Physical Capital

Physical Capital

The Environment  –  Resources  –  Infrastructure

Physical capital is the sum of the natural and manmade resources in a nation.  This includes infrastructure (roads, bridges, railroads, ports, locks, airports, communication systems, water and sewer lines, pipelines, power generation and transmission systems, etc.) and natural resources like oil and gas, mineral deposits, timber, dependable rainfall, good agricultural land, clean air, clean water, fisheries, navigable rivers, etc.

Unlike the other two forms of capital, high initial stocks of physical capital aren’t absolutely necessary for economic development.  Infrastructure can be built, but it needs educated people working together to build it; a lack of natural resources can be surmounted with sufficient labor productivity and a good business environment; environmental issues can be overcome with sufficient ingenuity and political willpower.  That said, while it may not be as critical as human or social capital, a severe lack of physical capital can drastically impair economic and national growth, while an abundance of it tends to make everything run much more smoothly.  Other things being equal, countries with good infrastructure and substantial natural advantages are going to be richer.

Fortunately for us, America was blessed with a vast wealth of natural resources, some of the richest farmland in the world, and a magnificent system of natural waterways, with more miles of navigable rivers and coastal waterways than the entire rest of the world combined.  (Yes, you read that right.)  These natural advantages continue to serve us well.  Over the last two and a half centuries we’ve built on these blessings, and turned a wild continent into an economic powerhouse – but we’ve started to let this rich heritage of natural gifts and the investments made by previous generations slip away from us.

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