Capital

Capital is a man-made resource. Any product of labour and land which is reserved for use in the further production is capital.

Capital was created when people began to make simple tools and implements to assist them in the production of food, the hunting of animals, and in the transportation of their possessions.

It might be helpful at this stage to deal with the confu­sion which commonly arises over the meanings of three important terms: capital, money, and wealth.

Capital, as already indicated, means any produced means of production.

Wealth is quite simply the stock of all those goods which have a money value. Capital, therefore, is an impor­tant part of the community's wealth.

Money is a claim to wealth. From the standpoint of the community as a whole, money is not wealth, since we can not count both the value of real assets and the value of the money claims to those assets. From the point of view of the individual citizen, however, money represents a part of his personal wealth since he sees it as a claim on assets held by other people. To the individual business person, therefore, any money he possesses he regards as capital since it gives him a claim on resources now possessed by others. We must be quite clear, however, that money is not part of the national wealth.

Capital is usually divided into two types: that which is used up in the course of production and that which is not.

Working capital consists of the stocks of raw mate­rials, partly finished goods held by producers. These stocks are just as important to efficient production as are the machines and buildings. Stocks are held so that production can proceed smoothly when deliveries are interrupted and so that unexpected additional orders for finished goods can be met without changing production schedules. This kind of capital is sometimes called circulating capital because it keeps moving and changing. Materials are changed into finished goods which are then exchanged for money and this in turn is used to buy more materials.

Fixed capital consists of the equipment used in production — buildings, machinery, railways and so on. This type of capital does not change its form in the course of pro­duction and move from one stage to the next — it is 'fixed'.

15. Read text C and explain understand the entrepreneurship as one of the factor of production.

Text С

The Entrepreneur

As mentioned earlier, economists sometimes identify a forth factor of production — enterprise. It is held that, left to themselves, land, labour, and capital will not produce anything. There must be some person or persons, who will organize these three factors so that production takes place. Someone must take the decisions (a) what to produce (i.e. the type of good or service and the quantity), (b) how to produce (i.e. the methods of production); (c) where to pro­duce (i.e. the location of the enterprise).

Whoever takes the decisions, and the consequent risks, is known as the entrepreneur. There is no really suitable English word to describe such a person, perhaps 'enterpris­er' is the nearest we can get. The entrepreneur is the person who undertakes production with a view to profit. In a capi­talist society, production would not take place unless some­one was prepared to buy and organize economic resources for production on the basis of expected profit.

Organization, management and risk-bearing — these are the entrepreneurial functions. In the one-person busi­ness, they are clearly all carried out by the sole proprietor. In the large company, the functions of the entrepreneur are shared, risk bearing is the role of the shareholders; manage­ment is the function of the directors.