Capital As A Factor Of production

INTRODUCTION

Capital can be defined as man-made assets used in production. In other words, capital refers to man-made goods or wealth used in the production of other goods and services. It may also be defined as the stock of previous wealth invested in order to produce future wealth.

Capital, when properly combined with other factors of production, produces goods and services.
Examples of capital are physical cash, cutlass, hoe, machines, buildings, motor vehicles and other equipment used in the production of goods and services. Reward for capital is what we call interest.

Characteristics or features of capital
1.Capital is man-made: Capital, in all forms, is made by man before it can be used for production of goods and services.

2. It is durable: Generally, capital are durable assets which can be used for production.

3. It exists in different forms: It may be physical like building, motor vehicles, plants and other machinery or liquid like cash or money.

4. It is subject to depreciation: Capital, in most cases, is subject to depreciation, especially physical assets like buildings, motor vehicles, plants and other machinery.

5. It promotes division of labor: The availability of enough capital helps to promote the practice of division of labor in many companies or business organizations.

6. It ensures large scale production: The existence of enough capital assists firms to embark on large scale production of goods and services.

TYPES OF CAPITAL
The different types or forms of capital include the following:
1. Fixed capital: These are assets which are not used up in the course of production. Fixed assets include those durable assets of a business that can last for a very long time. These assets or capital do not change their forms in the process of production. Examples of fixed capital are land, tools, buildings, motor vehicles, plants and other machinery.

2. Working or Circulatory capital: These are assets that are used up during the process of production. These consist of capital goods which either change their forms or are used up in the process of production. Examples are raw materials, water and fuel.

3. Current or liquid capital: Current capital are the type of capital that are required for the day-to-day running of productive activities. They are also changed from one form to another. Examples are finished goods and money.

4. Social capital: This includes those forms of capital or assets provided by the government that aid production. Examples of social capital are roads, electricity, telephones and water. These amenities, when they are readily available, aid the process of production.

IMPORTANCE OF CAPITAL
1. Capital facilitates production: Availability of adequate capital to any business outfit helps in mass production of goods and services.

2. Capital boosts efficiency: Availability of capital to a business enterprise boosts the efficiency because more machines are used in production rather than by manual labor.

3. It increases standard of living: Acquiring capital by either individuals or governments helps them to have a higher purchasing power, which enables them to have assets and other properties that aid or promote standard of living.

4.Production of quality goods: The availability of capital to any form aids the production of quality goods and services as a result of the purchase of modern machines.

5. It assists in location of industry: The availability of social capital like electricity, good roads and water assists to a large extent the location of a particular industry. It also affects the size and nature of the industry to be so located.



You can also read the following related topics:
1.Labor as a factor of production
2.Land as a factor of production
3.Entrepreneur as a factor of production
4.Limitations to the scale of production