Capital is considered anything that helps enable us to reach our goals, while improving the efficiency of goods and services that we use or produce. Capital is one of the main attributes of improvement. Capital can be almost anything, it can be mental (such as education or training), material (such as a computer or a machine) or it can be money. Capital is invested in a good or service to increase efficiency in production, to increase output and as to increase overall consumer benefit and satisfaction.
Capital is a major part of markets and the economy. In order to keep investing capital, there are times where consumption levels need to be decreased in order to collect, or save up, more capital. When you open a savings account, the interest that you earn is actually paid by businesses that have been using your money as capital. You may have given up a monthly shopping spree to save your money. While you are saving, someone is paying interest (your capital) on the money you saved, because they have borrowed it to pay for capital investments such as land, a building, machinery, etc. in order to improve their overall production.
If we look at capital in a working environment, we see that when we increase capital goods for workers, they can be more productive. This works up to a point. The law of diminishing returns declares that a general increase in output occurs when capital goods per worker increase, but there comes a point where each increase in capital goods produces a lesser impact on output. At this point, the number of human capital (workers) needs to be increased to utilize the capital goods already in place and continue to improve efficiency. An example of this is the clich'e "too many cooks in the kitchen." If you have too many cooks, you need to increase the pots and ingredients. When you increase the pots and ingredients, the cooks are able to work more efficiently and also produce more.
When you get too many pots and ingredients, and the cooks are running back and forth, efficiency is decreased. You may still be getting more produced, but not at the same rate when each cook had their own pot and ingredients. At this point, you need to bring in more cooks (human capital) to again increase production efficiency and output. The same holds true for capital markets and the economy. The availability of money has a great effect on businesses to keep investing.
Investments in capital goods are a huge portion of the money spent on goods and services. If the investments can not be made, the entire economy suffers. The Federal Reserve can influence the supply of money, but not investment in capital goods. In order to help the economy, they set policies about money in place to ensure there is a stable supply of money and credit available to increase stable growth at stable prices. Without doing this, the economy would suffer due to lack of confidence. Interest rates would be increased and less money would be borrowed.
Our main concerns should be examining our economy on a regular basis to ensure that we have the best environment to continually save and invest to improve the economy.