Production capital: definition, functions and features

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

What is productive capital? What functions does it perform? How many phases does it go through during one revolution?

General information

First, let's get some terminology out of the way. Production capital (sometimes also called industrial capital) is a sum of money that has been invested in the process of creating we alth and is aimed at generating surplus value. This is a prerequisite for doing business.

The turnover of productive capital can be displayed using the simplest formula: D-T…P…T-D, where D is money, T is a commodity, P is production, and the dots indicate that the circulation process is interrupted. It can be described as follows: money is initially deposited. They buy goods. In this case, it refers to fixed and working capital. With their help, a new product is produced, which is subsequently sold for money. Let's take a closer look at the scientific background.

Movement phases

Three working moments can be conditionally distinguished:

1. Conversion phase. In this case, productive capital is directed to the purchase of means of production, whichtools and means of labor act, as well as for hiring labor.
2. Phase of production - the process during which the means of production, through the use of labor, are transformed, the end result is a finished product.
3. Phase of circulation - the process during which the finished product is sold, the process of receiving money takes place.

That's why production working capital goes through a cycle, starting from advances in cash and ending with the return of funds with a gain. If we talk about the overall profitability of the enterprise, then it depends on the speed of passage.

Classification by Participation

There are different forms of productive capital. Most often, active and passive are distinguished. What is the difference between them?

1. The active form owns part of the production capital, which is directly involved in the process of creating we alth.
2. The passive form includes that part of production capital that is engaged in servicing the process of creating we alth.

All contributed funds are subject to material and moral deterioration. In the first case, a situation is implied when the acquired means of production become unusable. Obsolescence refers to the depreciation of capital, which is possible under conditions such as the emergence of an analogue that offers betterspecifications or less cost.

And what to do?

To avoid these negative aspects, production capital is amortized. This is the name given to the process of transferring part of the value of the means of production to the price of the goods created. There are such types of depreciation:

1. Downtime involves the gradual transfer of the cost of the means of production to the goods being sold throughout the entire period of work.
2. Accelerated is characterized by the fact that most of the cost is carried over to the first year of use of the equipment, while the rest is evenly distributed over the subsequent period of use.
3. Doubled provides for the creation of an amortization fund, which is enough to buy two analogues.

Performed functions

The modern world is constantly changing requirements and putting forward new ones. Now the production functions of capital are not just a value, but also assets that are strongly influenced by the development of science, technology and human consciousness. For better consideration, it can be represented as a system that has components. These are material-material, intellectual-informational and human sectors. The tasks and functions of production capital as an integral system are to organize, manage and rationally use everything that is possible for the purpose of making a profit.

For centuries, the material component was of the greatest importance. But in recent decades there have been situations wherethe intellectual-informational and human sectors are growing. After all, they do not become unusable during use, they can be updated, reproduced and modified.

Integration of productive capital

The modern economy provides for a social division of labor. In the era of communication and information technologies, the established order is undergoing an objective transformation. This state of affairs makes it possible to accelerate the repetition of processes, leads to an increase in the intangible component in the form of technologies, and improves intersectoral interaction. The concentration of production simply could not help but lead to gradual integration, because everything is interconnected.

In case of contradictions or conflicts, there may not be winners. Therefore, in order to concentrate technologies, combine efforts and obtain better results, intersectoral integration of production capital is carried out today. Why exactly? The fact is that integration is a higher quality and higher level of cooperation, when interconnectedness, interdependence and interdependence are brought to the limit. As a result, an integral structure is formed, which has one system of goals, connections, functions and interests.

Formation and separation

When and from what is production capital created? To better understand these questions, let's look at a few examples. Suppose a production cooperative is being created that will make furniture. What do the founders do in this case? That's right, they agree on the authorized capital of the production cooperative. Each of the founders contributes its share. And as a result, the production capital is formed. Everything is done in accordance with the law. How is our production cooperative doing?

The authorized capital was contributed, but things didn't work out. And how can the co-founders figure out which is which? The best option, of course, is when people themselves agree on the division. If this is not possible, then they turn to an intermediary. It can be either a specialized legal company or a court. In the latter case, as a rule, a decision is made to divide the property according to the amounts of money contributed. Although there may be certain exceptions, they occur only in rare cases. For example, when one of the partners decides to pull off dark deeds behind the back of a friend.

Conclusion

Production capital is an important component for any enterprise. Opening your own business without him is unlikely. And there are reasons for that. Today, in a world of mass production and high technology, it is extremely difficult to compete with giants that are several hundred or decades old.

The only more or less possible option is to compete with them, that is, to work in a direction that is not of interest. And why is this happening? There are two options:

1. Most common – low volumesimplementation, complexity or impossibility of automating production processes. Examples include small shops near the house, shoemakers, paintings by street artists.
2. There is no understanding of the prospects of the direction. A person has an idea, and he implements it. If he opens and captures a new market, then other companies may simply not have the desire to compete with him. But even if they know about the idea, it is not at all a fact that they want to use it. After all, the capitalist is interested in profit here and now.

That's all you need to know about productive capital. Its owners part with their funds only to earn even more. And this is not surprising, because money must make a profit, otherwise it will not be an investment, but the preservation or simple eating of existing stocks.