What is Capital? What are the features of Capital in economics?





Meaning: -In ordinary sense the term ‘capital’ means ‘money’. But in economics, the term ‘capital/ refers to that part of wealth which is used for further production of wealth. Therefore, all capital is wealth but all wealth is not capital. Capital is man made factor of production. Capital is also called as produced factor of production. Therefore, materials machineries, tools and equipments, vehicles and building represent capital.


Definition: -“Capital consists of those kinds of wealth, other than free gifts of nature, which yield income.”
Defined by................................... (Alfred Marshall)

 

Following are the some of the important Features of capital


1.      Man made factor: - Normally, capital is man-made factor. It is the man who produces the capital in form of plant and machinery, building and vehicles, etc. Therefore, it is called as produced means of production.

2.      Passive Factor: - Capital is a passive factor of production. It becomes productive only with the help of labour. Capital on its own cannot produce anything without the help of labour..

3.      Mobile Factor: - Capital is the most mobile factor of production. It can be easily moved from one place to another. It enjoys geographic as well as occupational mobility. It can be moved from one place to another.

4.      Depreciative Factor: Capital like machines, buildings, etc., are subject to wear and tear. Therefore, capital is subject to depreciation. The value of capital goes on declining.

5.      Durability Factor: -Capitalis durable in nature. For instance machine or building can last for several years.

6.      Elastic Supply: -The supply of capital is elastic. Depending upon the requirements, the capital can be decreased or increased. If there is more demand, the supply of capital like machines or vehicles can be increased.

7.      Lack of Permanency: - All Capital goods are destructible and not permanent. Capital such as machines, tools, equipments, etc., becomes useless with the passage of time. Thus, they have to be replaced sooner or later.

8.      Interest as the Reward: -The interest is the reward for capital. Interest is the payment for the use of capital. It is the rate of return on money (capital) invested in physical assets.

9.      Classification of Capital: -the capital can be classified mainly into four groups:

On the basis of durability – fixed and working capital.

On the basis of mobility – sunk and floating capital.

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