What do you mean by Capital? What are its forms? State briefly functions and importance of capital
In the ordinary
language capital means the money one invests in a business. But according to
economists the capital does not mean money. They say that money is simply a
medium of exchange capital may be measured in terms of money but money is not
capital. Capital really consists of goods like machines, buildings, plants, raw
materials etc which are invested to produce more goods. It is that part of the
produced wealth which is invested for further production.
Capital is therefore
wealth. But all wealth is not capital, it is only part of wealth. Only that
part of wealth is capital which is invested in further production. The wealth
which is directly consumed by its owner for satisfying his immediate wants is
not capital. Whether an article of wealth is capital or not depends, not on any
inherent quality in that article, but on the use to which it is put by its
owner. Suppose a man possesses an engine or a boiler, it cannot be called
capital; but if he uses it in a factory, it will certainly be called capital.
Capital is a produced means of production, it is the creation of human efforts
and does not include free gifts of nature like land. It is only a part of economic
goods i.e. of wealth.
In short, to be
capital of thing must e wealth but it must be produced wealth invested for more
production.
Forms of Capital
Capital has been
classified into different kinds from different standpoints.
(a) Fixed Capital: The fixed capital means
that capital which exists more or less in a durable shape for a comparatively
long period of time and renders repeated services till it is worn out. For
instance, machines, buildings, furniture and similar other things which are not
exhausted by a single use.
(b) Circulating Capital: The circulating
capital means the capital which performs only a sing operation in production
and changes its shape by a single use. Cotton, sugar-cane or any other
raw-material comes under this class of capital.
(c) Consumption Capital: Consumption capital
refers to that kind of capital which helps production indirectly and which a
man uses in satisfying the wants of his workers directly. Thus when an
industrialist give rice to provide his labourers with food or builds a house
for residence of his labourers, then the rice and the building become
consumption capital.
(d) Auxiliary or Production Capital:
Production capital means capital like machines, raw-materials etc, which help
the worker directly in producing goods.
(e) Sunk Capital: Sunk or specialised
capital means that capital goods which are highly specialised and cannot be
used generally in more than one industry. For example blast furnace.
(f) Floating Capital: Floating capital consists
of those capital goods which are not specialised and can be easily withdrawn
from one industry and invested in another.
Importance of
Capital:
Capital plays an
important part in the modern system of production. It is one of the factors of the
production. Without some form of capital there can be no production.
Modern system of
production is a round about process. In modern times instead of spending our
labour directly in the satisfaction of wants, we first product capital goods
like machines. The process requires a huge capital. In fact in the modern
capitalistic system of production, capital is the chief factor of production.
Modern civilization with its huge production of goods would have been
impossible without the enormous growth of capital. So the modern production is
known as capitalistic production and modern civilization as capitalistic
civilization because of the dominant part played by capital in the modern
production system.
Functions of
Capital:
(i) Capital increases Productivity as a
whole: The more the capital, the round about is the process of production and
the round-about process of production is certainly more productive. The machine
enables labourers to produce a larger volume of goods. A weaver with modern
weaving machinery can produce larger quantities of cloth then he can do with
his simple old fashioned weaving loom. A cultivator with the help of a tractor
and other modern agricultural machines can produce larger harvests from his and
than he can do with his primitive tools. Thus by increasing the total output,
capital diminishes the cost of production, consequently things become cheaper.
(ii) Capital improves the efficiency of
Workers: Capital also improves the efficiency of labourers and removes the
strain on their muscles. It makes possible to provide labourers with up to date
machines. The labourers have only to regulate machineries. The whole process of
production is splitted up into so many small operations. Every worker has to do
only one operation repeatedly. Thus he becomes expert in regulating the
particular machinery and becomes specialised in his work. At the same time he
is relieved of strain on his muscle.
(iii) Capital Saves time: Capital saves time in
two ways. It saves time in the sense that it helps to produce large volume of
goods in a comparatively short period. The work of expert has been replaced by
specialised machines. Thus much their time is saved. Now each particular
process of production is finished with in a twinkling of an eye.
(iv) Capital enables workers to get
remuneration in time: Capital also enables the labourers to get their remuneration
during the process of production i.e. before their products are marketed.
Formerly an artisan used to make a thing from beginning to end, and he had to
wait for payment till the finished products could not sold. Now he gets his
wages daily, weekly or monthly. The industrialist advances wages to the workers
from his capital. In short capital plays an important role in the modern
economic system. Capital is necessary for the purchase of raw-materials, for
the construction of factory, for the purchase of mills and machinery and for
paying wages to the labourers during the long process of production.
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