The other factor of production whose development was crucial to the British industrial revolution was capital. The reason why the citizen of an industrialized country enjoys a higher standard of living than his counterpart in a pre-industrial country is that he produces more goods and services for each hour of effort; and one of the reasons why he can do this is that he typically has the advantage of a larger stock of capital to assist him in his productive activities. The community in which he lives possesses more mechanical equipment, more miles of road or railway or canal, more ships and vehicles, more buildings and more altogether of the kind of goods that are used to produce other goods. He can expect to enjoy a rising standard of living because he, or some of his fellow citizens, have formed the habit of setting aside from current consumption enough to add to the community's stock of producers' goods. There is enough annual saving, that is to say, not only to replace the capital equipment which wears out in the process of production but also to acquire additional items.

To say that a pre-industrial country has a smaller stock of capital than an industrialized country is not to say that it necessarily has a lower level of capital per unit of output than a more advanced economy.