In economics Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current economic, capital or capital goods In economics, a good is any object or service that increases utility, directly or indirectly. It should not to be confused with the adjective "good", as used in a moral or ethical sense. A good that cannot be used by consumers directly, such as an "office building" or "capital equipment", can also be referred to as a or real capital refers to factors of production In economics, factors of production are the resources employed to produce goods and services. They facilitate production but do not become part of the product (as with raw materials) or are significantly transformed by the production process (as with fuel used to power machinery). To 19th century economists, the factors of production were land ( used to create goods or services A service is the non-material equivalent of a good. Service provision has been defined as an economic activity that does not result in ownership and is claimed to be a process that creates benefits by facilitating either a change in customers, a change in their physical possessions, or a change in their intangible assets that are not themselves significantly consumed (though they may depreciate Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years) in the production process. Capital goods In Marxian economics, capital goods originally referred to the means of production. Individuals, organizations and governments use capital goods in the production of other goods or commodities. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption. Capital goods, may be acquired with money Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main functions of money are as a medium of exchange, a unit of account, and a store of value. In the past, money was almost always commodity money, money with intrinsic value from the commodity of which it is made . However, modern monetary or financial capital Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc. In finance Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted and accounting Accountancy or accounting is the art of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management, capital generally refers to financial wealth In economics and business, wealth of a person or nation is the value of assets owned net of liabilities owed (to foreigners in the case of a nation) at a point in time. The assets include those that are tangible (land and capital) and financial (money, bonds, etc.). Wealth may be measured in nominal or real values. Measurable wealth typically, especially that used to start or maintain a business.

Capital in narrow and broad uses

In classical economics Classical economics is widely regarded as the first modern school of economic thought. It is associated with the idea that free markets can regulate themselves.Its major developers include Adam Smith, David Ricardo, Thomas Malthus and John Stuart Mill. Sometimes the definition of classical economics is expanded to include William Petty, Johann, capital is one of three (or four, in some formulations) factors of production In economics, factors of production are the resources employed to produce goods and services. They facilitate production but do not become part of the product (as with raw materials) or are significantly transformed by the production process (as with fuel used to power machinery). To 19th century economists, the factors of production were land (. The others are land In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to the production of all goods, including capital goods, labor Labour economics seeks to understand the functioning and dynamics of the market for labour. Labour markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services , the demanders of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and and (in some versions) organization, entrepreneurship, or management. Goods with the following features are capital:

• It can be used in the production of other goods (this is what makes it a factor of production).
• It was produced, in contrast to "land," which refers to naturally occurring resources such as geographical locations and minerals.
• It is not used up immediately in the process of production unlike raw materials or intermediate goods Intermediate goods or producer goods are goods used as inputs in the production of other goods, such as partly finished goods. They are goods used in production of final goods. A firm may make then use intermediate goods, or make then sell, or buy then use them. In the production process, intermediate goods either become part of the final product,. (The significant exception to this is depreciation Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years allowance, which like intermediate goods, is treated as a business expense.)

These distinctions of convenience carried over to neoclassical economics Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often as mediated through a hypothesized maximization of income-constrained utility by individuals and of cost-constrained profits of firms employing available with little change in formal analysis for an extended period. There was the further clarification that capital is a stock Economics, business, accounting, and related fields often distinguish between quantities which are stocks and those which are flows. A stock variable is measured at one specific time, and represents a quantity existing at that point in time, which may have been accumulated in the past. A flow variable is measured over an interval of time. As such, its value can be estimated at a point in time, say December 31. By contrast, investment Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Investing is the active redirection of resources: from being consumed today, to creating benefits in the future; the use of assets to earn income or profit, as production to be added to the capital stock, is described as taking place over time ("per year"), thus a flow Economics, business, accounting, and related fields often distinguish between quantities which are stocks and those which are flows. A stock variable is measured at one specific time, and represents a quantity existing at that point in time, which may have been accumulated in the past. A flow variable is measured over an interval of time.

