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Capital has a variety of meanings, but it generally refers to financial resources.

Capital includes financial assets, as well as the machinery and equipment businesses use in production. Investors use capital to buy stocks or mutual funds. Companies raise capital by selling bonds or stocks to finance their operations.

While capital can be currency or cash, it’s not the same thing as money. People use money to buy goods and services for consumption. Capital is more durable, and it creates wealth through investment. Land, cars, patents, software and brand names are all capital. They can be rented out or used to make products, all in an effort to create wealth. Investing capital instead of spending it as money often builds more capital.

Property rights give capital its value, allowing its owners to use it as they want. Since capital generates income, those investors, companies and societies who have the most capital are better off. How a person, firm or country chooses to allocate their capital goes a long way toward determining their level of prosperity.

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