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
1. Physical Capital or Material Resources
2. Money Capital or Monetary Resources, and
3. Human Capital or Human Resources
1. Physical Capital
All man-made physical assets like plant and machinery, tools, buildings, roads, dams and communication, etc., are the various forms of physical capital.
Characteristics of Physical capital
1. It is an asset which has a specific life period.
2. Physical capital asset can be used in production again and again. As a result, it undergoes wear and tear or depreciation.
3. When used in production, it gives a series of annual income flows called annuities, during its life period.
Accumulation 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
1. Capital is a passive factor of production
Capital is man-made
1. Capital is not an indispensable factor of production, i.e. Production is possible even without capital
2. Capital has the highest mobility
3. Supply of capital is elastic
4. Capital is productive
5. Capital lasts over time (A plant may be in operation for a number of years)
Capital involves present sacrifice (cost) to get