7 - Capital and credit

Summary

Types of capital

Everything used in production, which is not a gift of nature but has been produced in the past, is called capital. It includes not only machines and tools but also buildings, roads, footpaths, drainage ditches, terraces, irrigation equipment, growing crops, livestock and stocks of food, seed, fertilizers and other materials. Clearly, many very different items are included. All they have in common is that they were produced in the past and will contribute to production in the future.

It should be clear that some capital is needed for any kind of productive activity. For instance, the spears and food and water containers of pre-agricultural, food-gathering societies are items of capital. A typical arable farmer may own three cutlasses or machetes, two hoes, an axe and a grain store which may together be valued at about £20. Capital valuations are often much higher where permanent crops are grown, livestock are kept and machinery used. Each item of capital controlled is known as an asset.

We are concerned here with the assets used in the process of agricultural production, but two other forms of capital should be noted in passing. One is social overhead capital, which includes communications, market-places, public utilities, research stations and agricultural extension services, and is best considered as a feature of the farmer's environment. The other is consumer capital, made up of durable consumer goods such as houses and furniture. It may be difficult to decide whether a particular asset is productive or consumer capital.