In economics, capital goods, in contrast to consumer goods, are goods used in the production of (physical) capital. Capital goods refer to real products that are utilized in the production of other products but are not incorporated into other products themselves. They are often called fixed human-made means of production. Capital goods include factories, machinery, tools, and various buildings. They are different from raw materials which are used up in the production of goods. Many goods could be categorized as capital goods or as consumer goods according to usage; for example cars and personal computers, these - and most capital goods - are also durable goods.
Capital goods are also different from financial capital. Capital goods are real objects owned by entities (individuals, governments, and other organizations) in order to get a positive return of some sort from production, while financial capital refers to pieces of paper (or other kinds of promises) that represent claims on these types of goods and on other sources of promised future income.
In the economic realm, "capital goods" is a specialized term which refers to real objects owned by individuals, organizations, or governments to be used in the production of other goods or commodities. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption. Capital goods also refers to any material used or consumed to manufacture other goods and services.
Capital goods are generally man-made, and do not include natural resources such as land or minerals, or "human capital"--the intellectual and physical skills and labor provided by human workers.
Capital goods are important to businesses, because they use capital goods to help their business make functional goods for the buying public or to provide consumers with a valuable service. As a result, capital goods are sometimes referred to as "producers’ goods" or "means of production."
The economic term "capital goods" should not be confused with the financial term "capital," which simply means money. An important distinction should also be made between "capital goods" and "consumer goods," which are products directly purchased by consumers for personal or household use.
For example, cars are generally considered consumer goods because they are usually bought by an individual for personal use. Dump trucks, however, are usually considered capital goods, because they are used by construction and manufacturing companies to haul various materials in order to make other products such as roads, bridges, dams, and buildings. Similarly, a chocolate candy bar is a consumer good but the machines used to produce the chocolate candy bar are considered capital goods.
Capital goods, then, are products which are not produced for immediate consumption; rather, they are objects that are used to produce other goods and services. These types of goods are important economic factors because they are key to developing a positive return from manufacturing other products and commodities.
by Ritesh Bhusari
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