Definitions

Physical capital

Physical capital

In general physical capital refers to any non-human asset made by humans and then used in production. Often, it refers to economic capital in some ambiguous combination of infrastructural capital and natural capital. As these are combined in process-specific and firm-specific ways that neoclassical macroeconomics does not differentiate at its level of analysis, it is common to refer only to physical vs. human capital and seek so-called "balanced growth" that develops both in tandem.

Such analyses, however, fail to make distinctions considered critical by many modern economists. Natural capital grows, while infrastructural capital must be built. Even "balanced" economic growth includes many processes thought to be, or lead to, uneconomic growth. Human capital requires rest and must make choices whether to seek rest or income, which physical capital does not make: this is the rest problem.

Accordingly, the designation as "physical" has come into some recent dispute.

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