Capital and mobility of capital
Capital and mobility of capital. This refers to a man-made resource used to produce other factors of production with goods and services e.g. machines, factory building etc. or it is a stock of wealth employed directly or indirectly in the production of future wealth. The reward for capital is interest.
Characteristics of capital
- It erns interest as reward
- It is a product of land and Labour
- Capital assists in future production
- Capital has a market price
- The ownership of capital is transferable
- It is not fixed i.e. the surplus capital can increase
Wealth and Capital
Capital is wealth kept aside for the production of further wealth. Wealth on the otherhand is the stock of goods existing that has money value. Consumer goods therefore are wealth but has no capital since they can be used in further production. A personal car for instance is wealth but not capital. A Taxi car is bot wealth and capital.
Types of capital
Working capital or circulating or floating capital.
This refers to capital that used up in the day to day running of the business and it changes from one form to another. For example, money and raw materials. We can use money to buy raw materials that that are transformed in to semi-finished goods. Exchange for money and the process can begin over again.
Fixed capital:
This is capital that doesn’t change it form as production changes. Its use is spread over a long period. Example include land, buildings, machine etc.
Social capital:
Social capital or national capital is made up of wealth collectively owned by the whole community for example roads, railways, schools, hospitals, etc.
Terms related to capital
- Real capital: it refers to physical goods that are used for production e.g. machine.
- Money capital: it is the flock of money usually obtained from savings kept fro production purpose
Capital formation or accumulation
It refers to the net addition to the existing stock of capital to capital with a given period of time. Capital accumulation can be achievement in any of the following ways.
- Savings: these refers to part of income kept inside (somewhere) maybe in bank for future. This money is borrowed by entrepreneur and used in the construction of capital goods.
- Diversion of resources: this measures that resources are moved from the production of consumer goods to the production of consumer goods to the production of capital goods. The real cost of production capital goods is the potential output of consumer goods for gone. This implies that the production of more consumer goods in fracture.
Gross and Net investment
Investment is the production or accusation of capital goods like machines seeds etc. two types of investment exists.
Gross investment:
It is the total value of capital goods produce in a given time.
Net investment:
It is any addition to capital stock. The difference between gross investment and net investment comes up due to depreciation.
Depreciation refers to the gradual fall of the value of capital goods due to wear and tear.
Thus, investment net investment depreciation
Net investment = Gross investment – Depreciation
Example:
If a total amount of capital goods in Cameroon 1998 was 40 in FCFA and the rate of depreciation was 5% what is net investment of Cameroon
Gross Investment = 40,000FCFA
Depreciation = 5 /100 * 40,000,000 = 2,000,000
NI = Gross Investment – Depreciation
40, 000, 0000 – 2, 000, 000 = 38 000, 000FCFA.
Mobility of capital
Capital is very flexible, moves from one occupation or geographical region to another for example a fixed capital like a building, how many uses but can’t be moved from one region to another. Electrical motors, vehicle, machines etc. can easily move from one area to another. In some cases, the mobility of capital is too extensive for the instances the ship yard, railway system can’t be removed from one use to another or from one place to another.
