By factors of production we mean the agent whose combination is required for the purpose of the production of goods and services.
This agent of factors input are captial, entrepreneur, land and labour. All these factors are very important for the production of goods and services. It is very difficult to say categorically which of this is more important than the other.
I will be talking about the capital as a very important factor of production then In my next post, I will talked about the others like entrepreneur, land and labour.
Capital is a very important factor of production. Capital is not like other factors of production. It is not like land which is a gift of nature. Capital is man-made i.e it is accumulated by man before it is put into use. Capital is wealth and it is put into use for the production of further wealth.
Capital is not necessarily money. We could have capital in form of money and in form of goods. Such assets like buildings, machines, factories, generating plants, buses, roads and so on are referred to as capital goods. We also have consumer goods like food, clothes, radio and television sets, sound system, motor cars, e.t.c.
It is important to point out that what constitute a capital goods or consumer goods depend on the use into which it is put. A television set or a radio set could be a capital good if it is bought to be resold to make profit. A building could be a consumer goods if the owner lives in it as the occupant.
A bicycle for instance could be a capital goods if it is used for business since it brings in money to his owner. The bicycle used by the Nigerian tobacco company (NTC) agent in walking from one customer stop to another to sell cigarette constitute part of the capital of the company, but to a student who probably ride is to the school is a consumer goods
Capital as a factor of production would be classified as fixed capital and circulating capital for this purpose. Fixed capital refers to such things as land, factory buildings, machinery and the like.
They do not change their forms in the process of production but do undergo depreciation. circulating capital is that type of capital which is spent in purchasing a stock of raw materials, on current expectations for wages fuel and general expenses required for continued production.
The above explanation shows clearly that production cannot take place without capital.
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