Capital Factor of Production, Characteristics of Capital

Wed, 07/27/2011 - 12:15 -- Umar Farooq

What is Capital Factor of Production

Capital as factor of production includes all material resources (excluding land) or stock of wealth used productively. The meaning of Capital in economics is more precise and restricted than its meaning to a businessman or an accountant. A stock of money, shares in a company or a private hoard of consumer goods is not capital.

Capital is used in all production except the most primitive form. A spade is capital to a market gardener. Machinery, factories, railways, roads, producers' stock of material, equipment and partly finished or finished goods are all capital.

Characteristics of Capital Factor of Production

  1. Can be created by an excess of production over consumption.
  2. Must be maintained because it deteriorates with age and use.
  3. A proportion of the value of land is capital factor of production due to additions of fertilizers, fencing, drainage.
  4. Yields an income in the form of improved production.
  5. Is mobile in the long run, but specific moderately.
  6. Must be represented by savings.
  7. Ownership can be separated from control of its uses.
  8. Round-about process of production makes stocks in warehouses and shops capital.