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8 May, 2015 - 10:27

Capital is all forms of means of production: factories, machines and equipment. Capital can be increased only by devoting resources away from consumer goods production. In addition, it often takes time and large sums of money. The compensation for use of capital is interest.

A factory with many machines is what is needed to produce many goods, and that is what economists call capital. It is clear that the factory and machines have required substantial production, work and assets. But, these have not been consumed: they have been accumulated to permit production of other goods. While in common language, the accumulation of monetary assets is the focus of capital, for economists it is the physical capital which is important.