Capital may be classified in a variety of ways, two of which concern us here: fixed and circulating, in which time is the important element; free and specialized, in which the use element is the chief factor.

It is a well-known fact, which can easily be verified by observation, that some forms of capital - that is, certain kinds of capital goods - are consumed more quickly than other forms.

A piece of coal, for example, can be used but once. In other words, the only way to consume coal is to destroy it at a single operation. At the other extreme are capital goods which can be used almost an infinite number of times before they are consumed. A common carpenter's handsaw has been known to survive fifty years' continual use. Some machines, too, last for years, successfully withstanding the wear and tear that comes from daily operation. To the coal we apply the term "circulating capital"; to the handsaw or machine we apply the term "fixed capital." It must be kept in mind, however, that both terms are relative, for the highest form of circulating capital is fixed for at least one operation, while no capital is so perfectly fixed as to last forever.