<P> Within classical economics, Adam Smith (Wealth of Nations, Book II, Chapter 1) distinguished fixed capital from circulating capital . The former designated physical assets not consumed in the production of a product (e.g. machines and storage facilities), while the latter referred to physical assets consumed in the process of production (e.g. raw materials and intermediate products). For an enterprise, both were types of capital . </P> <P> Karl Marx adds a distinction that is often confused with David Ricardo's . In Marxian theory, variable capital refers to a capitalist's investment in labor - power, seen as the only source of surplus - value . It is called "variable" since the amount of value it can produce varies from the amount it consumes, i.e., it creates new value . On the other hand, constant capital refers to investment in non-human factors of production, such as plant and machinery, which Marx takes to contribute only its own replacement value to the commodities it is used to produce . </P> <P> Investment or capital accumulation, in classical economic theory, is the production of increased capital . Investment requires that some goods be produced that are not immediately consumed, but instead used to produce other goods as capital goods . Investment is closely related to saving, though it is not the same . As Keynes pointed out, saving involves not spending all of one's income on current goods or services, while investment refers to spending on a specific type of goods, i.e., capital goods . </P> <P> Austrian School economist Eugen von Böhm - Bawerk maintained that capital intensity was measured by the roundaboutness of production processes . Since capital is defined by him as being goods of higher - order, or goods used to produce consumer goods, and derived their value from them, being future goods . </P>

In​ economics the creation of capital is referred to as