The definition usually given in introductory passages is "produced factor of production".
But then Bob Murphy (and Rothbard too I think) makes the point that if a freak bolt of lightning hewed a spear out of a tree, and people were able to both use it and duplicate it perfectly, it would not be "produced" technically, but it would be economically no different from any other capital good. So then the definition is give: a reproducable factor of production.
But when Rothbard talks about capital goods always wearing out, he says that a produced factor of production that didn't wear out would be for all intents and purposes land.
He also says that the improvable and degradable aspect of "land"-in-the-loose-sense is actually a capital good, and that it is the "site"-aspect of "land" (site land) that is truly land.
So what makes something a capital good? Being produced? Reproducable? Impermanent? Unimprovable? Undegradable?
You already mentioned that different people have different definitions. I think that as long as you use a definition more or less consistently, and not too wildly apart from the other circulating definitions, you are good.
Why the question?
I think it's that it is not consumable. You can't wear a loom but you can wear woven fabric (OK, it at least needs to be hemmed but you get the point). Anything up the chain from immediate consumption is a "factor of production" or "capital equipment". I suspect that the "orders" of goods can get pretty damn fuzzy since it is conceivable that the same good could be used in direct consumption and, in a different way, as a factor of production.
It seems to me that the distinction between a factor of production and capital equipment is that a factor of production will eventually become or be part of a consumer good but capital equipment never will be. To use the loom example, the threads fed into the machine are a factor of production because they will eventually be a part of a consumer good but the loom itself will never be a consumer good. It exists solely for the sake of producing goods that will be consumed but is not itself consumable. I'm guessing that with enough imagination, a person could probably think up goods that could go both ways.
Clayton -
a factor of production will eventually become or be part of a consumer good but capital equipment never will be.
To check my understanding, how do you classify agricultural seeds (e.g., grain or potatoes)?
My understanding is: The important thing for capital goods is the capability to increase indirectly (not consumption) net utility. I know that’s a far reaching definition. But any narrower definition I don’t think really captures it. If it wears out or is produced, reproducable, impermanent, unimprovable or undegradable doesn’t matter.
To give examples:
I can't find an example now for a capital good which at least could not be theoratically one day be reproducable. Would a picture of Van Gogh count, since it is compulsary to be a picture of Van Gogh to be painted by Van Gogh? But how else as by looking and therefore "consuming" it you could use it? You mentioned land. Land also is not reproducable, but land is no good, is it?
I've been pondering this for some time as well. I was in the very first mises academy class, and I remember there being a lesson where Dr. Murphy talked about an apple being both capital, or a consumer good. You can throw an apple at something to knock an object out of a tree or off a ledge. You can also use it to nourish yourself. Either way, you are using it as a means to achieve something.
This has bothered me, because for some reason it sort of implies that the distinction between "consumer good" and "capital good" is just a convenience. It could be that all capital and consumer goods are just "means" and there are varying degrees of what we can consider to be capital goods and consumer goods.
We can point out instances of things that are capital goods and consumer goods, but this distinction seems to be not so clear when we discus the definitions of these words.
Giant Joe:Either way, you are using it as a means to achieve something.
Ok, if this is already enough, then I have my example that a capital good has not to be reproducable: I buy a Van Gogh not to look at it, but because I want to pose around with it, and therefore I like being envied. So the Van Gogh is used as a means not as an end.
Giant Joe:This has bothered me, because for some reason it sort of implies that the distinction between "consumer good" and "capital good" is just a convenience. It could be that all capital and consumer goods are just "means" and there are varying degrees of what we can consider to be capital goods and consumer goods.
This distinction between first order goods (consumption) and higher order goods (capital) is used to understand the process of production and its capital structure better to analyze implications and effects of policies. So I think that this distinction is well reasoned. It is just not so easy to draw a definite line.
It seems to me that the most logical way to distinguish "capital goods" from "consumption goods" is in terms of means vs. ends. Capital goods are thus goods which are used as means. Consumption goods, on the other hand, are goods which are used as ends in themselves - that is, as ultimate ends. For example, a fruit tree is a capital good if it's being used to produce fruit to eat. In turn, the fruits produced by the tree are consumption goods.
One apparent corollary to this is that consumption goods don't have to be used up in the process of being "consumed". So a machine that's simply admired for its perceived aesthetic qualities, for example, is as much of a consumption good as the fruit from the fruit tree.
Another apparent corollary, interestingly enough, is that capital goods are always used in labor. Indeed, one could say that labor is the original capital good!
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In light of these ambiguities, I'm glad Mises correctly identified the economic concept of capital as properly a concept of calculative action strictly within the framework of a market economy, denoting the money equivalent of assets over liabillities.
That way he avoided what he labelled as these "Hairsplitting discussions" over "whether inventories of consumers' goods held by business units are or are not real capital."(cf p.263, HA Scholar's edition)
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Andris Birkmanis: a factor of production will eventually become or be part of a consumer good but capital equipment never will be. To check my understanding, how do you classify agricultural seeds (e.g., grain or potatoes)?
I would call it a factor of production because it gets "used up" and is "part of" the consumer good.
I thought about it before and concluded that it is contextual.
I know this isn't a technical definition by any means, but I prefer to think of capital goods in the accounting sense. From about.com,
Capital Assets, also known as Fixed Assets, are those assets such as land, buildings, and equipment acquired to carry on the business of a company with a life exceeding one year.
An economic definition that doesn't come close to matching the commercial definition lowers the utility of economic analysis of business IMO.
abskebabs:In light of these ambiguities, I'm glad Mises correctly identified the economic concept of capital as properly a concept of calculative action strictly within the framework of a market economy....
This.
Capital goods are capital goods not because of any intrinsic property but because of the way we choose to use them.
Isn't that what I said too? :P
It seems the matter is settled. Now it is about phrasing it with the right words. Can someone put it into a nicely sounding trochee verse? ;)