CAPITALE. – A saved (unconsumed) good intended for further production is so called. For an enterprise, every good, material or immaterial, applied to the production process, and thus also every contribution of labor, entails expenditure of c.
Thus, c. in monetary form is a potential complex of instruments of production. A distinction is made between fixed c., capable of providing repeated services and whose cost may be apportioned over several accounting periods (depreciation), and circulating c., which is exhausted within a single production process. C. is indispensable for the production of any (material) good and of almost every service (immaterial good). The productivity of production processes is closely connected with the availability of c., and this, in turn, depends on the availability of real income and therefore on the level of previous production, as well as on the population’s propensity to save. Consequently, the formation of c. is largely linked to changing and difficult-to-schematize and predict individual decisions. Banks can correct this phenomenon only to a limited extent, through adjustments to the interest rate on deposits; and they themselves are able to “create credit,” that is, monetary c., only insofar as there exists for them a profitable possibility of helping, by financing it, to preform incomes in enterprises, incomes that will become substantial only through the sale of the products thereby obtained.
The creation of c. by credit institutions is therefore limited by the state of business and by the maintenance of a given coverage ratio between bank money, issued to mobilize the c. of credit origin granted to enterprises, and liquid resources for meeting the payment of checks.
A production process is said to be more or less capitalistic according as it involves the employment of greater or lesser quantities of instrumental goods; ordinarily, the adoption of a highly capitalistic production process means lengthening the interval between the beginning and the completion of the process itself, also causing a temporary reduction in goods for consumption. This phenomenon, however, is not observed when technological innovations make it possible to employ capital goods to a lesser extent in order to obtain identical quantities of output.
Just as an individual production process, so too a nation, considered as a single enterprise, may enjoy a greater overall real income when it possesses abundant technical c., that is, productive factors other than labor. Moreover, since the productivity of labor increases—up to a given limit—with the amount of c. that can be combined with labor itself in production processes, wages may be increased correspondingly. Thus, a broad availability of c. is the starting point for
achieving a high national real income and high labor incomes.