Capital: Features, Classification and Other Details

According to J.S. Mill, “Capital is the accumulated product of past labour destined for the production of further wealth.”

In short we can say that, capital is the produced means of production.

Main Features of Capital:

(i) Capital is the result of past labour. The machines’ tools, equipment’s etc. used for the further production of wealth are the products of labour.

(ii) Capital is productive. It is used along with other factors of production like land, labour and entrepreneur to produce goods and services.

(iii) Capital is prospective, because accumulation of capital yields income. This feature explains the supply side of capital.

(iv) Capital is not permanent, it is temporary in nature. It has to be reproduced from time to time.

(v) Capital is a mobile factor of production. It is not the free gift of nature.

(vi) Capital is a passive factor of production. It alone is unable to do anything. It produces goods and services along with other factors of production.

Classification of Capital:

Capital can be classified as under:

(i) Fixed and Circulating Capital:

Fixed capitals are continuously used in the process of production. For instance, machines, tools, equipment’s etc. On the other hand, the capital which are used for single time, i.e., one-time used capitals are called circulating capital. For example coal, petrol and raw material etc.

(ii) Sunk and Floating Capital:

The capitals which remain fixed and cannot be shifted from one place to another are called sunk capital. Factory, machines etc. are sunk capital. However, floating capitals are those, which can be used for several purposes or by several industries. For example, money and other raw materials are the example of floating capitals.

(iii) Domestic and Foreign Capital:

Domestic capital is that capital which includes all private and public capital in a country. The buildings of all the factories, both private and public, are the examples of domestic capital. On the other hand, foreign capital is that capital which is owned by two or more countries. Kosi project owned by India and Nepal, International Monetary Fund (IMF), World Bank etc. are the examples of Foreign Capital,

(iv) Personal and Social Overhead Capital:

Capital having personal or private ownership is called personal capital. The big factories owned by many industrialists are the example of personal capital. On the other hand capital which is owned by the whole society is known as social overhead capital. For example, roads, hospitals, railways, parks, universities etc. are the social overhead capital,

(v) Human and Non-Human Capital:

Human capital refers to those personal qualities which can neither be seen nor has any shape or size. Hence, cannot be transferred from person to person. Thus, skill, ability, efficiency etc. of a doctor, teacher, sportsman, pilot etc. are the examples of human capital. On the contrary, non-human capital is the capital which can be transferred from one place to other, e.g. machines, tools, factories, equipment’s etc.

Importance of Capital:

Capital has following importance:

(i) It is the basic factor of production.

(ii) It arranges raw materials for production.

(iii) It is the basic for all types of trade,

(iv) It is important from the point of view of credit,

(v) It provides employment,

(vi) It is the basic of technological developments.

Examples of Capital:

(i) All types of raw materials used in production are capital.

(ii) Buildings used in production are also capital.

(iii) Money deposited in bank, i.e., bank deposit is also capital.

(iv) The magazines and newspapers which are found in the reception room of an office are also considered as capital.

(v) Indian Museum, Victoria Memorial Hall etc. are also capital.

Is Money Capital:

Several economists have several opinions on this confusing issue, i.e. can money and capital are same? The answer is obviously in the negative, because money cannot be used as inputs in the production process. Money itself is not a mean of production. However, with the help of money we can buy capital goods, which are used directly during production.