Features of capital
FEATURES OF CAPITAL
Capital, as a factor of production, exhibits the following features.
1) man-made factor of production:
Unlike land, capital is not the free gift of nature. It is not a natural factor. But it is a man-made factor of production. It is produced by man. It is created out of saving or investment made by man. J.S. Mill rightly observed that capital is the " accumulated product of past labour destined for the production of future wealth. "
2) Capital is productive:
It is highly productive. The employment of capital tends to enhance the overall productivity in a given process. It helps to increase in production at a faster rate due to a greater degree of specialization. Capital is an important aid to other factors in the process of production. Without capital production becomes stand still.
3) Derived Demand:
Like land, the demand for capital is a derived demand as it contributes to the production of consumer goods which give direct satisfaction to the consumers. In other words, capital is demanded because it helps in the production of goods which satisfy human wants directly.
4) Durable factor:
Capital assets like machinery contribute to production over a period of time and are relatively durable. Labour is perishable while capital though not used for sometime does not perish like labour. However, this does not mean that capital is permanent because it involves wear and tear in the process of production and becomes absolute in the long run, hence must be replaced.
5) Relatively Elastic in supply:
As capital is man-made factor of production, as a result, it is possible to increase the supply of capital by increasing the rate of savings and in turn the rate of capital formation. Thus, it is relatively elastic in long run because the supply of capital assets can be increased through higher savings.
6) Passive factor of production:
Labour, we have studied earlier, is a living being and the most active factor of production. But capital on the other hand, is unable to contribute to productions without land and labour hence, capital is a passive factor.
7) mobile factor of production:
Of all the factors of production capital is most mobile factor. Capital of every type can be easily transferred one place to another or from one country to another. It is useful to make a comparison of capital with land , we know , is perfectly immobile in the geographical sense but capital in contrast, is perfectly mobile.
8) All capital is wealth:
Since capital possesses all characteristics of wealth viz., scarcity, transferability, price and externality it is considered as wealth.
All capital is wealth but all wealth is not capital. Capital is small part of wealth, used for further production.
9) Entials social cost:
Creation of capital Entials sacrifice in the form of abstinence. Since resources are devoted to producing non - consumable capital goods, rather than consumption goods which can satisfy immediate wants of the consumers directly. Sacrifice of immediate consumption of the people is treated as the social cost.
10) Round about method of production:
Use the capital involve round about method of production, capital accumulation make possible the use of indirect or round about method of production, which turn increases the productivity of the workers. It provides labour modern tools and other implements of production that is turn increases national ( total) output and bring economic development.
11) Capital has depreciation cost:
When we use the word capital in form of machinery, building, roads and Bridges. We must have to make provision of its depreciation cost. Every machinery or a plant ha specific life. After full utilization of unit wealth, we may have to replace these equipments. So we have to keep aside some money for this purpose which is called ' depreciation cost '. We have to make provision for only this particular factor of production.
12) Capital has two sides:
The demand and supply side are the two sides of capital. The supply of capital is made through saving and demand for capital depends upon the need of investment as will as consumption of a society. The return to capital is known as the rate of interest which is determined by the total saving and investments levels of a country.
13) main source of economic development:
Capital is main source of economic development of a country. This is also one of the important feature of capital. Now a days every country's economic development depends upon investment made by a country within a certain limit of time. It means country's overall progress depends upon the size and stock of capital.
Capital, as a factor of production, exhibits the following features.
1) man-made factor of production:
Unlike land, capital is not the free gift of nature. It is not a natural factor. But it is a man-made factor of production. It is produced by man. It is created out of saving or investment made by man. J.S. Mill rightly observed that capital is the " accumulated product of past labour destined for the production of future wealth. "
2) Capital is productive:
It is highly productive. The employment of capital tends to enhance the overall productivity in a given process. It helps to increase in production at a faster rate due to a greater degree of specialization. Capital is an important aid to other factors in the process of production. Without capital production becomes stand still.
3) Derived Demand:
Like land, the demand for capital is a derived demand as it contributes to the production of consumer goods which give direct satisfaction to the consumers. In other words, capital is demanded because it helps in the production of goods which satisfy human wants directly.
4) Durable factor:
Capital assets like machinery contribute to production over a period of time and are relatively durable. Labour is perishable while capital though not used for sometime does not perish like labour. However, this does not mean that capital is permanent because it involves wear and tear in the process of production and becomes absolute in the long run, hence must be replaced.
5) Relatively Elastic in supply:
As capital is man-made factor of production, as a result, it is possible to increase the supply of capital by increasing the rate of savings and in turn the rate of capital formation. Thus, it is relatively elastic in long run because the supply of capital assets can be increased through higher savings.
6) Passive factor of production:
Labour, we have studied earlier, is a living being and the most active factor of production. But capital on the other hand, is unable to contribute to productions without land and labour hence, capital is a passive factor.
7) mobile factor of production:
Of all the factors of production capital is most mobile factor. Capital of every type can be easily transferred one place to another or from one country to another. It is useful to make a comparison of capital with land , we know , is perfectly immobile in the geographical sense but capital in contrast, is perfectly mobile.
8) All capital is wealth:
Since capital possesses all characteristics of wealth viz., scarcity, transferability, price and externality it is considered as wealth.
All capital is wealth but all wealth is not capital. Capital is small part of wealth, used for further production.
9) Entials social cost:
Creation of capital Entials sacrifice in the form of abstinence. Since resources are devoted to producing non - consumable capital goods, rather than consumption goods which can satisfy immediate wants of the consumers directly. Sacrifice of immediate consumption of the people is treated as the social cost.
10) Round about method of production:
Use the capital involve round about method of production, capital accumulation make possible the use of indirect or round about method of production, which turn increases the productivity of the workers. It provides labour modern tools and other implements of production that is turn increases national ( total) output and bring economic development.
11) Capital has depreciation cost:
When we use the word capital in form of machinery, building, roads and Bridges. We must have to make provision of its depreciation cost. Every machinery or a plant ha specific life. After full utilization of unit wealth, we may have to replace these equipments. So we have to keep aside some money for this purpose which is called ' depreciation cost '. We have to make provision for only this particular factor of production.
12) Capital has two sides:
The demand and supply side are the two sides of capital. The supply of capital is made through saving and demand for capital depends upon the need of investment as will as consumption of a society. The return to capital is known as the rate of interest which is determined by the total saving and investments levels of a country.
13) main source of economic development:
Capital is main source of economic development of a country. This is also one of the important feature of capital. Now a days every country's economic development depends upon investment made by a country within a certain limit of time. It means country's overall progress depends upon the size and stock of capital.
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