We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are Capital Goods?

By A. B. Kelsey
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

In economics, capital goods are tangible objects that are used in the production of other goods or commodities or during the providing of services. They can include things such as buildings, machinery, tools, computers and any other equipment that is used to make or do something else, which can then be sold to another party. The means of production might be owned by individuals, businesses, organizations or governments. This term also refers to any material used or consumed while other goods are being produced or services are being provided.

Investment Required

In most cases, capital goods require a substantial investment on behalf of the producer, and their purchase is usually referred to as a capital expense. These goods are important to businesses because they use these items to make functional goods for customers or to provide consumers with valuable services. As a result, they are sometimes referred to as producers' goods, production goods or means of production.

Capital Goods vs. Capital

The economic term "capital goods" should not be confused with the financial term "capital," which simply refers to money or wealth. Production goods generally are man-made and do not include natural resources such as land or minerals. They also do not include "human capital" — the labor, intellectual skills and physical skills provided by people in the production of other goods. So, for example, a company that provides limousine services would include its fleet of limousines and its facilities among its capital goods, but its drivers would not be included.

Different from Consumer Goods

A distinction also should be made between capital and consumer goods, which are purchased for purposes other than to be used in the production of other things. For example, cars generally are considered consumer goods because they are often bought by individuals for personal use. Dump trucks, however, might be considered production goods if they are used by construction and manufacturing companies to assist in making products such as roads, bridges, dams or buildings. Similarly, a chocolate candy bar is a consumer good, but the machines that are used to produce the candy would be considered production goods.

Capital goods typically are used to produce consumer goods, but they also might be used to manufacture other production goods. A company that builds dump trucks, for example, requires equipment and facilities to create that vehicle.

The Importance of Capital Goods

Aside from allowing a business to create goods or provide services for consumers, capital goods are important in other ways. In an industry where production equipment and materials are quite expensive, they can be a high barrier to entry for new companies. If a new business cannot afford to purchase the machines it needs to create a product, for example, it may not be able to compete as effectively in the market. Such a company might turn to another business to supply its products, but this can be expensive as well. This means that, in industries where the means of production represent a large amount of a business's start up costs, the number of companies competing in the market is often relatively small.

The acquisition of machinery and other expensive equipment often represents a significant investment for a company, so spending on such assets is often watched closely by economists. When a business is struggling, it will often put off such purchases as long as possible, since it doesn't make sense to spend money on equipment if the company isn't around to use it. Capital spending can be a sign that a manufacturer expects growth or at least a steady demand for its products, a potentially positive economic sign.

Tax Implications

Money spent to buy or improve equipment, factories, and other similar assets is called a capital expenditure. Under standard accounting rules, because the asset won't be useful for just the year in which it was purchased, it must be depreciated over time. A fixed percentage of the value of the asset can be deducted from the business's taxes each year for a specific number of years, in many cases. Laws on depreciation vary by country, and can also vary within a country, depending on the asset and the type of business.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
By anon348442 — On Sep 17, 2013

What is the list of capital goods used in a bicycle?

By anon265766 — On May 03, 2012

We want to take a loan to develop apps for mobile devices (iPhones, Android devices, iPads, etc.). Would these items be considered capital goods, or would the financial institution consider this operating expenditure? We consider them to be capital goods, but I need to convince the financiers.

By anon106789 — On Aug 27, 2010

Could you please explain the difference between "fixed assets" and "capital goods" if any. Thanks beforehand. MS

By anon97551 — On Jul 20, 2010

thanks for being helpful and for the nice explanation for the term capital goods.

By anon67497 — On Feb 25, 2010

Are personal items capital goods?

By anon53131 — On Nov 19, 2009

Thank you for this very clear article!

By anon50230 — On Oct 27, 2009

what are some examples of capital goods?

By anon46122 — On Sep 23, 2009

Kindly explain accounting treatment of capital goods.

By anon43001 — On Aug 25, 2009

Can the same good be both capital good and consumer good?

By anon43000 — On Aug 25, 2009

Is a personal computer a capital good?

By anon33951 — On Jun 14, 2009

A crusher unit can purchase the capital goods such as Tipper & JCB against 'C' form.

By anon29441 — On Apr 02, 2009

Is input vat applicable on capital goods?

By anon3698 — On Sep 12, 2007

Can a good be considered both a capital and a consumption good?

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.