Introduction

In this article you will learn about " Difference Between Physical Capital And Human Capital "in simple language so that you can understand it. But first of all, you should know the meaning and concept of Physical capital and Human capital because it will help you in understanding the further topics clearly. Capital refers to assets like machinery, building, and money which the company uses for its process of production and for the growth of company. But capital also refers to abilities, skills, talent, expertise acquire by human beings. This capital is known as human capital and it is intangible capital. 

Meaning Of Physical Capital

In economics, Physical Capital represents those inputs/items which are  human- made and owned by the business like buildings, properties, machinery, equipment , electronic items and other items which are used in the process of production for converting raw material to finished goods. Any new project in business requires physical capital investment. The decision to invest in physical capital is taken by owner after considering the expected rate of return from the investment. Physical capital helps a company to start its production process and helps in growing the business. 

Meaning Of Human Capital 

Human capital represents the personal abilities, skills, talents that an employee have and brings to the company . It refers to the stock of 'skills and expertise' of a nation at a point of time. It is the sum total of skill and expertise of engineers, doctors, professors and workers of all types who are engaged in the process of value - addition. Human capital is intangible so it cannot be sold in the market . This capital is a source of ideas and solutions of any problem. Human capital is not the same in every person, it depends on how educated and innovative a person is. 





Some Key Differences Between Physical Capital And Human Capital

The key differences between physical capital and human capital on the following basis are as follows:-

1. Meaning

Physical capital refers to human- made assets like machinery, buildings, furniture etc. that play role in the process of production. While human capital refers to skill and expertise acquired by man over time. 

2. Process Of Formation

The decision to invest in physical capital is taken by the owner after considering the expected rate of return from the investment. Thus, it is an economic and technical process.Whereas the decision to invest in human capital is not taken after calculating the returns on investment. It is a social process. 

3. Tangibility

Physical capital is tangible, and can be sold in the market like any commodity. While human capital is intangible, it cannot be sold in the market like a commodity . Only services are being sold. 

4. Separability From Owner

Physical capital is separable from owner, means presence of owner is not essential in the place of production. While human capital is inseparable from its owner, it ie essential that the owner be present at the place where the services are being sold. 

5. Mobility

Mobility of physical capital across borders is restricted mainly due to trade barriers, otherwise it is completely mobile. Whereas movement of human capital is restricted by nationality and culture, it is not perfectly mobile. 

6. Depreciation

In physical capital, depreciation cannot be avoided, continuous use of physical capital leads to depreciation. While in human capital, depreciation occurs with ageing, but can be avoided with continues investment in education, training and health. Investment in regular training to keep up with innovations helps human capital avoid depreciation. 

7. Benefits Created

The benefits of physical capital flow from the buyer to the producer; thus, only private benefits are created. While human capital creates private as well as social benefits. Human capital not only creates economic benefits for the owner, but also leads to socio- economic benefit of society at large. 

Frequently Asked Questions

Question 1. What do you mean by human capital? 
Human capital represents the personal knowledge, skills, talents, abilities that people have and invest in their work. 

Question 2. Why is human capital important? 
It is important to invest in human capital because it is one of the important aspect of business. The effective utilisation of an organization's human capital have a direct impact on business performance. 

Question 3. What is an example of human capital? 
Some examples of human capital are education, technical skills, creativity, experience, communication skills, abilities to solve problems, personal talent etc. 

Question 4. What is the difference between physical capital and human capital? 
Physical capital includes man made assets like machine, property, cash, plant and inventory. Whereas human capital includes personal skills, knowledge, abilities, talent in a people.