Capital
Definition
Money is some thing, which has general acceptability in the settlement of debt, or in transfer of ownership of goods and services in a country. The value of exchange of every thing in a country is expressed in terms of money.
Mr. Robertson defines money in the following words
“Money is a commodity which is widely accepted in payment of goods or in discharge of other kinds of business obligation”.
An English economist Mr. Hawtrey observes that
“Money is one of those concepts which are definable primarily by the use or the purpose which they serve”.
In the words of Goh Cole,
“Money is purchasing power some thing that buys things”
According to Ely,
“Any thing that passes freely from hand to hand as a medium of exchange and is generally received in final discharge of debts”.
One of the simplest definitions of money is given by Mr. Walker who says that
“Money is what money does”.
In the light of the above definitions, it can be said that
“Any thing that is generally accepted as a means of exchange and at the same time acts as a measures and a store of value”.
Capital and Wealth
Capital means wealth in ordinary sense. But in economics both are treated and defined differently from each other. Capital is defined as
“The part of wealth of individual or communities other then land which is used or intended to be used for further production of wealth.”
In other words,
“Capital is that wealth other then land which aids in the production of further wealth or which yields an income.”
Where as wealth is defined as,
“All those goods which possess utility and have value in exchange are called wealth.”
In other words,
“Economic goods are called wealth”
Thus capital includes all the goods that are used for further production for yielding income while wealth includes that can be exchanged for certain value.
Formation of Capital
Formation of Capital
Capital is the produce means of production and it comes in to existence when wealth is used for further production. The formation of capital depends upon:
1. Ability to Save and Invest
Ability of saving and investing of the people largely depends upon the excess of income over expenditures. Taking the people as a society it can be said that the ability to save and invest of a nation depends or is determined by excess production over consumption there will be no saving .In terns this saving becomes a part of capital formation.
2. Willingness to Save and Invest
Willingness to save of the people depends upon the consideration. This consideration may either be subjective or objective. Subjective consideration or personal factors include the factors, which are associated with the individual who save. This consideration include the following:
(i) Foresightedness
People save a certain portion of their money by way of foresightedness. They save for rainy days or to meet social obligations like education and marriages of their children in later part of their lives.
(ii) Social and Political Consideration
It refers to that part that people save in order to have a prestige in the eyes of others. A wealthy man is given much respect in the society and therefore people save to become wealthy and gain social prestige.
(iii) Economic Consideration
Economic consideration refers to the idea of receiving income from saving. People save to make further earnings. Entrepreneurs making saving in order to use it for further expansion of their wealth or to covet the gap between receipts and expenditure on the course of their business.
3. Mobilization of Savings
The next step is the formation of capital is that savings must be mobilized and transferred to the people who require them for investment in the capital market funds are supplied by individuals, investors, banks, investment trusts, insurance, companies, finance corporations, government etc. if the rate of capital market is to be stopped up the development of capital market is very necessary.
4. Investment of Saving in Real Capital
For saving to result in capital formation they must be invested. There must be number of honest and dynamic entrepreneurs in the country who should make investment of the savings. They will make investment if there is sufficient inducement to invest, which depends on the marginal efficiency of capital i.e. the prospective rate of profit on one land and the rate of interest on the other.
Importance of Capital
Pakistan is one of the less advanced countries of the world. We use very little capital in production as compared to advanced and developed countries. There fore of our working force is engaged in agriculture. In most cases capital consist if a few cattle and a few wooden tools and a cart in some cases. Some expensive forms of capital; are also being supplied by the government in certain parts of the country and some other facilities are also being provided e.g. irrigation canals railways and roods etc. The government also owns some powerhouses. As a result n new industries are springing up which use modern method. Hence we have factories and machines at work. But still their importance in the economy is yet quite small. If we want to develop ourselves economically we must increase our capital supply. Without adequate capital to call ourselves a developed nation would become a mere dream. Nowadays the key to success economically and industrially is the supply of capital. We can take the example of Korea Japan China America Germany etc. They are not born established nations. They have relied on themselves conduced the people to save and made efficient use of capital. Very simply we can say that in to days age and era of technology and industry a country like Pakistan has to rely heavily on capital formation and hence the capital.
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