What is production capital? What functions does it perform? How many phases does it go through during one revolution?
general information
First, let's deal with terminology. Productive capital (sometimes also called industrial capital) is the amount of money that has been invested in the process of creating wealth and aimed at generating surplus value. This is a prerequisite for doing business.
The turnover of production capital can be displayed using the simplest formula: D-T ... P ... T-D, where D is money, T is commodity, P is production, and dots indicate that the circulation process is interrupted. It can be described in this way: money is initially deposited. They purchased goods. In this case, it refers to fixed and current assets. With their help, a new product is produced, which is subsequently sold for money. Let's look in more detail, based on a scientific base.
Motion phases
Conventionally, there are three working points:
- The phase of circulation. In this case, production capital is directed to the purchase of means of production, which are tools and means of labor, as well as for hiring labor.
- The production phase is the process during which the means of production are transformed through the use of labor, and the final product is obtained.
- The phase of circulation is the process during which the finished product is sold, the process of receiving money occurs.
That is why production working capital goes through a cycle, starting from advance payments in cash and ending with the return of funds with a gain. If we talk about the total profitability of the enterprise, then it depends on the speed of passage.
Classification by participation
There are different forms of production capital. Most often, active and passive are distinguished. What is the difference between the two?
- The active form is part of the production capital, which directly takes part in the process of creating material values.
- The passive form includes that part of production capital that is engaged in servicing the process of creating material values.
All funds deposited are subject to material and moral depreciation. In the first case, the situation is meant when the acquired means of production become unsuitable for exploitation. Depreciation refers to the depreciation of capital, which is possible under conditions such as the emergence of an analogue that offers better performance or lower cost.
And what to do?
To avoid these negative aspects, production capital is amortized. This is the name of the process of transferring part of the cost of the means of production to the price of created goods. There are such types of depreciation:
- Simple involves a gradual transfer of the cost of the means of production to the goods sold throughout the entire term of work.
- Accelerated is characterized by the fact that most of the cost is transferred to the first year of use of the equipment, while the rest is evenly distributed over the subsequent period of use.
- Double provides for the creation of a depreciation fund, which is enough to buy two analogues.
Functions Performed
The modern world is constantly changing demands and putting forward new ones. Now the production functions of capital are not just value, but also assets, which are strongly influenced by the development of science, technology and human consciousness. For a better consideration, it can be represented as a system that has components. These are the material, intellectual, information and human sectors. The tasks and functions of productive capital as a holistic system are to organize, manage and rationally use everything that is possible for profit.
For centuries, the material component was of the greatest importance. But in recent decades, there have been situations when the intellectual-informational and human sectors are growing. After all, they do not deteriorate during use, can be updated, reproduced and modified.
Production Capital Integration
The modern economy provides for the existence of a social division of labor. In the era of communication and information technology, 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 but lead to gradual integration, because everything is interconnected.
In the event of contradictions or conflicts, there may not be winners. Therefore, in order to concentrate technologies, combine efforts and obtain better results, today they carry out intersectoral integration of production capital. Why so? The fact is that integration is a better 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 issues, let's look at a few examples. Let's say a production cooperative is being created that will manufacture furniture. What then do the founders do? That's right, they agree on the authorized capital of a production cooperative. Each of the founders contributes its share. And as a result, production capital is formed. Everything is done in accordance with the law. How is our production cooperative doing there?
The authorized capital has been contributed, but things have not gone. And how do the co-founders figure out where whose? The best option, of course, when people themselves agree on separation. If this is not possible, then contact the 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 property according to the amount of money contributed. Although there may be certain exceptions, they only occur in rare cases. For example, when one of the partners decides to crank up the dark affairs behind the back of a friend.
Conclusion
Production capital is an important component for any enterprise. Opening your own business without it is unlikely. And there are reasons for that. Today in the world of mass production and high technology, competing with giants that are several hundred or decades old is extremely difficult.
The only more or less possible option is to compete with them, that is, to work in a direction that is not of interest. Why is this happening? There are two options:
- The most common are low sales volumes, complexity or inability to automate production processes. Examples include small shops near the house, shoe shops, paintings by street artists.
- 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 simply may not have the desire to compete with him. But even if they know about the idea, it’s not at all a fact that they will want to use it. After all, capitalists are interested in profit here and now.
That's all you need to know about production capital. Its owners part with their funds only in order to earn even more. And this is not surprising, because money must be profitable, otherwise it will not be an investment, but the preservation or simple eating of existing stocks.