Earlier illustrations often described capital as physical items, such as tools, buildings, and vehicles that are used in the production process. Since at least the 1960s economists have increasingly focused on broader forms of capital. For example, investment in skills and education can be viewed as building up human capital Human capital refers to the stock of skills and knowledge embodied in the ability to perform labor so as to produce economic value. It is the skills and knowledge gained by a worker through education and experience. Many early economic theories refer to it simply as labor, one of three factors of production, and consider it to be a fungible or knowledge capital Knowledge capital is a concept which asserts that ideas have intrinsic value which can be shared and leveraged within and between organizations. Knowledge capital connotes that sharing skills and information is a means of sharing power. Knowledge capital is the know how that results from the experience, information, knowledge, learning, and skills, and investments in intellectual property can be viewed as building up intellectual capital The term Intellectual capital collectively refers to all resources that determine the value and the competitiveness of an enterprise. As such, it includes as subsets the attributes that concur to building all financial statements as well as the balance sheet.. These terms lead to certain questions and controversies discussed in those articles. Human development theory Human development theory is a theory that merges older ideas from ecological economics, sustainable development, welfare economics, and feminist economics. It seeks to avoid the overt normative politics of most so-called "green economics" by justifying its theses strictly in ecology, economics and sound social science, and by working describes human capital as being composed of distinct social, imitative and creative elements:

• Social capital Social capital is a social science concept used in business, economics, organizational behaviour, political science, public health and sociology that refers to connections within and between social networks. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of is the value of network trusting relationships between individuals in an economy.
• Individual capital Individual capital, also known as human capital, comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will, such as skill, creativity, enterprise, courage, capacity for moral example, non-communicable wisdom, invention or empathy, non-transferable personal trust and leadership which is inherent in persons, protected by societies, and trades labor for trust or money. Close parallel concepts are "talent", "ingenuity Ingenuity refers to the process of applying ideas to solve problems or meet challenges. The process of figuring out how to cross a mountain stream using a fallen log, build an airplane from a sheet of paper, or start a new company in a foreign culture all involve the exercising of ingenuity. Human ingenuity has led to technological developments", "leadership Leadership is one of the most salient aspects of the organizational context. However, defining leadership has been challenging. The following sections discuss several important aspects of leadership including a description of what leadership is and a description of several popular theories and styles of leadership. This page also dives into topics", "trained bodies", or "innate skills" that cannot reliably be reproduced by using any combination of any of the others above. In traditional economic analysis individual capital is more usually called labour.

Further classifications of capital that have been used in various theoretical or applied uses include:

• Financial capital Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc which represents obligations, and is liquidated as money for trade, and owned by legal entities. It is in the form of capital assets, traded in financial markets. Its market value is not based on the historical accumulation of money invested but on the perception by the market of its expected revenues and of the risk entailed.
• Natural capital Natural capital is the extension of the economic notion of capital to environmental goods and services. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future. For example, a stock of trees or fish provides a flow of new trees or fish, a flow which can be sustainable which is inherent in ecologies and protected by communities to support life, e.g. a river which provides farms with water.
• Infrastructural capital Infrastructural capital refers to any physical means of production or means of protection beyond that which can be gathered or found directly in nature, i.e. beyond natural capital and that which is not considered as "fluid capital". It may include tools, clothing, shelter, irrigation systems, dams, roads, boats, ports, factories or any is non-natural support systems (e.g. clothing, shelter, roads, personal computers) that minimize need for new social trust, instruction, and natural resources. (Almost all of this is manufactured, leading to the older term manufactured capital Infrastructural capital refers to any physical means of production or means of protection beyond that which can be gathered or found directly in nature, i.e. beyond natural capital and that which is not considered as "fluid capital". It may include tools, clothing, shelter, irrigation systems, dams, roads, boats, ports, factories or any, but some arises from interactions with natural capital, and so it makes more sense to describe it in terms of its appreciation/depreciation process, rather than its origin: much of natural capital grows back, infrastructural capital must be built and installed.)

In part as a result, separate literatures have developed to describe both natural capital Natural capital is the extension of the economic notion of capital to environmental goods and services. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future. For example, a stock of trees or fish provides a flow of new trees or fish, a flow which can be sustainable and social capital Social capital is a social science concept used in business, economics, organizational behaviour, political science, public health and sociology that refers to connections within and between social networks. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of. Such terms reflect a wide consensus A close equivalent phrase might be the "collective agreement" of a group, keeping in mind that a high degree of variation is still possible among individuals, and certainly if there must be individual commitment to follow up the decision with action, this variation remains important. There is considerable debate and research into both that nature and society both function in such a similar manner as traditional industrial infrastructural capital, that it is entirely appropriate to refer to them as different types of capital in themselves. In particular, they can be used in the production of other goods, are not used up immediately in the process of production, and can be enhanced (if not created) by human effort.

