Capital as Factor of Production:

Meaning and Definition:

Capital is an important factor of production. It consists of those goods which are produced by the economic system and are used as inputs in the production of further goods and services. Capital may be physical or tangible or intangible. Capital goods yield valuable production services over time.

Physical or Tangible Capital:

The material things which are used as inputs in the production of future goods are called tangible capital. The major categories of tangible capital office buildings, power plants, factories, ware-houses, machines, inventories of inputs, roads, highways, etc.

Intangible Capital:

Intangible capital consists of non material things that contribute to the output of future goods and services. For example, investment by a firm in advertising to establish a brand name, or establishing a training programme for employees to increase their still (human capital) is an input and so included in capital.

Functions of Capital:

Capital occupies an important position in determining the rate of economic development in the country. The main functions of capital, in brief, are as under:

      

(i) Capital provides equipments which help in the process of economic development.

             

(ii) An increase in the stock of capital goods like machinery factories, equipments, buildings, economic overhead capital (transport, railroad, communication, etc) and equipment for education, health, shelter etc., enhances the growth of output per capita and consequently the income per capital raised.

(iii) The accumulation of capital makes the labor better equipped and delays the operation of law of diminishing returns in agriculture and industry to a great extent.

(iv) Capital determines the quantity and also the composition of output in the economy.               

(v) Capital puts the economy on the path to development. It results, in technological discoveries.

(vi) The availability of capital helps in the creation of employment opportunities in the country.

                    

(vii) Capital adds value to the products.      

(viii) An increase in the stock of capital once initiated feeds on itself. The process of capital formation thus becomes interacting and cumulative.