Economics - The return to Capital (1 Viewer)

[softwareAddict]

So to all you awesome economic students out there,
The factors of production are
- Land
- Labour
- Capital
- Enterprise

The reward for each of these makes sense, except for capital, where the reward is interest.
So if a business invests in capital and takes out a loan and has to pay interest on that loan, how are they
being rewarded in interest? Isn't it the lender of the money who is getting this reward? Because in the other factors
like land, the business who owns say, a fishing area, will be rewarded in "rent" from whatever they get from the fishing area, so
by this logic, shouldn't the reward for capital be the production the capital creates?
Thanks!

 

[softwareAddict]

Bump

 

[lachlanmuir]

Firstly I don't think capital is limited to loans... According to my Eco teacher it can cover machinery, money, etc. (Capital goods are goods which enhance production, resulting in a greater PPF in the longer term future as opposed to consumer goods). In terms of your example, your right in that it is the lender, not the borrower, that earns the reward. The lender is actually investing in capital through the lending of loans The way I think about it is that a business has money t