In finance (and most of the world), capital refers to wealth, whether it be stocks, bonds, cash, or gold. In economics, capital refers to any non-financial asset that can be used towards production. So what does that mean? A factory owner would possess capital like machinery, generators, and other technology. A corporation would have capital like computers, copiers, and software. Capital is typically a durable good (that is, non-consumable). The food you are eating for lunch may make you more productive, but it isn't capital. While capital is durable, it typically also depreciates over time. The longer machinery is used or the more time that passes, the less productive or relevant capital will be. Investment in capital is one of the ways that entities can become more productive, and just as how innovation expands economies. Capital is one of the most heavily referenced ideas in economics, and is a key input in the production function. Notably, land does not fit under the classification of capital. The idea of capital can be applied to different areas, most intriguing of which is human capital. 

Read More

AuthorIsabel Munson