There is also a literature of intellectual capital The term Intellectual capital collectively refers to all resources that determine the value and the competitiveness of an enterprise. As such, it includes as subsets the attributes that concur to building all financial statements as well as the balance sheet. and intellectual property law Intellectual property are legal property rights over creations of the mind, both artistic and commercial, and the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; ideas, discoveries and inventions; and words,. However, this increasingly distinguishes means of capital investment, and collection of potential rewards for patent A patent is a set of exclusive rights granted by a state to an inventor or his assignee for a limited period of time in exchange for a disclosure of an invention, copyright Copyright gives the author of an original work exclusive right for a certain time period in relation to that work, including its publication, distribution and adaptation, after which time the work is said to enter the public domain. Copyright applies to any expressible form of an idea or information that is substantive and discrete and fixed in a (creative or individual capital Individual capital, also known as human capital, comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will, such as skill, creativity, enterprise, courage, capacity for moral example, non-communicable wisdom, invention or empathy, non-transferable personal trust and leadership), and trademark A trademark or trade mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities (social trust or social capital Social capital is a social science concept used in business, economics, organizational behaviour, political science, public health and sociology that refers to connections within and between social networks. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of) instruments.the word capital is what you have as a wealth.

Capital in classical economics and beyond

Within classical economics, Adam Smith (Wealth of Nations, Book II, Chapter 1) distinguished fixed capital Fixed capital is a concept in economics and accounting, first theoretically analysed in some depth by the economist David Ricardo. It refers to any kind of real or physical capital that is not used up in the production of a product and is contrasted with circulating capital such as raw materials, operating expenses and the like. Fixed capital is from circulating capital Circulating capital is a term used by classical economists such as Adam Smith, David Ricardo and Karl Marx. It refers to physical capital and operating expenses, i.e., short-lived items that are used in production and used up in the process of creating other goods or services. This is roughly equal to Intermediate consumption. It includes raw, including raw materials and intermediate products. For an enterprise, both were kinds of capital.

Karl Marx Karl Heinrich Marx was a German philosopher, political economist, historian, political theorist, sociologist, communist and revolutionary credited as the founder of communism adds a distinction that is often confused with David Ricardo's David Ricardo was an English political economist, often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus and Adam Smith. He was also a member of Parliament, businessman, financier and speculator, who amassed a considerable personal fortune. Perhaps the most important. In Marxian Marxism is the political philosophy and practice derived from the works of Karl Marx and Friedrich Engels, though the name "Marxism" has been used by many with political perspectives those men would likely reject. Marxism is a political-economic theory that presents a materialist conception of history, a non-capitalist vision of theory, variable capital Constant capital , is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and variable refers to an aspect of the economic role of factors of production in creating a new value refers to a capitalist's investment in labor-power, seen as the only source of surplus-value Surplus value is a concept created by Karl Marx in his critique of political economy, where its ultimate source is unpaid surplus labor performed by the worker for the capitalist, serving as a basis for capital accumulation. It is called "variable" since the amount of value it can produce varies from the amount it consumes, i.e., it creates new value. On the other hand, constant capital refers to investment in non-human factors of production, such as plant and machinery, which Marx takes to contribute only its own replacement value to the commodities it is used to produce. It is constant, in that the amount of value committed in the original investment, and the amount retrieved in the form of commodities produced, remains constant.

Investment or capital accumulation in classical economic theory is the production of increased capital. In order to invest, goods must be produced which are not to be immediately consumed, but instead used to produce other goods as a means of production. Investment is closely related to saving, though it is not the same. As Keynes pointed out, saving involves not spending all of one's income on current goods or services, while investment refers to spending on a specific type of goods, i.e., capital goods.

The Austrian economist Eugen von Böhm-Bawerk maintained that capital intensity was measured by the roundaboutness of production processes. Since capital is defined by him as being goods of higher-order, or goods used to produce consumer goods, and derived their value from them, being future goods.

External links

• Capital definition and explanations provided in simple terms

See also

• Capital deepening
• Capitalism
• Capitalist mode of production
• Factors of production
• Physical capital
• Means of production
• Venture capital
• Wealth (economics)

Lists

• list of economists
• list of management topics
• list of marketing topics
• list of accounting topics
• list of finance topics
• list of ethics topics

References

• F. Boldizzoni (2008). Means and ends: The idea of capital in the West, 1500-1970, New York: Palgrave Macmillan, 2008, chapters 4-8.
• K.H. Hennings (1987). "Capital as a factor of production," The New Palgrave: A Dictionary of Economics, v. 1, pp. 327-33.

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