Investment Made

Investment Made

Investment may be divided into (1) fixed capital, (2) work in progress, stocks.

(1)Fixed capital consists of producer goods such as factories, plant and equipment, buildings, commercial transport and rolling stock, roads, canals, railways and docks, and all forms of capital available for the production of consumer or producer goods. (2) Work in Progress refers to factors of production tied up in the productive process and not completely converted into finished commodities, such as uncompleted buildings or partly constructed cars passing through the assembly shop. (3) Stocks refer to finished goods, consumer or producer, not yet sold to a final buyer, such as producers' stocks awaiting collection or in transit.

Investment may also be divided into (domestic) private and public and foreign. Private investment consists of all the purchases of capital goods by persons, businesses and institutions. Investment goods are durable and yield services for a number of years. Some consumer durable goods (e.g. cars) have these qualities, but, mainly because of difficulties of measurement, are treated in social accounting not as investment goods but as consumption goods, and the current benefits they yield are not counted into the national product. The main exception is expenditure on house construction. Public investment expenditures are defined in several ways. Public utilities and municipal housing are clearly investment expenditures. The social services may be regarded as investment or consumption. Health and education services yield current consumption but can also be regarded as investment in human beings and therefore as much investment as expenditures on hospitals, school buildings or factories.

Foreign or overseas investment consists of the claims owned by people or government s on real wealth in other countries. A country can thus invest overseas only to the extent that it is exporting more goods and services than it is importing; i.e. overseas investment requires productive effort in the same way as the home production of capital goods. Such overseas investment may take the form of loans or credits to people in other countries, the purchase of real assets overseas, or an increase in the country's reserves of gold and foreign currencies.

(Investment has a more specific meaning. The formation of real capital assets gives rise to claims on wealth (bonds, stocks, shares, mortgages, etc.). There is an active market in such claims, the purchase of which by people or institutions is also described as 'investment'. This 'financial' (or personal) investment should be distinguished from 'real' (or community) investment. 'Financial' investment refers only to the transfer of the ownership of claims between persons.

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