As far as I know 'Fixed Capital' includes things which don't deteriorate or get used up upto a long, e.g. tools, machinery and building etc. My question is that since Land fulfills this criteria, why is it not considered as a Fixed Capital?

  • $\begingroup$ I don't know which tag would be applicable so I've randomly picked what might be an approximate tag to this question. I'd appreciate if someone could edit my question appropriately. $\endgroup$ – user31782 Sep 11 '15 at 14:40
  • $\begingroup$ What gives you the idea it doesn't? $\endgroup$ – FooBar Sep 12 '15 at 12:02
  • $\begingroup$ @FooBar In my book it is written there are four requirements for production, viz. "Land"-"Labour"-"Physical Capital"-"Human Capital". Land could have been included in 'Fixed Capital' which is a part of Physical capital. $\endgroup$ – user31782 Sep 12 '15 at 13:00
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    $\begingroup$ Ah, now I understand your question. $\endgroup$ – FooBar Sep 12 '15 at 13:03

The distinction between land and physical capital is based on some of their economic properties, particularly relating to investment: whether it can be reproduced or not; whether it has a finite lifetime (compared to the human lifetime).

Almost all land is not reproducible, and does not have a finite lifetime.

Physical capital is reproducible, and does have a finite lifetime.

Hence, almost all land is not physical capital.

There are corner cases, where land is reproducible, and may appear and then disappear again in less than a handful of human lifetimes: in those very rare cases, that particular land behaves more like physical capital rather than how land generally behaves, and so could be classed as such.

  • $\begingroup$ Which definition of Physical Capital are you using? $\endgroup$ – user31782 Sep 16 '15 at 15:00
  • $\begingroup$ "Physical capital is reproducible, and does have a finite lifetime." -- Could you provide some reference for this? $\endgroup$ – user31782 Sep 18 '15 at 12:44

Land itself is not included in the statistical concept of fixed capital, even though it is a fixed asset. The main reason is that land is not regarded as a product (a reproducible good).

But the value of land improvements is included in the statistical concept of fixed capital, being regarded as the creation of value-added through production.

A little bit of research could have spared this question as I found it on wikipedia here: https://en.wikipedia.org/wiki/Fixed_capital

  • $\begingroup$ But Land can be produced, e.g. in some countries they scattered sand upon water at the edges of beach and then made hotel houses etc. I had already read that wiki article and I recall that somewhere they said "usually Land is not fixed capital" that means land can be fixed capital in some cases. And my question is even if land is not reproducible why is it not a fixed capital? What is the exact definition of fixed capital? $\endgroup$ – user31782 Sep 12 '15 at 6:36
  • $\begingroup$ Here I got it "Usually the value of land is not included in physical capital as it is not a reproducible product of human activity**" -- en.wikipedia.org/wiki/Physical_capital Are there cases where Land is considered as fixed capital? $\endgroup$ – user31782 Sep 12 '15 at 6:39
  • $\begingroup$ What is the difference between asset and capital? Are all natural resources not considered as capital? e.g. Coal, petrol etc? $\endgroup$ – user31782 Sep 19 '15 at 7:30

What everyone else has said is true when viewed from an economics standpoint. However, accountants see land as fixed capital with its value being the total amount invested. They (accountants) define any resource that is effectively static for a long period of time to be fixed capital.

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    $\begingroup$ That may be, but we're not on accounting.SE. $\endgroup$ – FooBar Sep 15 '15 at 7:34
  • $\begingroup$ Which definition of 'Fixed Capital' do they(accountants) use? $\endgroup$ – user31782 Sep 16 '15 at 15:02
  • $\begingroup$ "...fixed capital is that portion of the total capital outlay that is invested in fixed assets (such as land, buildings, vehicles, plant and equipment), that stay in the business almost permanently - or at the very least, for more than one accounting period." - wiki $\endgroup$ – milk Sep 16 '15 at 15:17
  • $\begingroup$ Why in Economics Land is not considered as a fixed capital? $\endgroup$ – user31782 Sep 18 '15 at 12:34
  • $\begingroup$ You should read all the information on this page... The answer to your question is undoubtedly here. $\endgroup$ – milk Sep 18 '15 at 13:31

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