are considered in the category of capital.
" Capital refers to wealth that generates income or helps to generate income."
While explaining the meaning of capital, remember that all capital can be wealth, but not all wealth can be capital. In this, only that part of wealth is called capital which becomes a means of generating more income. For example, if a person has clothes, furniture, a bicycle, and a tractor, then depending on the nature of their use, we can say that all the goods except the tractor can be wealth because these goods are in the person's personal use. They are not a source of income. But the tractor can be used in farming to earn income, therefore, it is capital .
Similarly, a professor's car is wealth for personal use, but when the same car is used as a taxi, it is considered capital.
To define the meaning of capital, it is important to keep the following points in mind.
Capital is that part of wealth that is used for the purpose of earning more income.
All wealth is not capital, but that part of wealth which is used for the purpose of earning more income falls under the category of capital.
Capital resources such as houses, factories, machines, tools etc. are capital but natural endowments such as air, water, rivers, mountains etc. are not capital.
Kinds of Capital:
Fixed and Circulating Capital:
Fixed capital is in solid and durable form and is used repeatedly over a long period of time. For example, machinery, equipment, factory building, etc., while circulating capital loses its usefulness after a single use due to impermanence and perishability, for example, paper, wood, leather, fertilizer, raw materials, etc.
Private and National Capital:
Personal capital is the personal property of a person and its benefit is also obtained directly by that person. For example, a tailor's sewing machine. While national or public capital consists of productive resources that are jointly owned by all nations, such as means of transportation, roads, hospitals, power plants, etc.
Material and Nonmaterial Capital:
Goods that can be moved from one place to another or from one person's ownership to another person's ownership for example, machinery, equipment, factory, etc. are called material capital. Whereas in non-material capital, human ability, skill, and beauty come and it does not perish. Because the intelligence and ability of a professor cannot go to another place or property. Therefore, it comes under the category of nonmaterial capital.
Sunk and Floating Capital:
Such a specific form of capital that cannot be converted into any other form or put to any other use is called Sunk capital. For example, dams, bridges, roads, etc. Whereas such capital which can be changed as per requirement and can be put to many different uses is called Floating capital like raw materials, company shares, prize bonds, etc.
Productive and Consumptive Capital:
Capital that is used directly to produce goods or that part of the capital that helps in producing goods and increasing production is called productive capital. For example, machine tools, etc. But such goods which lead to an increase in income but do not lead to an increase in production are called consumptive capital. For example, a car on rent, a house on rent, etc.
Remunerative and Auxiliary Capital:
That part of the capital which is used to pay wages and salaries to the labor units is called Remunerative capital. For example, money. While auxiliary capital is the capital that helps the laborer in the production process. For example, machines, equipment, raw material, etc.
National and Foreign Capital:
The capital that is created by using the savings of the country's residents is called the National capital. For example, gardens, roads, bridges, etc. While foreign capital refers to foreign investment that is made in another country or money given for aid is considered as foreign capital.
The role of investment in the process of generating wealth is of great importance. The fact is that no production process is possible without the presence of capital. Therefore, if the capital is removed to carry out the economic activities of an economy, the production process of the entire economy will stop. Therefore, capital plays a very important role in running the economic system of a country.
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