What are Capital Resources?
The term capital resource is an economic concept that refers to man-made elements employed to produce goods or services. They are resources that allow the company to carry on with its productive activities.
Capital resources are the tools, machines, and facilities used for manufacturing goods. Explore the definition and examples of capital resources, their role in the manufacturing process, and the key qualities that make them different from raw materials.
A capital resource can be equipment and machinery or even infrastructure. They’re a bit different from factors of production.
These are essential products that are necessary for economic activity to begin and function. Among the capital resources are funds for investments, as well as infrastructures such as electricity, roads, and schools. In addition, technological instruments and machines that enable businesses to be more productive and profitable.
Since the industrial revolution, the majority of capital resources have been concentrated in Europe and North America. Companies from these countries have then invested a portion of their capital in emerging countries, primarily in the establishment of facilities for extracting human and natural resources.
In various Asian countries, capital has been invested. Some countries developed rapidly and became major exporters of manufactured goods. China, for example, has amassed capital resources and has invested in many countries around the world over the previous two decades, making the Chinese economy a stable one today, as we all know.
Definition of Capital Resources
Capital resources are the man-made tools, machines, or locations used in the manufacturing of goods. Capital resources can be any asset, tool, piece of equipment, or housing facility that is used by a business over an extended period of time.
In contrast, raw materials are substances or materials used in the primary phase of a production process. They are often bought in bulk and shaped specifically to the individual company’s needs. Also called commodities, raw materials include wood, metals like iron, or natural resources such as oil.
Resources must have a few key qualities to be considered a capital resource. They must:
- Be a component in the manufacturing process and necessary for the process to produce a product.
- Be used over an extended period of time. This time frame will vary according to the life expectancy of the resource, but may not only be used once.
- Be man-made.
The tools and machines used in the manufacturing process are great examples of capital resources. These items, regardless of what kind of item they are used to make, meet all three qualities: they are man-made, essential to the manufacturing process, and can be used time and time again over a long period of time.
Characteristics of Capital Resources:
Production of goods or provision of services of any kind requires the contribution of several kinds of resources. The capital resources at any business, nevertheless, must meet the following qualities to be classified as a capital resource.
- Must be man-made.
- Must contribute to the production process of a business. It can help in the production of goods or provision of services.
- Should have a life expectancy of more than one-time usage. The life of a capital resource can vary, but it must not be consumed within once. Anything that is consumed within the production process is more likely to be classified as a raw material than a capital resource.
Any resource that passes the above-mentioned checks qualifies as a capital resource. The machines, tools, and equipment being used at any factory-site or manufacturing facility make the best example of a capital resource; it contributes to the production of goods, can be used for more than once, and is man-made.
Capital Resources can be diverse:
There can never be an exhaustive list of capital resources. Every business has a different nature and a unique product or service to offer. Alike the goods or services they produce, the capital resources vary between different manufacturers.
Even within the same industry and the same product line, the capital resources of each manufacturer can be different. Looking at some examples can help understand.
Imagining the production process of a bread loaf in a bakery; the bread pan, molds, mixing and grinding machines, oven etc. all are the examples of capital resources employed by a bakery. All of these assets are made by man and play a substantial part in the production of bread.
Considering a construction site, there can be various resources that aid the construction process. Supposing the construction of a building, the graders, bulldozers, excavators, shovels, carts, etc. all qualify as machines and tools made by man that aid the production process, and therefore make capital resources of a construction company.
A hairdressing salon provides hair styling services to its customers. Several tools that are used in the provision of hairdressing services include scissors, brushes, hair straightener, blow-drier, spray bottle, etc. Considering their contribution to the provision of services, these assets act as the capital resources at a hairdressing salon.
How is a Capital resource different from other resources?
Broadly speaking, there are three main classifications of resources. Together, these resources make all the resources present in an economy. Everything that goes into the production process, roots from either of these three classifications of resources.
These three resources include capital resources, natural resources, and human resources. Each of them forms a substantial production component. Developing a better understanding of each kind of resource helps us distinguish a capital resource from all other resources.
These are the elements and materials that are god gifted e.g. water, sunlight, fossil fuels, gold, iron, clay. The factor that distinguishes these resources from capital resources is human intervention.
Any resource that comes directly from nature shall be classified as a Natural resource. However, any kind of human intervention may cause to change its category.
For instance, crude oil when extracted from the land, is a natural resource. If the same oil is filtered and refined, it becomes a capital resource. Similarly, raw wood straight from forests is a natural resource. Any kind of human intervention (cutting, refining, shaping) leads it to be a capital resource.
Human resources refer to the human activity. It refers to the mental as well as physical activity of humans expended in the production process.
For example, a chair making factory, shall need wood (natural resource) and wood-cutting equipment (capital resource), but without a human operating the machine (human resource), chairs cannot be produced.
Capital resources, on the contrary, refer to the man-made objects, items, and tools that are used within a production process. The physical and mental human activities that contribute to a production process do not make capital resources.
Capital Resources v/s. Factors of Production:
Capital Resources are not to be confused with Factors of production; they both are different. However, some items that individually fall in both categories may overlap in some cases.
Factors of production are defined as all the resources used in the production of goods and services; these make the building blocks of an economy and constitute all the resources needed to produce goods and services of any kind.
Don’t let the definition confuse you. There is one major element that distinguishes capital resources and factors of production i.e. Man-made. All resources employed within a business fall within one or another category of factors of production, whereas only the man-made resources qualify as capital resources.
How capital resources are different from factors of production?
Different businesses use different resources for the production of their goods and the provision of services. However, the easiest way to classify each is to know if it is man-made or not. Here is how the four factors of production resemble or differentiate from capital resources.
Land: As a FOP, land refers to land and all the natural resources utilized in the production of goods. It not only includes land but every raw material that comes from the land including gold, minerals, ore, oil etc. Land and all renewable and non-renewable resources that are fetched from the land are not man-made but god-made and thus they do not fall within the category of Capital resources.
An interesting point to note is, that any raw material that comes from the land is not a capital resource. However, if it is further worked upon or refined, it may qualify as a capital resource. Land itself makes a FOP, but after being constructed or releveled, it may become a capital resource.
Labor: Labor also known as human resources is the work done by people. It includes all the physical and mental activity by man that goes into production.
Capital resources, however, include only man-made assets (goods, equipment, infrastructure, etc.). Labor, therefore, qualifies as a human resource and not a capital resource.
Capital: By the term capital, capital goods are meant. These refer to man-made objects including machinery, equipment, tools, hammers, buildings, etc. that contribute to the production process.
Capital Goods are almost identical to capital resources. Most of the capital resources fall in this category of Factors of production.
Entrepreneurship: Entrepreneurship refers to the business idea. This FOP is the driving force that combines the other three FOPs to successfully run a business.
There can be multiple resources that aid the production process and within the category of capital resources there can be diverse capital resources for different or even the same industries. The points to remember in reference to ‘Capital Resources’ are as follows.
- Capital resources refer to the ‘man-made’ assets used in a production process, whether in a manufacturing business or a service business.
- The three-point criteria for identifying a capital resource include; it must be man-made, must contribute to the production process and it could be used for more than once.
- Capital resources do not include the raw materials that go into the production process. These only include the assets that aid the production.
- Capital Resources are different from Factors of production i.e. land, labor, capital, and enterprise on several bases. However, at some point, FOP and capital resources may overlap.
- Natural and Human resources do not make a part of capital resources.