Write an ESSAY about capital as a production factor including the four types of capital (physical capital, financial capital, social capital and human capital) by giving some examples

In economics, capital as a factor of Production refers to the use of assets such as machines, tools, equipments etc. That are used for increasing productivity. There are four factors of production namely land, labour, capital and entrepreneur. In finance , capital is described as the amount which is invested in the business or the money that is used to purchase resources for producing goods and services. All types of capital whether financial, physical, social or human capital are required for running a business smoothly.

Financial capital refers to the amount which is required for investing in Fixed assets or long terms assets and amount which is required for meeting day to day operations also known as working capital in finance. Amount is required for investing in fixed assets like machinery, equipment, technology or for purchasing business are fixed capital. This type of capital effect profitability and growth of the Business . While amount which is required for purchasing raw materials, meeting day to day working transaction is known as working capital. Working capital affect liquidity of a business. For meeting these fixed and working capital requirements , firm need to raise funds from different sources namely debt and equity. Debt capital refers to borrowed funds. This include debentures, loans, bonds etc. While equity refers to owner fund . This includes equity shares, preference shares, retained earning .

Physical capital refers to capital which is used to produce goods and services. This type of capital is subject to Depreciation that is its value decrease over time due to Continuous use or due to change in the pattern of demand. It includes land, building, machinery , plant etc. Formation of physical capital is an economic and technical process.

Human capital refers to skills, expertise and knowlege that employees in the organisation possess. Human capital increases the efficiency to produce goods and services. It is not sold, only the services of human capital are sold. There is no Depreciation of human capital but investment in human capital are required to maintain its efficiency. It cannot be separated from its principal. Formation of human capital is partly a social and party a conscious effort of the possessor of the human capital. Training is required to enhance the skills and expertise of human capital in order to increase productivity of workers. Physical capital can be utilised effectively only by skilled and intelligent work of human capital.

Social capital refers to the relationship that people have with each other and the desires that have to do things with others and for others. In business person with high social capital knows many influential people with industry and may have more opportunities for advancement and development than someone whose social circle is small. In includes institutions that help us maintain and develop human capital e.g schools, hospitals, community, trade unions etc.

According to me human capital is more productive today. We know that skills of an educated person is more than that of an uneducated person and educated person generates more income. Human capital raises productivity and Production . Such skills can only be acquired though education, training, and sound health of the people. Human capital raises the productivity of physical capital which is desired for growth. It stimulates innovation and creates ability to absorb new technologies. It promotes innovation and discoveries. Human capital makes people more knowledgeable , skilled and modern in their thoughts and actions. It increase their outlook and attitude towards various aspects. They are able to make rational choices.