In accounting, fixed capital is any kind of real, physical asset that is used repeatedly in the production of a product. In economics, fixed capital is a type of capital good that as a real, physical asset is used as a means of production which is durable or isn't fully consumed in a single time period.
It contrasts with circulating capital such as raw materials, operating expenses etc.
The concept was first theoretically analyzed in some depth by the economist Adam Smith in The Wealth of Nations (1776) and by David Ricardo in On the Principles of Political Economy and Taxation (1821).
Attempts have been made to estimate the value of the stock of fixed capital for the whole economy using direct enterprise surveys of "book value", administrative business records, tax assessments, and data on gross fixed capital formation, price inflation and depreciation schedules. A pioneer in this area was the economist Simon Kuznets.
The "perpetual inventory method" (PIM) used to estimate fixed capital stocks was invented by Raymond W. Goldsmith in 1951 and subsequently used around the world.
Depreciation is the cost of the stock of capital assets allocated over their service lives in proportion to estimates of their service lives, net of maintenance and repair costs.
References
- Reed, S. A. (1989). A Historical Analysis of Depreciation Accounting—The United States Steel Experience. Accounting Historians Journal, 16(2), 119-153. Accessed at [https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1341&context=aah_journal].
- Bureau of Economic Analysis,(September 2003) Fixed assets and consumer durable goods in the United States, 1925-1997 [https://web.archive.org/web/20170427154750/https://www.bea.gov/national/pdf/Fixed_Assets_1925_97.pdf]
- Canberra Group on Capital Stock Statistics Conference, March 1997 [http://www.oecd.org/document/63/0,3343,en_2825_500246_1876351_1_1_1_1,00.html]