Capital goods and Examples

Capital refers to the items used to make other products for people to use. Think of it as the equipment and tools necessary for production. Capital goods help people turn less valuable things into more valuable final products. Examples include sewing machines, hammers, and drills.

Capital goods are very important in capitalism. Karl Marx said owning these goods creates a divide between people. Some own them, and some only have their ability to work. These capital goods don’t just appear; heavy industry makes the capital goods needed to produce consumer goods.

A capital good changes a product, like a raw material, into something different. It’s often a consumer good, but it could also be another capital good used to make something else! Consumer goods are the final step in making products and are generally made by light industry.

It’s important to remember that capital goods wear out over time, a process called amortization. So, production must cover both the cost of materials and this loss of value. The whole point of a capital good is to make more money, just like how investments work. That’s why money earning interest is also called capital.

Imagine a man on an island. He gets 10 fruits a day by jumping. Then, he builds a ladder. Now he gets 50. That’s a simple example of how capital goods are created and how they boost productivity.

To get capital goods, a society must give up some consumption now. They have to invest in these tools and equipment. But in the future, this will mean more goods and more consumption possible. Increasing capital goods in this way is called investment. China invests a lot in capital goods, almost 50% of its gross domestic product. This demonstrates the country’s focus on long-term production and growth.

Examples of capital goods