Editing Capital (economics) (section)

==In narrow and broad uses==
[[Classical economics|Classical]] and [[neoclassical economics]] describe capital as one of the [[factors of production]] (alongside the other factors: [[land (economics)|land]] and [[labour (economics)|labour]]). All other inputs to production are called [[intangibles (disambiguation)|intangibles]] in classical economics. This includes organization, [[entrepreneurship]], knowledge, goodwill, or management (which some characterize as [[Aptitude|talent]], [[social capital]] or instructional capital).

Many definitions and descriptions of capital goods production have been proposed in the literature. Capital goods are generally considered one-of-a-kind, [[capital intensive]] products that consist of many components. They are often used as manufacturing systems or services themselves. Examples include hand [[tool]]s, [[machine tools]], [[data center]]s, [[oil rigs]], [[semiconductor fabrication plant]]s, and [[wind turbine]]s. Their production is often organized in projects, with several parties cooperating in networks.<ref name="Hobday98" /><ref name="Hicks00" />

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 good]]s. (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]].<ref>
[[Paul A. Samuelson]] and [[William Nordhaus|William D. Nordhaus]] (2004). ''[[Economics (textbook)|Economics]]'', 18th ed.
</ref><ref>
Glossary of Terms, "Capital (capital goods, capital equipment)."<br>&nbsp;&nbsp; • Deardorff's Glossary of International Economics, [http://www-personal.umich.edu/~alandear/glossary/c.html#capital Capital.]
</ref> Adam Smith provided the further clarification that capital is a [[Stock and flow|stock]]. As such, its value can be estimated at a point in time. By contrast, [[Investment (macroeconomics)|investment]], as production to be added to the capital stock, is described as taking place over time ("per year"), thus a [[Stock and flow|flow]].

Earlier illustrations often described capital as physical items, such as tools, buildings, and vehicles that are used in the production process. Since at least the 1960s economists have increasingly focused on broader forms of capital. For example, investment in skills and education can be viewed as building up [[human capital]] or [[knowledge capital]], and investments in [[intellectual property]] can be viewed as building up [[intellectual capital]]. [[Natural capital]] is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. These terms lead to certain questions and controversies discussed in those articles.

A capital good lifecycle typically consists of tendering, engineering and procurement, manufacturing, commissioning, maintenance, and (sometimes) decommissioning.<ref name=Blanchard97>Blanchard B.S. (1997). An enhanced approach for implementing total productive maintenance in the manufacturing environment. ''J Qual Maint Eng'' 3(2):69–80;</ref><ref name=Hicks00>Hicks C., Earl C.F., McGovern T. (2000). An analysis of company structure and business processes in the capital goods industry in the UK. ''IEEE Trans Eng Manag'' 47(4):414–423</ref><ref name=Hobday98>Hobday M. (1998). Product complexity, innovation, and industrial organization. ''Res Policy'' 26(6):689–710; Vianello G, Ahmed S (2008). Engineering changes during the service phase. In: ''Proceedings of the ASME 2008 design engineering technical conference'', New York.</ref><ref name="VA">Jasper Veldman, Alex Alblas. (2012). Managing design variety, process variety, and engineering change: a case study of two capital good firms. ''Research in Engineering Design'' 23 (4) 269–290.</ref>

Capital goods are a major factor in the process of [[Technological innovation system|technical innovation]]:<ref>Rosenberg, N. (1963). Capital goods, technology, and economic growth. Oxford Economic Papers, 15(3), 217-227.</ref> 
{{Blockquote
|text=All innovations—whether they involve the introduction of a new product or provide a cheaper way of producing an existing product—require that the capital goods sector shall produce a new product (machine or [[physical plant]]) according to certain [[specifications]].
|author=Rosenberg
|title="Article Title"
|source=''Capital Goods, Technology, and Economic Growth'' (1963)
}}

Capital goods are a constituent element of the stock of capital assets, or [[fixed capital]] and play a key role in the economic analysis of "... growth and production, as well as the distribution of income..."<ref name="Hulten">Hulten, C. R., & Wykoff, F. C. (1980). The measurement of economic depreciation. Urban Institute. Accessed at [http://econweb.umd.edu/~hulten/webpagefiles/original%20hulten-wykoff%20economic%20depreciation%20study.pdf]</ref>

=== Immaterial capital goods ===

Capital goods can also be immaterial, when they take the form of [[intellectual property]]. Many production processes require the intellectual property to (legally) produce their products. Just like material capital goods, they can require substantial investment, and can also be subject to amortization, depreciation, and divestment.

=== Differences from consumer goods ===
People buy capital goods to use as static resources to make other goods, whereas [[consumer goods]] are purchased to be consumed.

For example, an automobile is a consumer good when purchased as a private car.

Dump trucks used in manufacturing or construction are capital goods because companies use them to build things like roads, dams, buildings, and bridges.

In the same way, a chocolate bar is a consumer good, but the machines that produce the candy are capital goods.

Some capital goods can be used in both production of consumer goods or production goods, such as machinery for the production of dump trucks.

Consumption is the logical result of all economic activity, but the level of future consumption depends on the future capital stock, and this in turn depends on the current level of production in the capital-goods sector. Hence if there is a desire to increase consumption, the output of the capital goods should be maximized.<ref>EconomicJournal. Mar66, Vol. 76 Issue 301, p70-83. 14p. 1 Graph.</ref>

=== Importance ===
Capital goods, often called complex products and systems (CoPS), play an important role in today's economy.<ref name="Hicks00" /> Aside from allowing a business to create goods or provide services for consumers, capital goods are important in other ways. In an industry where production equipment and materials are quite expensive, they can be a high barrier to entry for new companies. If a new business cannot afford to purchase the machines it needs to create a product, for example, it may not be able to compete as effectively in the market. Such a company might turn to another business to supply its products, but this can be expensive as well. This means that, in industries where the means of production represent a large amount of a business's start-up costs, the number of companies competing in the market is often relatively small.

=== Investment required ===
The acquisition of machinery and other expensive equipment often represents a significant [[investment (economics)|investment]] for a company. When a business is struggling, it often puts off such purchases as long as possible, since it does not make sense to spend money on equipment if the company is not around to use it. Capital spending can be a sign that a manufacturer expects growth or at least a steady demand for its products, a potentially positive economic sign. 
In most cases, capital goods require a substantial investment on behalf of the producer, and their purchase is usually referred to as a capital expense. These goods are important to businesses because they use these items to make functional goods for customers or to provide consumers with valuable services. As a result, they are sometimes referred to as producers' goods, production goods, or means of production.<ref name=VA/>

=== In international trade ===
In the theory of international trade, the causes and nature of the trade of capital goods receive little attention. Trade-in capital goods is a crucial part of the dynamic relationship between international trade and development. The production and trade of capital goods, as well as consumer goods, must be introduced to trade models, and the entire analysis integrated with domestic [[capital accumulation]] theory.