For example, the North pole is in the northern part of the earth and is very cold, making it suitable to build a site to study polar bears. Is the cold and northern location of north pole counted as land? But since the site is already built so the place should be counted as capital?

Sorry I know this example sounds a bit stupid but I'm very confused and couldn't think of a better one.

  • $\begingroup$ I suppose you're asking because you want to really consider the effects geographical location in economics. In that case, you may need to depart from the basics a bit. There is a whole field called "Economic Geography" that deals with this subject. A good undergraduate level book is "An introduction to geographical econmics" by Steven Brakman, Harry Garretsen and Charles van Marrewijk. $\endgroup$ – BB King May 10 '16 at 15:01

In Economics "Land" as a form of capital is those parts of the natural environment that had become a subject of economic transactions (market or otherwise).

Consider a piece of land that is public property, say, a mountain. No economic activity is taking place related to that mountain. Then, it is not consider part of the Fixed Capital base of the national economy. Certainly the mountain may have minerals. The mountain contributes to the local climate which in turns affects the weather and so the local economy. But to the degree that it is not used productively through purposeful economic behavior, it is not considered part of the Capital base (that estimations of natural resources are calculated for various economic plans has to do with future actions, not with the capital base at present).

Assume now that the Government actually sells part of this mountain to a company that wants to build a winter resort. This part of the mountain becomes now a real-estate asset of that company, and so part of its Fixed Capital and so part of the Fixed Capital base of this economy.

The features and characteristics of this piece of the mountain (that it has, say, good slopes for skiing, low temperature that is good for snow, etc) through the transaction are priced, i.e. they are (somehow) evaluated and acquire a specific monetary value, usually as a whole, and not as distinct entities from the piece of land itself.

Assume now that the company, after buying the piece of the mountain, seriously delays building the resort, say, for some years. Should we count this asset as part of the capital base of the economy for these idle years? Sure: it is now "idle capital" not "potential future capital".

At the micro-level, the performance of the company must be judged against the total investment that it has made. If it has made an investment (i.e.it has spent company resources) that it doesn't exploit economically, this worsens the company's performance overall. This in turn affects the private sector of the economy on aggregate: there is an amount of Fixed Capital that "sits idle" while it shouldn't (and it shouldn't, because by buying it the company revealed a decision to use it productively, and has sacrificed resources for this decision).


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.