CAPITAL, INVESTMENT AND GROWTH

CAPITAL, INVESTMENT AND GROWTH

CAPITAL is a stock of assets capable of producing consumer goods
and services. It will include a business’s plant and machinery, its
resources in the process of production and even abstract concepts

such as its logo, certain business ideas and customer ‘goodwill’ –
providing that they can be defined in law and ascribed a value.
INVESTMENT is a flow of funds that is devoted to creating more
capital. It may be from funds retained out of past profits, or from
private savings or it may be loans gained from a bank, but the action
of allocating finances to build capital stock defines investment.
For existing production to be maintained in any business it
requires that old capital stock is replaced as it wears out (DEPRECIATION)
and to secure growth, capital stock must be added to.
Investment must respond to both business needs. In addition, as
capital stock increases so requirements for other resources (land,
labour) will change and it is most likely, for example, that a business
will also need to invest in its labour force or its HUMAN CAPITAL
with improved training programmes.
The relationship between land, labour and capital and the effects
of increased investment lie at the heart of analysis of production
and market supply. We resort to economic theory to clarify the
issues involved.