Question

Define capital.

Answer 1

All those man-made goods which are used for further production are called capital. In other words, that part of wealth (other than free gifts of nature) which is used to earn more wealth is called capital. Raw materials, machines, factory buildings, trains, buses, trucks are some examples of capital. Capital is accumulated out of generated income through saving. Remember, capital is not demanded for its own sake but for assisting in the production of other goods. It thus increases the productivity of labour and land.

Human capital, on the other hand, refers to the skills and experience which increase worker’s productivity. It differs from material capital as it cannot be bought and sold and, thus, cannot be used as collateral for loans. 

The term capital is also used for the stock of financial assets which can be used to provide an income. For example, the initial stock of money which is used by a company is its capital. This capital may be spent on buying goods or it may be circulating capital held as money.

Capital is that portion of wealth which is used for further production of income. Thus, income is the result of the use of capital. For example, shares of a company are wealth but the dividend received on them is income.