What is "fixed capital"

capital \cap"i*tal\ (k[a^]p"[i^]*tal), n. [Cf. L. capitellum and capitulum, a small head, the head, top, or capital of a column, dim. of caput head; F. chapiteau, OF. capitel. See chief, and cf. cattle, chattel, chapiter, chapter.]

1. (Arch.) The head or uppermost member of a column, pilaster, etc. It consists generally of three parts, abacus, bell (or vase), and necking. See these terms, and Column.

2. [Cf. F. capilate, fem., sc. ville.] (Geog.) The seat of government; the chief city or town in a country; a metropolis. ``A busy and splendid capital''
   --Macauly.

3. [Cf. F. capital.] Money, property, or stock employed in trade, manufactures, etc.; the sum invested or lent, as distinguished from the income or interest. See Capital stock, under Capital, a.

4. (Polit. Econ.) That portion of the produce of industry, which may be directly employed either to support human beings or to assist in production.
   --M'Culloch.

   Note: When wealth is used to assist production it is called capital. The capital of a civilized community includes fixed capital (i.e. buildings, machines, and roads used in the course of production and exchange) and circulating capital (i.e., food, fuel, money, etc., spent in the course of production and exchange).
   --T. Raleigh.

5. Anything which can be used to increase one's power or influence.

   He tried to make capital out of his rival's discomfiture.
   --London Times.

6. (Fort.) An imaginary line dividing a bastion, ravelin, or other work, into two equal parts.

7. A chapter, or section, of a book. [Obs.]

   Holy St. Bernard hath said in the 59th capital.
   --Sir W. Scott.

8. (Print.) See Capital letter, under Capital, a.

   Active capital. See under Active,

   Small capital (Print.), a small capital letter; informally referred to (in the plural) as small caps; as, the technical terms are listed in small caps. See under Capital, a.

   To live on one's capital, to consume one's capital without producing or accumulating anything to replace it.

Fixed capital is a concept in economics and accounting, first theoretically analyzed in some depth by the economist David Ricardo. It refers to any kind of real or physical capital (fixed asset) that is not used up in the production of a product. It contrasts with circulating capital such as raw materials, operating expenses and the like.

So 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. Fixed assets can be purchased by a business, in which case the business owns them. They can also be leased, hired or rented, if that is cheaper or more convenient, or if owning the fixed asset is practically impossible (for legal or technical reasons).

Refining the classical distinction between fixed and circulating capital in Das Kapital, Karl Marx emphasizes that the distinction is really purely relative, i.e. it refers only to the comparative rotation speeds (turnover time) of different types of physical capital assets. Fixed capital also "circulates", except that the circulation time is much longer, because a fixed asset may be held for 5, 10 or 20 years before it has yielded its value and is discarded for its salvage value. A fixed asset may also be resold and re-used, which often happens with vehicles and planes.

In national accounts, fixed capital is conventionally defined as the stock of tangible, durable fixed assets owned or used by resident enterprises for more than one year. This includes plant, machinery, vehicles & equipment, installations & physical infrastructures, the value of land improvements, and buildings.

The European system of national and regional accounts (ESA95) explicitly includes produced intangible assets (e.g. mineral exploitation, computer software, copyright protected entertainment, literary and artistics originals) within the definition of fixed assets.

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.