Capital
as Factor of Production:
Meaning and Definition:
Capital
is an important factor of production. It consists of those goods
which are produced by the economic system and are used as inputs
in the production
of further goods and services. Capital may be physical or
tangible or intangible. Capital goods yield valuable production
services over time.
Physical or Tangible Capital:
The
material things which are used as inputs in the production of
future goods are called tangible capital. The major categories
of tangible capital
office buildings,
power plants, factories, ware-houses, machines,
inventories
of inputs, roads, highways, etc.
Intangible Capital:
Intangible
capital consists of non material things that contribute to the
output of future goods and services. For example, investment by
a firm in advertising to establish a brand name, or establishing
a training programme for employees to increase their still
(human capital) is an input and so included in capital.
Functions
of Capital:
Capital
occupies an important position in determining the rate of
economic development in the country. The main functions of
capital, in brief, are as
under:
(i)
Capital provides equipments which help in the process of
economic development.
(ii) An
increase in the stock of capital goods like machinery factories,
equipments, buildings, economic overhead capital (transport,
railroad, communication, etc) and equipment for education,
health, shelter etc.,
enhances the growth of
output per capita and consequently the income
per capital raised.
(iii) The
accumulation of capital makes the labor better equipped and
delays the operation of law of diminishing returns in
agriculture and industry to a great extent.
(iv)
Capital determines the quantity and also the composition of
output in the economy.
(v)
Capital puts the economy on the path to development. It results,
in technological discoveries.
(vi) The
availability of capital helps in the creation of employment
opportunities in the country.
(vii)
Capital adds value to the products.
(viii) An
increase in the stock of capital once initiated feeds on itself.
The process of capital formation thus becomes interacting and
cumulative.
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