Introduction of Capital Materials
Capital materials or capital resources can be defined as productive assets such as equipment (tools, buildings and machinery) or the inventory as a whole itself, encompassing man-made equipment that can be used to make other goods and services.
The definition of capital materials can however also be stretched to include any good used a business to produce other goods and services, including things such as shipping boxes, pens, forms, invoice folders, shelves, or file cabinets.
It can thus be said that capital goods are the basic building blocks of any business and a business cannot be properly defined as one if it does not have any capital resources.
THEIR ROLE IN PRODUCTION
The economic term ‘capital’ almost always refers to the physical tools, sites, and equipment used for increasing work productivity.
Capital thus comprises one of the four major factors of production, with the others being land, labor, and entrepreneurship.
The word ‘capitalist’ refers to the owners of economic capital, a direct reference to the meaning of the word ‘capital’. These entrepreneurs were in legal ownership of factory equipment and the factories themselves and thus became dominant employers.
As stated previously, capital resources are the very things used to produce other goods, they are often at the center of the production process itself if you hold items such as conveyor belts, precision tools, industrial welders, robots, and steel rollers in consideration.
They are man-made items and as a result, they are unlike land or labor. Time has to be invested into capital before it can be useful (although the same argument can be made for labor).
For example, an automotive company that wishes to increase production volume must spend time building or procuring an assembly line system before they can do so. Done wisely, these are investments that are bound to pay off.
On the macro-economic scale, examples have shown to us that the greater productivity of economies such as that of the USA or Germany is mainly due to the fact that their entrepreneurs have always made extensive use of capital. Capital resources add extensively to the productivity of workers and hence, of the economy as a whole.
It is the cornerstone in any strategy to increase productivity and as a result, it occupies a central position in the process of economic growth.
Accumulation of capital goods every year greatly increases the national product or income.
If capital accumulation cannot keep up with population increase then there would seen be a dearth of necessary tools, instruments, machines, and other means of production and it would result in a serious production deficit.
Accumulation of capital resources thus makes possible the methods of production that are not direct in order to greatly increase the productivity of workers.
They end up using more productive tools, instruments, and machinery instead of just their bare hands. They are often first employed in producing capital goods if they aren’t simply bought and then these capital goods are used to produce consumer goods for which the company is established.
Capital resource accumulation mostly makes the use of indirect methods of production possible and thereby increases the produce of the company, the national product and is helpful in bringing about rapid economic growth as a while.
The productivity of the workers also depends upon the amount of capital per worker, this tells us that the greater the quantity of capital per worker, the greater the productivity and efficiency of the worker.
Capital accumulation is important from the viewpoint of economic growth as it makes large scale production operations and greater degrees of specialization possible.
The extensive advantage of large scale production and specialization are obtained with the accumulation of capital resources.
Large scale production and specialization is important as they greatly increase work output and productivity while also bringing down the cost of production per unit, an idea pioneered by the likes of Henry Ford.
Without the adequate accumulation of capital resources, these advantages cannot exist.
It also makes the technological progress of any economy possible. New and different types of technologies require the provision of different types of capital goods.
The use of superior and better technology can only be made for production if that technology is embodied in new capital goods. If there is no accumulation of capital resources, various new inventions or discoveries will remain unused for production.
It is therefore absolutely evident that capital resource accumulation promotes technological progress, accelerating the economic growth of a country as a result.
New technologies themselves can make better use of capital resources and allow an entrepreneur to achieve unprecedented levels of growth and efficiency.
Business technologies supplied by brands like Odoo are themselves a capital resource, but a capital resource that can organize and push the use of other capital resources to their fullest potential.
Capital formation also drives employment. Obviously when capital is being produced, workers have to be employed to build and make them and then they have to be employed to continue using them and maintaining them.
Afterwards, more workers need to be employed when these capital resources must be used for producing further goods. Many workers have to be engaged to produce goods with the help of machines, factories, and such.
CONCLUSION
The rate of capital formation needs to be kept high enough so that employment opportunities continue to rise in line with the rise in population growth.
If the population grows faster than the increase in the stock of capital, then the additions to the labor force cannot be employed in productive employment as a result of a lack of enough instruments of production to employ them.
This is the primary cause of unemployment. The bottom of line of all this for an entrepreneur is that smart investment in capital goods always leads to growth and increased revenue.
Syncoria is a digital transformation company based in Canada and is an official Odoo Ready partner.