Classification of Capital
The term ‘capital’ is rather broad as it includes both financial and physical assets. For instance, you have $1,000 to buy a laptop for your studies. Here, the $1,000 is your capital. Suppose you own a home. The home is also known as your capital. Similarly, in an industry, money for further investment purposes is known as capital. At the same time, fixed machines also are known as capital. Thus, depending upon its uses, capital can be classified in various ways. The following are the important types of capital:
Private capital, as the name indicates, refers to capital owned by individuals. Examples of private capital are buildings, personal vehicles and so on.
National capital refers to the assets that belong to a nation. Examples of national capital are railways, roads, ports, dams and so on. National capital is also known as community capital as it is for the betterment of the entire community. Further, national capital is formed by collecting taxes from all individuals. Because of this reason also, we call it is as community capital.
Some capital can be used for a particular task only. This type of capital is known as sunk capital. For example, railway track can be used only for train commutation. Hence, railway track is an example for sunk capital. Sunk capital is also known as ‘specific’ or ‘specialized’ capital.
Unlike sunk capital, some sort of capital can be used for various purposes. For example, dams are useful for irrigation, drinking water and generating electricity. Thus, this type of capital is known as floating capital. Because the capital can be used for various purposes, it is also known as ‘non-specific’ or ‘non-specialized’ capital.
In factories, we can often hear the term ‘fixed capital’. Fixed capital includes machineries, plant and buildings. Fixed capital can be used for a long period and its form does not change during the production process. Because of this reason, this type of capital is known as fixed capital. However, fixed capital is subject to normal depreciation.
Suppose you cultivate paddy. In order to cultivate paddy, you need to sow seeds in the beginning. After proper growing procedures, you again reap paddy. You sow paddy in the beginning and you get paddy in return (of course, in larger quantity). In this case, paddy is circulating capital. Note that circulating capital can be used only once in a production process. However, at the end of production, you get the same circulating capital in larger quantity and hence you get profits.
Capital that is used directly into the production process is known as productive capital. Examples of productive capital are raw materials, machine tools and so on.
Consumptive capital has something to do with the laborers. For a laborer to work efficiently, he needs proper food, safety clothes, proper shelter etc. In this case, food, clothes and shelter are known as consumptive capital. Consumptive capital is not directly used in the production. However, consumptive capital is necessary to continue the production process.
Various tangible or physical assets such as machines and buildings are known as real capital.
Financial capital refers to financial assets such as bonds, shares etc.
Material capital refers to tangible materials or assets. Material capital can be transferred from person to person.
Personal capital is different from private capital. Personal capital refers to the inherent quality of a person. Knowledge, expertise, talents are some examples of personal capital. Unlike material capital, personal capital cannot be transferred from person to person. However, a person can share his knowledge and expertise with others.
Capital used for remuneration is known as remunerative capital refers. Example: capital used to pay salaries to laborers.
Auxiliary capital refers to capital goods that enhance the productivity of laborers. For example, an automatic screwdriver is an auxiliary capital.
Working capital refers to all capital (financial or non-financial) that is used in everyday production activities. Without working capital, an entrepreneur cannot continue the production processes.
The amount of money available in the financial market for loan is known as loanable capital. The borrower has to pay interest for the loan amount. Buildings available for rent are also known as loanable capital.
If a capital yields regular income to the owner, it is known as lucrative capital.
Capital used for the purpose of education, health and skill development etc. is known as human capital.
If a group of nations owns the capital, it is known as international capital. Examples of international capital are capital of I.M.F. and I.B.R.D.
© 2012 Sundaram Ponnusamy