Note on Capital and Organization

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Organization

Organization is also one of the factors of production like land, labour, and capital. Organization is the process of bringing together physical, financial and human resources and establishing productive relations among them for the achievement of specific objectives. Business organizations have to use land, labour, capital, etc for the production and it pays rent, interest, wages, etc in return from the factors of production. Therefore, the task of allocating the others factors of production is also known as the organization.

According to L.A. Allen, "Organization is the process of identifying and grouping the work to be done, defining and delegating responsibility and authority and establishing the relationship for the purpose of enabling t work most efficiently to obtain the objectives."

FORMS OF BUSINESS ORGANIZATION

There are various types of business organization. Sole proprietorship, Partnership, Joint Stock Company, Co-operatives, Multinationals, etc. are the main types.

CAPITAL

Capital is a man-made means of production which is used in a further production of goods and services. It is taken as a stock of financial assets which can be used to provide an income.

According to prof. Fisher, “Capital is that property which is the production of past labour but which is used as a means of further production.”

According to Marshall, “Capital consists of those kinds of wealth other than the free gifts of nature, which yield incomes.”

source:turningpointbizcoach.com

CHARACTERISTICS OF CAPITAL

  • Capital is a man-made factor: Capital is the man-made factor of production. It is not naturally invented but it is created by man with the help of means of production such as vehicles, plants, tools, furniture, etc. which helps to produce both the agricultural and industrial goods and services.

  • Capital is a mobile factor: Capital is one of the most mobile factors which can be transferred from one and place to another place easily because it holds the quality divisibility, durability, and portability.

  • Capital is the passive factor of production: Capital is a passive factor of production. It is produced by human beings which cannot be produced by itself. It remains unproductive, unless there is involvement of labour, a machine does not give production.

  • Capital is depreciable: It is not permanent . Capital is likely to depreciate after its purchase or use. The wear and tear cost is one of the parts of depreciation. The value of machinery items diminishes every year. So, capital is depreciable.

  • It depends on upon technology: The amount of capital depends upon the level of technology employed by a nation. The more progress is in a country’s technology, the more capital is produced in that nation.

CAPITAL FORMATION

source:marketbusinessnews.com
source:marketbusinessnews.com

Capital formation means the increase in the stock of real capital in the country. This concept was introduced by Prof. Ragnar Nurkse. According to him, “A society doesn’t spend all income to meet present needs. It saves some parts of its income. Such savings are collected by banks and financial institutions and they provide it to the business sector in the form of loan for further production purpose.”
Economic development depends on capital formation.

PROCESS OF CAPITAL FORMATION OF BUSINESS

The process of capital formation entirely depends on how to save more moey and how to utilize them in best ways. The objective of saving and investment is to formulate more capital, more employment opportunities, increasing per capita income and national income to meet the goal of economic development of a nation.

  1. Creation of savings: The first stage of a capital formation is a creation of savings or increase in a volume of savings. Saving is the portion of income left after consumption. The saving capital of an individual, household, and society is based on following:

    a. Ability to save: The income level of the people or nation determines the power to save if their unnecessary consumption is controlled by themselves. Therefore, higher the income, higher will be the capacity to save and lower the income, lower will be the saving capacity.

    b. Willingness to save: It is determined by several factors. Some major factors are social status, culture, tradition, consumption habits ,government policy, a position of law and order, security of life and wealth ,existing banking facility, etc. which helps to increase the rate of capital formation. On the contrary, if their willingness to save decrease, it reduces the rate of capital formation.

    c. Government Saving: Budget surplus, expenses of government, export promotion, etc. determines the saving capacity of a public and individual as well.

  2. Mobilization of savings: It is the next step in the process of capital formation. The saving of the people must be mobilized and transferred to business or entrepreneurs who require them for investment. If saving is idle, it will not be helpful to capital formation.
  3. Investment of savings: An economy requires numbers of business organizations in the fields of agriculture, manufacturing industries, education, health , transport, communication, banking, foreign trade, tourism. etc. to create opportunities for the investment and greater the investment greater will be the motivation of savings and vice-versa.

(Karna, Khanal and Chaulagain)(Khanal, Khatiwada and Thapa)(Jha, Bhusal and Bista)

Bibliography

Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.

Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.

Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.

  1. Capital is a man-made means of production which is used in a further production of goods and services.
  2. Capital formation means the increase in the stock of real capital in the country.
  3. Organization is also a factor of production like land, labour, and capital.
  4. The process of capital formation entirely depends on how to save more and how to utilize them in best ways.
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