Economics Terms A-Z
Well, capital is a catch-all term that refers to a person’s assets, which means something useful a person has which can create wealth - and it can be extremely broad and be interpreted in many ways. On the face of it, capital is one of if not the most important thing in an economic system. The financing and investing of capital helps to define if and how the economy grows and also how people experience their returns on investment. To this end, capital is a good measurement of wealth, and also a means of creating wealth through the investment of capital.
The term capital has also been used and judged differently in different economic theories - compare, for example, the usage of capital in human development theory to that of Marxian economics; they are barely comparable, in fact.
Types of capital
Capital is most obviously money, specifically money used to buy other goods which are then solved for a profit. An example of this would be the money that a business uses to buy its products, such as a retail business buying its clothes.
These are things which are used to make goods or services, and as such can be a variety of goods. For example, tools would be a capital good to a handyman; oil rigs would be a capital good for an oil company; wind turbines would be a capital good for an energy company.
Natural capital/ecological capital
Didn’t think the world had capital? Think again. Natural capital is natural resources, such as air, water, and organisms. This type of capital is arguably the most important, as it includes things like clean drinking water and fertile soil which the world gives us for free but makes civilisation - and life in general - possible. The existence of these is dependent on a healthy ecosystem, making the fight against climate change and environmental destruction all the more crucial.
Something a little more abstract, social capital includes intangible things like the relationships between people, cultural heritage, and identity. However, it also refers to more tangible things, such as shared public spaces.
A controversial one as it is sometimes regarded as little more than an extension of human capital, this could include the learning materials which make education possible. It is often used to refer to guidance which restricts the actions of people, and is therefore linked to social capital, in that guidance often turns into societal norms.
Also related to the above two groups, human capital is perhaps the most self-explanatory of these terms. You’re human capital, and so is this writer, because our knowledge enables us to perform labour and therefore helps the business - and the economy - grow. Without human capital, none of the rest of this list would exist.
An extremely wide-ranging type of capital that includes all government-owned assets. This covers things like roads and railways (assuming they are publicly owned) as well as education, hospitals, emergency services, and systems such as utilities and sewage. It can be both a government outlay and infrastructure itself.
This generally refers to an intangible idea of how much a business can be valued at. It includes the people who work there, the relationships between them, and the actual infrastructure of the building itself. It can also refer to the passing of knowledge between members of the same company. Due to its being intangible and therefore difficult to measure, it can be hard to take into account when judging how much a business is worth; however, in the knowledge economy and Information Age, it is arguably very important.
There are several related forms of capital that businesses may have. These include debt capital, when a business assumes debt; equity capital, which often refers to shares and investors; working capital, meaning the business’s assets and its accounts payable; and trading capital, which is used to buy and sell securities.
Theories of capital
Capital is one of the three main factors of production in classical, along with land and labour. Other things which contribute to an economy’s production are referred to as intangibles, and have since been redefined as capital, such as knowledge, now seen as capital in and of itself, or management, which could now be subsumed under social capital.
In Marxian economics, capital refers to three things: constant capital (capital goods), variable capital, meaning the input of labour, and fictitious capital, which includes stocks, bonds, securities, and the like.
Human development theory
This theory holds that social, individual, and instructional are the three most relevant areas which define human capital. This idea has also been carried over to ecological, welfare and green economics, which use more intangible, abstract ideas of capital, rather than referring to more tangible objects such as work tools.
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