The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Research Council), London, UK, 1997, pp. 4/1-4/4, doi: 10.1049/ic:19971215. and

means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as a ...

) is as a "...series of heterogeneous commodities, each having specific technical characteristics ..." in the form of a durable good that is used in the production of goods or services. Capital goods are a particular form of

economic good In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tr ...

and are tangible property. A society acquires capital goods by saving wealth that can be invested in the means of production. People use them to produce other goods or services within a certain period. Machinery, tools, buildings, computers, or other kinds of equipment that are involved in the production of other things for sale are capital goods. The owners of the capital good can be individuals, households, corporations, or governments. Any material used to produce capital goods is also considered a capital good. Capital goods are one of the three types of

producer goods Intermediate goods, producer goods or semi-finished products are goods, such as partly finished goods, used as inputs in the production of other goods including final goods. A firm may make and then use intermediate goods, or make and then sell, o ...

, the other two being land and labour. The three are also known collectively as "primary factors of production". This classification originated during the classical economics period and has remained the dominant method for classification. 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 hand

tool A tool is an object that can extend an individual's ability to modify features of the surrounding environment or help them accomplish a particular task. Although many animals use simple tools, only human beings, whose use of stone tools dates b ...

s, machine tools, data centers, oil rigs,

semiconductor fabrication plant In the microelectronics industry, a semiconductor fabrication plant (commonly called a fab; sometimes foundry) is a factory where devices such as integrated circuits are manufactured. Fabs require many expensive devices to function. Estimates ...

s, and wind turbines. 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.Jasper Veldman, Alex Alblas. (2012). Managing design variety, process variety, and engineering change: a case study of two capital good firms. ''Research in Engineering Design'' 23 (4) 269–290. Capital goods are a major factor in the process of technical innovation. : ''All innovations—whether they involve the introduction of a new product or provide a cheaper way of producing an existing product—require that the capital goods sector shall produce a new product (machine or

physical plant Physical plant, mechanical plant or industrial plant (and where context is given, often just plant) refers to the necessary infrastructure used in operation and maintenance of a given facility. The operation of these facilities, or the department ...

) according to certain specifications.'' - Rosenberg, Capital Goods, Technology, and Economic Growth (1963) Capital goods are a constituent element of the stock of capital assets, or

fixed capital In accounting, fixed capital is any kind of real, physical asset that is used repeatedly in the production of a product. In economics, fixed capital is a type of capital good that as a real, physical asset is used as a means of production which ...

and play a key role in the economic analysis of "... growth and production, as well as the distribution of income..."Hulten, C. R., & Wykoff, F. C. (1980). The measurement of economic depreciation. Urban Institute. Accessed a

/ref>

Immaterial capital goods

Capital goods can also be immaterial, when they take the form of

intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...

. Many production processes require the intellectual property to (legally) produce their products. Just like material capital goods, they can require substantial investment, and can also be subject to amortization, depreciation, and divestment.

Differences from consumer goods

People buy capital goods to use as static resources to make other goods, whereas consumer goods are purchased to be consumed. For example, an automobile is a consumer good when purchased as a private car. Dump trucks used in manufacturing or construction are capital goods because companies use them to build things like roads, dams, buildings, and bridges. In the same way, a chocolate bar is a consumer good, but the machines that produce the candy are capital goods. Some capital goods can be used in both production of consumer goods or production goods, such as machinery for the production of dump trucks. Consumption is the logical result of all economic activity, but the level of 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 consumption, the output of the capital goods should be maximized.

Importance

Capital goods, often called complex products and systems (CoPS) (Gann and Salter 2000; Hobday 2000), play an important role in today's economy (Acha et al. 2004). Aside from allowing a business to create goods or provide services for consumers, capital goods are important in other ways. In an industry where production equipment and materials are quite expensive, they can be a high barrier to entry for new companies. If a new business cannot afford to purchase the machines it needs to create a product, for example, it may not be able to compete as effectively in the market. Such a company might turn to another business to supply its products, but this can be expensive as well. This means that, in industries where the means of production represent a large amount of a business's start-up costs, the number of companies competing in the market is often relatively small.

Investment required

The acquisition of machinery and other expensive equipment often represents a significant investment for a company. When a business is struggling, it often puts off such purchases as long as possible, since it does not make sense to spend money on equipment if the company is not around to use it. Capital spending can be a sign that a manufacturer expects growth or at least a steady demand for its products, a potentially positive economic sign. In most cases, capital goods require a substantial investment on behalf of the producer, and their purchase is usually referred to as a capital expense. These goods are important to businesses because they use these items to make functional goods for customers or to provide consumers with valuable services. As a result, they are sometimes referred to as producers' goods, production goods, or means of production.

In international trade

In the theory of international trade, the causes and nature of the trade of capital goods receive little attention. Trade-in capital goods is a crucial part of the dynamic relationship between international trade and development. The production and trade of capital goods, as well as consumer goods, must be introduced to trade models, and the entire analysis integrated with domestic capital accumulation theory.

Immaterial capital goods

Differences from consumer goods

Importance

Investment required

In international trade

See also

References

Further reading

Articles