Development of Modern İdeas on Capital

The Place of Capital in the Economic Process

As generally defined, capital is an accumulation of "wealth used in production. Land, labor, and capital are looked upon as the three chief elements of production. Of the three, capital is the most recent; for less than two hundred years ago it was almost completely ignored in the writings on economic subjects. As a matter of fact, there is no use of the word capital in the English language prior to 1600. For the next hundred years or more, it was used only as a term in the keeping of accounts or in signify­ing an investment of a certain amount in a business venture, such as a commercial voyage of the East India Company. Throughout its early history, the meaning of the term was confined to the idea of money investment, very much as the layman today looks upon it.

Development of Modern Ideas on Capital

The word stock was the predecessor of our word capital. Early discussions of economics constantly referred to an accumulation of stock as necessary before production could begin. The word seemed to signify a supply of consumer's goods on which the producer might live while he was in the act of preparing or ac­tually producing the final commodity. Adam Smith's use of the word stock, in The Wealth of Nations, showed it to mean a sup­ply of consumable goods, tools, equipment, and money. But his use of the term capital was not very clear. From his most definite statement, capital was that portion of a man's stock on which he expected a revenue. That there was some confusion in the mean­ing of the term in this period is quite understandable. It was the age of commercial enterprise. The principal use of capital was to finance trading companies. Industrialization, with its heavy em­phasis upon factories and machinery, was just emerging.

It will be doing the Physiocrats more honor than they deserve to credit to them the first use of the idea of capital. Nevertheless in their writings, especially those of Turgot, the concept of cir­culating wealth was clearly a step in the direction of recognizing capital as an agent of production. The cultivation of the soil from which all value arose was, they said, made possible by advances for tools and seed and for the maintenance of the workman while crops were growing.