Capital is the man made physical goods used to produce other
goods and services. In the ordinary language, capital means money. In
Economics, capital refers to that part of man-made wealth which is used for the
further production of wealth. According to Marshall, 'Capital consists of those
kinds of wealth other than free gifts of nature, which yield income'.
Money is regarded as capital because it can be used to buy
raw materials, tools, implements and machinery for production. The terms
capital and wealth are not synonymous. Capital is that part of wealth which is
used for the further production of wealth. Thus, all wealth is not capital but
all capital is wealth.
Forms of Capital
Physical Capital or Material
Money Capital or Monetary Resources,
Human Capital or Human Resources
All man-made physical assets like plant and machinery,
tools, buildings, roads, dams and communication, etc., are the various forms of
Characteristics of Physical capital
It is an asset which has a specific
Physical capital asset can be used
in production again and again. As a result, it undergoes wear and tear or
When used in production, it gives a
series of annual income flows called annuities, during its life period.
of more and more physical capital is called physical capital formation
2. Money Capital
The investment that is made in the form of money or monetary
instruments is called money capital. A household saves its income in the form
of bank deposits, shares and securities or other monetary instruments. These
are the sources of money capital.
3. Human Capital
Human capital refers to the quality of labour resources,
which can be improved through investments in education, training, and health.
Higher the investments in human capital, higher will be the productivity.
Characteristics of capital
Capital is a passive factor of
Capital is man-made
Capital is not an indispensable
factor of production, i.e. Production is possible even without capital
Capital has the highest mobility
Supply of capital is elastic
Capital is productive
Capital lasts over time (A plant may
be in operation for a number of years)
Capital involves present sacrifice (cost) to get