Economics Questions

Re: What is a capital good?

William — Tue, 05 Apr 2011 05:29:32 GMT

Anyone here read Capital and It's Structure. I only did one quick read on it. I can't say I disagree with it.

Re: What is a capital good?

SirThinkALot — Tue, 05 Apr 2011 05:13:29 GMT

As was said before, people tend to have different definitions. I generaly define it as any good used in the production of other goods and/or services.

Whether a good is a capital or consumer good depends not only on its intrinsic properties, but also how its used. For example a computer used to keep track of a store's inventory is a capital good, but a computer used to play World of Warcraft is a consumer good.

Re: What is a capital good?

BlackNumero — Tue, 05 Apr 2011 05:00:22 GMT

dynamite is a capital good, it is just circulating capital instead of fixed capital.

Re: What is a capital good?

liberty student — Sat, 02 Apr 2011 17:56:36 GMT

nirgrahamUK:
>>Dynamite is not a capital good

Typically speaking; what kind of a good is dynamite? a consumer good?

Intermediate good.

Re: What is a capital good?

nirgrahamUK — Sat, 02 Apr 2011 17:13:18 GMT

>>Dynamite is not a capital good

Typically speaking; what kind of a good is dynamite? a consumer good?

Re: What is a capital good?

liberty student — Sat, 02 Apr 2011 16:53:14 GMT

Clayton:
Factory machinery is also consumed during production processes.

That's why I like my definition better. A capital good is something that contributes to the production of a consumer good but is not itself part of the consumer good.

Yes, of all of these definitions, I like this one best. It is a good used in the process of producing the final consumption good, but I think that some of the accounting verbiage is useful as well. A capital good is persistently used to produce, it isn't used only one time. Dynamite is not a capital good. A steam shovel is a capital good.

Re: What is a capital good?

Giant_Joe — Sat, 02 Apr 2011 01:45:34 GMT

To all:

Great posts. :)

Autolykos:

Greg, you captured the essence of what I was trying to say better than I did. :) You're correct - goods are always used as means. It's just a question of whether they're used directly for ultimate ends (consumption goods) or indirectly (capital goods).

I eat the apple to have energy to be able to use my labor with equipment so that I can do my job and get paid as a result.

If we consider labor the original capital good (as someone suggested) then we can consider the eating to just be a means to help achieve an intermediate end.

Re: What is a capital good?

BlackNumero — Thu, 31 Mar 2011 20:04:38 GMT

Indirectly servicable goods are factors of production, and include both original factors (land and labor) and capital goods. All action requires factors of production and ends with consumption.

Strictly speaking, capital goods are not only producible (it has been produced, not merely the idea), but they are nonpermanent. If someone creates something, and it lasts forever, then it is land.

In terms of praxeology and simple actions, it still holds. You are sitting on your couch and decide to consume an apple. In terms of this end, the apple in your refrigerator is a capital good, it has been produced, will deteriorate, and is indirectly servicable. Only when the apple is in your hand and you are eating is it then a consumer good.

Now if you were stranded on an island and you wanted an apple, the apple attached to the trees is indirectly servicable and nonpermanent. However, although it can be produced (if you discover the recipe), it has been made by nature, and is therefore land (IMO). Once you discover the recipe and make some apple trees of your own, only then does it become a capital good. For the pilgrims, the agriculture they initially found when they settled in the new world was land. Only when they started to make some of it did it become a capital good.

Re: What is a capital good?

Clayton — Thu, 31 Mar 2011 19:47:29 GMT

Factory machinery is also consumed during production processes.

That's why I like my definition better. A capital good is something that contributes to the production of a consumer good but is not itself part of the consumer good.

Clayton -

Re: What is a capital good?

liberty student — Thu, 31 Mar 2011 18:38:59 GMT

Factory machinery is also consumed during production processes.

Re: What is a capital good?

Jonathan M. F. Catalán — Thu, 31 Mar 2011 17:54:33 GMT

I think it's that it is not consumable.

