The sources of capital

The economic institutions of earlier centuries were concerned chiefly with control over land and labor. Although these factors of production did not lose their importance in the seventeenth century, they were joined by capital as the third factor that now played a sufficiently large role in much of Europe to warrant the development of new institutions and customs. The terms “capital” and “capitalism” did not yet exist with the meanings we attach to them today, and, as we have seen, accounting practices, even in the greatest enterprises, did not often make a clear distinction between capital investment and operating expenses. But, still, large accumulations of capital existed, and a distinct class – or, perhaps, congeries of groups – exercised discretion over the bulk of nonagricultural capital. Capital and those who controlled it were gradually becoming a pivotal factor in economic life. Great interest has long been expressed in the rise of this new situation, but it has not been matched with great understanding. Two notions exert a strong influence on this topic: primitive capital accumulation and the (ever) rising middle class. Neither is enormously helpful in analyzing seventeenth-and eighteenth-century economic life.

Theories of economic development that gained widespread acceptance in the two decades after World War II placed a great emphasis on inadequate capital accumulation as a bottleneck in the growth of poor economies. An economy with little capital, so the argument went, suffered from low productivity.