Capital (economics) facts for kids
Capital is a word with a few different meanings in the world of economics, finance, and accounting. It's a really important idea for understanding how businesses and economies work.
In simple terms, when we talk about capital in finance and accounting, we usually mean wealth or money. This is often the money used to start a new business or keep an existing one going. Think of it as the funds a company has to buy what it needs.
What is Capital in Economics?
In classical economics, capital is one of the main "ingredients" needed to produce goods and services. These ingredients are called factors of production. The other main factors are land (natural resources), labor (human effort), and organization (how everything is put together).
Capital in economics refers to special kinds of goods called capital goods. These are different from things you buy just to use up, like a snack (which is a consumer good).
Features of Capital Goods
Capital goods have three main features:
- Used to Make Other Things: They are tools, machines, or buildings that help produce other goods or services. For example, a factory machine helps make cars.
- Made by Humans: Unlike natural resources like land or minerals, capital goods are created by people. A computer is capital, but the metal it's made from (before it's mined) is land.
- Not Used Up Quickly: They last for a while and aren't used up immediately in the production process. A machine can be used many times, unlike raw materials like flour in a bakery, which are used up in one batch of bread.
The famous economist David Ricardo had a slightly different view. He called things like machinery and buildings fixed capital because they stay in one place. He also included raw materials and other items that are used up quickly as part of the overall production process, even if they don't last long.
See also
In Spanish: Capital (economía) para niños
