Capital

What is Capital?

Capital is resources, assets, or wealth used to create value

In a free market system, that is, a system where everyone is free to do as they wish with their own property, each individual market participant is constantly deciding how to allocate their capital. Should spent your savings on car, or a down payment for a house, or should you buy stocks and bonds? Should a company spend its capital on a new factory or on research?

Here are some examples of capital allocation decisions:

• a retail investor buying stock in a retirement account

• a small business buying more inventory

• a company building a new factory

• a large corporation merging with another corporation

In these examples, a person or entity is deploying resources with the goal of generating more resources than they had before.