What is Capital and What Does It Have to Do With Freedom?

The United States of America is the 25th freest nation in the world.

Capital refers to assets or resources (goods) that are used to produce other goods and services. It is anything that can enhance the productivity of labor and help generate more value over time. Capital is essential for growth, whether it’s a tool, a piece of equipment, or even money used to invest in resources.

Capital goods are the actual tools or equipment such as nets for fishing or dams for corralling fish. They directly assist in the production of consumer goods.

Combining a net and a dam to catch fish is an example of improving production efficiency through capital accumulation because it involves using multiple forms of capital (the net and the dam) in tandem to increase the overall productivity of labor. Each tool—used separately—enhances the fish-catching process, but when used together, they complement each other and create a more efficient system. This combination of tools illustrates how capital accumulation—investing in multiple productive assets—can lead to greater efficiency and higher output in the production process, reducing wasted effort and increasing yields.

Financial capital is the money used to buy those tools or to invest in production (like a fisherman saving money to buy a net or invest in the construction of a dam).

In the development of national economies, financial capital is crucial because it allows businesses and individuals to invest in capital goods. As more capital goods are accumulated (such as factories, machines, and infrastructure), production efficiency increases, leading to economic growth. Financial capital drives the process of acquiring capital goods, which then directly increase production and grow the economy. Therefore, to some degree, every country is capitalistic. The only question is how capitalistic.

If a country’s government owns a significant portion of its land, labor, and capital, it tends to be referred to as a socialistic economy. If a country’s government owns all of its land, labor, and capital, it is considered communist.

How free people in an economy are to produce, to consume, to determine what has to be produced, in what quantity, of what quality, and to whom such goods are to go determines how capitalistic a country is and therefore how productive and wealthy it is. Less government intervention, regulation, and taxation means people have more freedom and more wealth.

https://www.heritage.org/index/