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Capital (economics)

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Capital has a number of related meanings in economics, finance and accounting.

In finance and accounting, capital generally refers to financial wealth, especially that used to start or maintain a business.

In classical economics, capital is one of three factors of production, the others being land and labor. Goods with the following features are capital:

  • It can be used in the production of other goods (this is what makes it a factor of production).
  • It is made by humans, in contrast to "land," which refers to naturally occurring resources such as geographical locations and minerals.
  • It is not used up immediately in the process of production, unlike raw materials or intermediate goods.

The third part of the definition was not always used by classical economists. The classical economist David Ricardo would use the above definition for the term fixed capital while including raw materials and intermediate products are part of his circulating capital. For him, both were kinds of capital.