Capital is a key production factor, and is a definite source of long-term labor benefits (buildings, structures, automobiles, equipment, etc.), inventory and finance, concentrated in the possession of entrepreneurs and companies providing the production of final products and services, as well as profitable.
Basic postulates
The formation and development of the theory of capital was greatly influenced by such outstanding experts in the field of economics as A. Smith, K. Marx, A. Marshall, I. Fisher and D. St. Mill. Each of them adhered to their views on this issue.
In the economy, it is customary to allocate the following types of capital:
- Physical. It is also called material-material. This category includes buildings, structures, machinery, machines, materials, etc.
- Human. These are the specific wealth that people own. They are expressed in the knowledge, labor skills and experience used in the production process.
- Financial. Such is the assimilation of cash and share prices.
These are the basic theories of capital. Although many experts in their teachings presented its essence in different ways.
Mercantile position
Representatives of this doctrine correlated national wealth with money, which was identified with metals of the noble class.
According to their theory of capital, only foreign trade could serve as a source of wealth. It guarantees the appearance of gold and silver in the country. To do this, it is only necessary to maintain an active trade balance.
Money for mercantilists is a format of capital, which must first become productive and then commodity. This guarantees efficient production and universal employment.
The accumulation of wealth is one of the elements in social production. Money is historically the initial form of capital.
Physiocracy
The followers of this direction have the honor of introducing the concept of "capital" into economic science. The discoverer in this regard was Le Tron.
The physiocratic theory of capital is related to agriculture. Here there is its division into two groups of advances: initial and annual. They differ in their methods of entering the price of finished goods.
Compensation of annual species takes place in full in one production session, and the initial ones in parts.
The source of wealth is the gift received by the farmer from the land. To do this, he works effectively. And capital is formed as a result of land rent, which the owner of the plot receives free of charge.
Thus, the physiocrats introduced the following provisions:
- The allocation of fixed and circulating types of production capital.
- Methods of transferring the prices of these types to the created product.
- The application of the analysis of the practical exploitation of capital in the manufacturing sector, as well as the search for its source in this area.
Classic direction
Its founder A. Smith was convinced that reserves can be converted into capital when they go to:
- Creation, processing or acquisition of products in order to resell them and receive income.
- Equipment and tools that will bring profit without a change of ownership.
So, for the first time, a specialist considers capital in two areas: circulation and production. Its main characteristic is the ability to bring monetary benefits. To achieve this, you need to use it in the following industries:
- The extraction and processing of raw products that society needs.
- Her transportation.
- Its division into parties in accordance with the interests of consumers.
Smith also derives two types of capital: working capital and fixed capital.
Theorems of J. St. Mill
This specialist, analyzing the theory of capital, deduced the following postulates:
- Each productive activity on its scale depends on the parameters of capital.
- He himself is the result of saving. And it necessarily grows when new workers are hired, and production develops.
- The application of savings is carried out only as capital itself.
- Work is contained and used when it is spent on providing conditions for it.
Marxist current
Its founder deduced the theory of the initial accumulation of capital. According to her, the source of his education is the circulation of products, and money is the initial form of his expression.
Capital develops in the emergence of labor. It is the basis of value. And the price does not increase in the processes of sale. Its source is involved in the manufacturing industry.
Karl Marx also defined the circular movement of capital, which goes through three stages in this process:
- There is an investment in production and conversion to natural form. This is the stage of the cash form.
- Connected technology workforce. The benefits are created. The transition to the product format follows.
- Created products are sold and surplus value is arranged.
Marginalist School
Its representative, Böhm-Bawerk, deduced a theory according to which land and labor are considered the initial production factors. And capital is of secondary importance. He performs the role of a link.
The theory of capital accumulation here is based on labor and nature. It is created by them, as well as through the introduction of special technologies that increase production efficiency.
And the main postulate of this theory is this: capital has its own productivity.
Neoclassical theory
Its author is Alfred Marshall. He analyzed the amount of capital involved in social production, based on the relationship of supply and demand.
The object of study stood out at two levels:
- individual citizen or company
- social significance.
The capital of an individual is that part of his condition that functions to generate profit (for example, rent).
At the second level, national income is created. Here, the capital is the entire available fund of means for creating goods. And from it you can get certain benefits. At the same time, production costs are also taken into account.
The totality of the former is due to the effectiveness of capital, as a key factor in the creation of products. And this affects the formation of market demand for him.
The supply of capital is influenced by the interests of citizens in its accumulation. The reward for such an expectation is the accrued interest.
From these quantities (supply and demand) depends:
- The market price tag of capital, to which Marshall defined gross interest.
- Its volume required in production.
- Parameter of wealth created nationwide.
Keynesian School
Her position is this: it is necessary to ensure full employment and bring production to full speed. To do this, the economy must be stimulated by investments - the development of the value of capital property. It includes fixed, circulating and liquid capital. And wealth is transformed in the ratio of normalized interest (cost of capital) and potential profit from its use.
Such a factor is called by specialists of this trend extreme capital efficiency.
Historical foundation
Whatever schools and trends are created, the initial form of capital is trade - it is also a merchant model (primary name).
She settled in the Middle Ages. Then various merchant associations and communications were actively involved. Often the backbone of merchant capital became absolutist power. This gave him a great advantage over the emerging industrial counterpart and the right to impose his will on the peasants and artisans in the sale of their products.
And income arose only because of the difference in funds that appears in such operations. A similar source gradually weakened.
With the development of industrial capital and the fall of the merchant model, the latter turned into a trading form. And on this basis a different material source was formed in the industry of circulation.
Due to various factors, the industrial look had difficulties with the sale of goods, and a part of its circulation was isolated. Trade capital began to emerge from it.
This had a beneficial effect on the dynamics of the industrial analogue. Production efficiency has also improved.
And the theory of trading capital acquired the following foundations:
- An industrialist is not obliged to sell products, and free funds go to the development of production.
- The presence of only two variations. The first is money. The second is commodity.
- Constantly in circulation.
- Products are purchased from manufacturers and then sold directly to consumers.
Structure Provisions
In developing his business, an entrepreneur is looking for optimal solutions. He needs to optimally structure capital and minimize its average price tag. Along with this, the income from one share should develop and financial stability should be established.
The theory of capital structure plays a crucial role here. She has the following approaches:
- Traditional.
- Modern.
- Compromise.
- Using asymmetric information.
- Signal.
- Ordinal financing.
- Using agent connections.
The most widely used are items 1 and 2. They differ from each other in the reaction of the price tag of their capital to market metamorphoses.
According to the first approach, shareholders do not respond for a long time to the growth of borrowed capital, as the situation is unstable.
The second involves instant reaction in order to develop profits.