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Capital has a number of related meanings in economics, finance and accounting.In finance and accounting, capital generally refers to financial wealth, especially that used to start or maintain a business. Initially, it is assumed here that other styles of capital, e.g. physical capital, can be acquired with money or financial capital, so there is little need here for any further analysis of the latter. So below, the word "capital" is short-hand for "real capital" or "capital goods" or means of production. Also to be ignored will be the problems of aggregating capital and the capital controversy.
1 Capital in classical economic theory
In classical economics, capital is one of three factors of production, the others being land and labour. 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 is human-made, 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.
The third part of the definition was not always used by classical economists. The classical economist extraordinaire David Ricardo would use the above definition for the term fixed capital while including raw materials and intermediate products are part of his circulating capitalCirculating capital is a term used by classical economists such as David Ricardo and others such as Karl Marx. It refers to a kind of physical capital, i. short-lived items that are used in production and used up in the process of creating other goods or. For him, both were kinds of capital.
Karl MarxKarl Heinrich Marx ( May 5, 1818 March 14, 1883) was an influential German economist, philosopher, social and political theorist. Although Marx addressed many issues in his career as a journalist and philosopher, he is most famous for his analysis of hist adds a distinction that is often confused with Ricardo's. In MarxianMarxian theory is theory which intends to follow and expand upon Karl Marx's economic analysis or political philosophy, or at least from parts of it. To some, it is distinct from Marxism in that it does not lean entirely upon the work of Marx and other wi theory, variable capital refers to a capitalist's investment in labor-power, seen as the only source of surplus-value. It is called "variable" since the amount of valueThe labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the "value" of an exchangeable good or service (i. a commodity) with the amount of labor required to produce it. The do it can produce varies from the amount it consumes, ie, it creates new value. On the other hand, constant capitalConstant capital or c in Marxian political economy is one of the two forms that capital adopts in the workplace, in contrast to variable capital v . It is typically conceived of as plant and machinery the fixed investments made by a capitalist entrepreneu 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 act of producing 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 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.
