Role or Functions of Capital in Production
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Role or Functions of Capital in Production

Role or Functions of Capital in Production. Production without capital is hard for us even to imagine. Nature cannot furnish goods and materials to man unless he has tools and machines for mining, farming, foresting, finishing, etc. If men had to work with their hands on barren soil, productivity would be very low indeed. More goods can be produced with capital. In fact, greater productivity of a modern economy like that of the U.S.A.

Role of Capital in Production

Meaning of capital in economics

Capital has various definitions in economic terms. Generally capital defines money but the meaning of capital in economics is the factor of production and to regard capital as money is wrong. Various economics have various viewpoints regarding capital; some regards it as men’s wealth besides land which earns income but this is not a convincing definition as money, when lent out earns income, can’t be termed as capital. The meaning of capital in economics is the factor of production and it is a different case that we can but material with money which aids as a factor of production.

Role or Functions of Capital in Production

Production without capital is hard for us even to imagine. Nature cannot furnish goods and materials to man unless he has tools and machines for mining, farming, foresting, finishing, etc. If men had to work with their hands on barren soil, productivity would be very low indeed. More goods can be produced with capital. In fact, greater productivity of a modern economy like that of the U.S.A. is mainly due to more capital per head. Capital adds greatly to the productivity of the worker and hence of the economy as a whole.

Because of its strategic role in raising productivity, capital occupies a central position in the process of economic development. In fact, capital accumulation is the very core of economic development. It may be a free-enterprise economy like the American or a socialist economy of Soviet Russia or a planned and mixed economy of India, economic development cannot take place without capital formation.

Further, advanced industrial technology rests upon the use of vast amounts of capital in the form of large factories and plants, elaborate machinery, tools and implements, building of dams, bridges, roads, stores and stocks of finished and unfinished materials.

Another important economic role of capital formation is the creation of employment opportunities in the country. Capital formation creates employment at two stages. First, when the capital is produced, some workers have to be employed to make capital goods like machinery, factories, dams, irrigation works, etc. Secondly, more men have to be employed when capital has to be used for producing further goods. Thus, we see that employment will increase as capital formation is stepped up in the economy.

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