In economics, capital is any good used to create a supply of new goods or services. Therefore, it is not limited to the money invested.
Traditionally, capital is considered one of the factors of production along with the land (including all its natural resources) and labor. These elements are essential for the economy, considering that without them there would be no production process.
Adam Smith, considered the father of modern economics, conceptualized capital as “Part of the stock that is expected to produce a return”. Then, the economist listed that the capital of a country or company can be:
- machines and instruments that make the work easier
- real estate (not mere accommodations, but those that can be considered instruments of negotiation, such as shops)
- land improvements capable of improving cultivation
- cash
- provisions held by producers or traders, from whom profit is expected after their sale
- manufactured articles, even if incomplete, in the possession of producers or traders
British economist John Stuart Mill understood that:
"Anything designed to supply productive work with shelter, protection, tools and materials that service requires, in addition to feeding or, in any case, maintaining the worker during the process, is capital.”
In addition to those mentioned above, numerous scholars have attributed slightly different meanings to the concept of capital. Thus, although there is no consensus on which goods can or cannot be considered capital, it is correct to say that the concept refers to everything that adds value to the production process.
financial capital
Finance capital consists of the sum of all bonds that have monetary value. Immediate securities (cash, checks, etc.) are also called bank capital. Titles obtained with the aim of generating profit (stocks, investments, etc.) are also called productive capital.
Financial capital should not be confused with economic capital, given that it is not related to the production process. Furthermore, finance capital is exclusively related to values, not including goods.
Capitalism
Capitalism is the economic system adopted by most countries in the world. As the nomenclature itself suggests, this system is heavily based on capital and its application in the production process in order to produce profit. For this reason, its main characteristics are private property, income accumulation, salaried work and a competitive market.
Read more about capitalism.
Capital in companies
With the different types of businesses developed over time, the concept of capital has had several ramifications within companies. Let's look at the main ratings:
Share capital: The share capital, also known as initial capital, is the first investment made in the business, and it can be goods, values or, depending on the corporate type, services.
Equity: Equity consists of the company's equity, that is, the difference between the share capital plus profits and debts.
Third party capital: It is the investment formed by capital from sources outside the company. It usually consists of financing or loans.
Working capital: It is the capital used in the regular operation of the company. It is usually money or another asset with the necessary liquidity to be used in the payment of salaries or taxes, operating expenses, inventory renewal, etc.
See too:
- Share capital
- Capital goods
- Capitalize
- Financial Capitalism
