WhatIsCapital

In neoclassical economics, as in its predecessor classical economics, production is a process that converts inputs into outputs. The outputs are goods which can either be consumed or fed into further production processes. The inputs are sometimes broken down into 'factors of production'.

In classical economics there were, standardly, three factors of production: Land, Labour, and Capital. This might make sense if you more broaly think of Land as Raw Materials (whether land, iron ore, water, or other products of nature's munificence); Labour (human sweat and toil); and then Capital = produced goods resulting from earlier production processes. As the pre-socratic philosophers debated the primacy of fire or water, classical economists debated which factor of production was really the one the others were all made out of. According to LabourTheoryofValue, espoused (if I remember right) by both Ricardo and Marx, everything was made out of human sweat. On the other hand, you might have argued that human labour is only possible as the result of a prior production process involving the input of food and water - raw materials, fruits of Land.

The pure neoclassical theory of production doesn't essentially depend on identifying and breaking down its factors of production. But in so far as production inputs have special characteristics, modern economics needs to develop particular models of Labour markets etc. Although some developments in recent economics confuse the issue even more by talking about 'human capital' (important in endogenous growth theory, amongst other things); and 'social' or 'institutional capital' (in development economics).

How does this relate to what are called 'Capital Markets'?

DariusSokolov