Capital (economics)

In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services. At the macroeconomic level, "the nation's capital stock includes buildings, equipment, software, and inventories during a given year." A typical example is the machinery used in factories. Capital can be increased by the use of the factors of production, which however excludes certain durable goods like homes and personal automobiles that are not used in the production of saleable goods and services. Adam Smith defined capital as "that part of man's stock which he expects to afford him revenue". In economic models, capital is an input in the production function. The total physical capital at any given moment in time is referred to as the capital stock (not to be confused with the capital stock of a business entity). Capital goods, real capital, or capital assets are already-produced, durable goods or any non-financial asset that is used in production of goods or services. Classical and neoclassical economics describe capital as one of the factors of production (alongside the other factors: land and labour). All other inputs to production are called intangibles in classical economics. This includes organization, entrepreneurship, knowledge, goodwill, or management (which some characterize as talent, social capital or instructional capital). This is what makes it a factor of production: The good is not used up immediately in the process of production unlike raw materials or intermediate goods. (The significant exception to this is depreciation allowance, which like intermediate goods, is treated as a business expense.) The good can be produced or increased (in contrast to land and non-renewable resources). These distinctions of convenience have carried over to contemporary economic theory. Adam Smith provided the further clarification that capital is a stock. As such, its value can be estimated at a point in time.