Speaking "Economics"
A Blog...

... for conversations about the sometimes confusing vocabulary of economics and how to teach it.

From chapter 2, section 3.
Speaking economics: Investment

Most people associate the term "investment" with banks, money, and Wall Street. In economics, however, the term refers to the purchase of any durable assets such as a new refrigerator or a new building or a new machine - new physical assets. Note the word "new." When the purchased asset is an IOU like a government bond or a share of General Electric stock, economists speak of financial investment. In contrast, "real" investment means new purchases of factories, machines, cars, farm fencing, roads, educations, and the like, "new" from the point of view of the society as a whole. When you graduate the society gets another educated---all right, sheep-skinned---person as a result of the investment by you or the college or your parents or the bank. A new real asset, your educated brain, has come into existence. Bonds and stocks are merely financial claims on the stream of income that flows from such real assets. Factories and machines and educations and the like by contrast make the stream of future benefits. To count the value of the IOUs as well as the underlying assets would be to count the same asset twice, once as paper and once as a factory, a machine, or-for the Dave Matthews' of the world-a guitar.

The purchase of a guitar isn't consumption, but playing the guitar is. Similarly, typing on a computer and living in a house are forms of consumption. The guitar, the computer, and the house all decrease in value with time and use. So, strictly speaking, Paul should enter the cost of using his guitar under Expenses on his monthly income statement. This is depreciation once again. From an economic (and accounting) point of view, depreciation is the loss (the consumption loss) of asset value.