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I have been spending more time on the idea that “capital goods” are “capital,” and I cannot understand how that can be true from an accounting or tax perspective because capital goods are consumed and treated as a cost of production (depreciation) over the course of their useful lives, whereupon the are no longer carried on the accounting books as an asset or a liability, even still used in production.
Whatever Adam Smith meant by the terms “capital” and “capital goods” in TWN, he did not coin either term. I have found prior uses of both terms using Google books, and his usage is consistent with the prior uses.
My impression is that both terms were used by accountants (and, eventually, insurers tax collectors) to distinguish between income (profits) and the underlying investment (capital) of a business. Capital goods are long-lived goods purchased by the business that are used to produce goods and wear out over time due to the production process. Such goods were correctly recognized as a consumption of capital that offsets any profits. At some point, capital goods became subject to the accounting fiction of depreciation, affecting the insured value of capital goods and, with the adoption of direct income taxes, allowing the cost of capital goods to be applied over their useful live rather than all at once for tax purposes. Profits distributed to shareholders were called dividends, and profits retained by the business were accumulated on the balance sheet as capital, all as the book value of capital goods diminished to zero.
Because capital goods are physical assets that are consumed from an accounting/tax perspective, they cannot be accumulated and, therefore, cannot be considered capital under capitalism. Or am I missing something?
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