Capital good

A capital good is a durable good (one that does not quickly wear out) that is used in the production of goods or services. Capital goods are one of the three types of producer goods, the other two being land and labor, which are also known collectively as primary factors of production. This classification originated during the classical economic period and has remained the dominant method for classification.

Capital goods are acquired by a society by saving wealth which can be invested in the means of production. In terms of economics one can consider capital goods to be tangible. They are used to produce other goods or services during a certain period of time. Machinery, tools, buildings, computers, or other kind of equipment that is involved in production of other things for sale represent the term of a Capital good. The owners of the Capital good can be individuals, households, corporations or governments. Any material that is used in production of other goods also is considered to be capital good.

Many definitions and descriptions of capital goods production have been proposed in the literature. Capital goods are generally considered one-of-a-kind, capital intensive products that consist of many components. They are often used as manufacturing systems or services themselves.

Examples include battleships, oil rigs, baggage handling systems and roller coaster equipment. Their production is often organized in projects, with several parties cooperating in networks (Hicks et al. 2000; Hicks and McGovern 2009; Hobday 1998). A capital good lifecycle typically consists of tendering, engineering and procurement, manufacturing, commissioning, maintenance and (sometimes) decommissioning (Blanchard 1997; Hicks et al. 2000; Hobday 1998; Vianello and Ahmed 2008).

One should distinguish capital goods from consumption, as the aim of their purchase is different from the production of things. An example of it is a good car, that is normally considered to be a consumer good as it is bought for a private usage. Nevertheless, dump trucks used by manufacturing or constructing companies are obviously a production goods. The reason is that they assist in creating things like roads, dams, buildings or bridges. The same way, a chocolate candy bar is a consumer good, but the machines that are used to produce the candy would be considered production goods. Some of the capital goods can be used in both production of consumer goods or production ones, such as machinery for production of dump trucks. It is generally considered that the consumption is the logical result of all economic activity, but it is also obvious that the level of the future consumption depends on the future capital stock, and this in turn depends on the current level of production in the capital-goods sector. Hence if there is a desire to increase the consumption, the output of the capital goods should be maximized.

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