Goods Are Capital Goods Or Consumers’ Goods Depending ONLY on the Purpose for Which They Are Purchased and NOT on their Physical Characteristics

Closely paralleling the concepts of productive expenditure and consumption expenditure are the concepts of producers’ goods and consumers’ goods.

Producers’ goods or, what is a synonymous expression, capital goods, are goods purchased for the purpose of making subsequent sales.

Consumers’ goods are goods purchased not for the purpose of making subsequent sales. 

The distinction between capital goods and consumers’ goods is exclusively one of the purpose for which the goods are purchased—for business purposes or not for business purposes—and not at all a matter of their physical characteristics. The roast beef purchased by a restaurant and the washing machine purchased by a laundromat are both capital goods. Exactly the same kind of roast beef and washing machine purchased by a housewife are consumers’ goods.

The reason that the purpose for which they are purchased is the crucial distinction has already been indicated. Physically, the roast beef and the washing machine are consumed, whether purchased for business purposes or purchased not for business purposes. In both cases, there is, in this instance, a physical production that takes place in which the goods are consumed: the raw roast beef is consumed in producing a cooked one, and the washing machine is consumed in producing cleaned clothes. And thus, both for the housewife and for the business enterprises, there is even a productive consumption in the physical sense.

But beyond the physically productive consumption comes a physically unproductive consumption: the cooked roast beef is eaten and the cleaned clothes get dirty in the wearing. At this point, all trace of the goods purchased by the housewife has simply disappeared from her possession. (In the case of durable goods, such as the washing machine, all trace of the relevant portion of the good’s life has disappeared). But by this same point, or earlier, the restaurant and laundromat have obtained the means of replacing, and more than replacing, the goods they have purchased. The goods they have purchased, when one allows for their replacement by way of purchase, with funds earned from their very own employment, and not consumed—they are replaced by virtue of their own use, together with a surplus.

The roast beef of the restaurant and the washing machine of the laundromat, by virtue of being purchased for the purpose of making subsequent sales, and then by way of using the resulting sales proceeds to make replacement purchases, are reproductively employed. The restaurant’s roast beef and the laundromat’s washing machine are, as it were, employed in the production of roast beefs and washing machines, or their equivalent in other goods, as wheat seed is employed in the production of wheat. And thus in the fullest sense they represent wealth employed in the production of wealth, and are capital goods, even though from a strictly physical standpoint, a roast beef cannot be used to produce roast beefs, and a washing machine cannot be used to produce washing machines. 

—George Reisman, Capitalism: A Treatise on Economics (Ottawa, IL: Jameson Books, 1998), 445.