George Reisman writes that capital goods are consumable. The difference is "productive consumption" versus "unproductive consumption". You need to consume flour during the process of producing bread, for example.

Re: What is a capital good?

AJ — Thu, 31 Mar 2011 17:23:00 GMT

Menger:
Barring land property (more accurately: immovable goods!)...

Interestingly, the kanji for land property in Japanese means literally "immovable assets" (fudousan, 不動産).

Re: What is a capital good?

Sphairon — Thu, 31 Mar 2011 17:18:02 GMT

A while ago, I translated Menger's "Kapitaltheorie" into the English language. I'm not sure if these quotes provide an adequate answer to your question, but if nothing else, they will give some insight as to how the Austrian definition of capital differed from mainstream/Smithian views on capital early on.

The doctrine that only those goods that are products may become capital (as long as they are destined to serve in a productive process) is above all contradicting practical experience.
Even those theoreticians that professionally teach said doctrine will hardly reject the notion that in numerous cases, even “sheer natural objects“ may become “capital“ (under the same conditions as “products“). No practitioner in the field of business, not even an unbiased theoretician will negate that -- if it is agreed upon that resources devoted to income generation are considered “capital“ -- said resources (e.g. logs, fruits, mineral water etc.) are to be called “capital“ even if their physical origins necessarily make them sheer natural objects whose relative scarcity is the only reason for their status as economic goods. For example, who could claim that a naturally grown tree used to build a ship is not capital whereas a purposefully planted, equally constituted tree used for the same purpose is? That natural mineral water is not capital, but that water refined by humans is?

[...]

According to A. Smith, land property does not per se gain the status of capital. This status hinges on the amount of labor or the cost of amelioration employed on it. However, Smith does not draw the analogous conclusion with respect to other objects of nature, especially movable ones. Barring land property (more accurately: immovable goods!) and, as will be pointed out below, human labor, any object of nature becomes a “product“, that is to say “capital“, per se once human labor has been employed on it and as long as it is devoted to further production; land property, on the other hand, is said to become capital only to the extent of the amount of labor and capital used on it while remaining a “natural factor“ all along. A. Smith ex professo rejects the notion that land property may become a product as such, or even, in accordance with its entire market value, capital. Logs produced without labor and cost, naturally grown fruits, effortlessly found gems and other objects of this kind may become “products“ (per se) and “capital“ (in accordance with their market value) if labor or expenditures are spent on them afterwards; land property, however, is said to only become capital to the extent of its ameliorations, regardless of the amount of labor spent on it.

[...]

Products of labor are mostly economic goods and tend to have a market value, yet not because labor or products of labor have been used on them, but because economic actors tend to only use labor or products of labor on such goods that are likely to gain the status of economic goods and a market value. Cause and effect are as confused here as in the claim that the possession of a train ticket is the reason for the desire to travel to the chosen destination.

[...]

Sheer objects of nature, labor unrefined by capital or labor expenditures and “products devoted to further production“ are the primary factors of the physical production of goods and, as a consequence according to Smithian thought, also the primary factors of income generation – the last components into which the annual produce of a nation dissolves.
Thus, his main intention has not been to determine the real meaning of capital, but to classify products devoted to further production as a third source of income (besides sheer factors of nature and labor untouched by capital expenditures) in his theory of income sources, which eventually led him to his capital doctrine. “Capital“ described a scientific category that resulted from a theoretical examination whose aim was to analyze income, a theoretical analysis that primarily concerned itself with fundamentally different problems than the definition of the term “capital“, regardless of whether this scientific category matched the real capital phenomenon or not.

Re: What is a capital good?

Autolykos — Thu, 31 Mar 2011 16:36:20 GMT

Greg, you captured the essence of what I was trying to say better than I did. :) You're correct - goods are always used as means. It's just a question of whether they're used directly for ultimate ends (consumption goods) or indirectly (capital goods).

Re: What is a capital good?

AJ — Thu, 31 Mar 2011 16:30:47 GMT

We use a tostada shell as a capital good (to hold the ingredients) and as a consumer good (to satisfy hunger)?