Fixed Capital
Candlefocus EditorProperty, plant and equipment (PPE) are usually considered the standard fixed capital assets. These usually consist of items such as land, buildings, and machinery that are used in the production process and have a long life span. This property is often purchased with the intention of having a long-term use, and remains in use for years, likely after its initial purchase. Fixed capital is often on the balance sheet of business entities as an illiquid asset as it cannot be readily converted into cash.
The opposite of fixed capital is variable capital, which are inputs or resources that are used up and must therefore be replaced. Variable capital includes inputs such as raw materials and labor, which need to be purchased or replenished for every production cycle. While variable capital is typically considered more volatile, fixed capital retains its value more consistently over time and can be used more than once in the production of a good or service. Additionally, fixed capital can be depreciated over time to account for its reduction in value.
In conclusion, fixed capital is any asset that is not destroyed in the production of a good or service and is used repeatedly. It is usually an illiquid asset and can be considered a more stable form of capital. Standard fixed capital assets are property, plant, and equipment, which are usually depreciated over time. This is in contrast to variable capital, which consist of inputs that are consumed or destroyed in the production of a good or service and have to be replaced for every production cycle.