Problems of American Economic Growth

By Bruce R. Morris | Go to book overview

CHAPTER FIVE
THE SUPPLY OF CAPITAL

Capital formation1 is important to growth; in fact, it is usually considered one of the three most influential factors, the other two being improved technology and the existence of adequate entrepreneurship. In the first place, in company with technology, it raises the productivity of our economy. Productivity can be increased, within limits, by supplying more capital of the type already employed per worker; or by shifting workers from less productive to more productive employments, usually those using greater amounts of capital. Each of these methods requires new capital. Capital contributes to productivity by giving to the worker more power, more speed, and greater accuracy. The use of machinery has permitted specialization of function to a great degree, thus lessening the amount of skill required to be learned by the worker (but not by the designer and repairer of the machine), and decreasing the time lost between operations. Machines also permit greater productivity in smaller space, thus permitting better control of the operations and lessening the time, and thus the cost, of moving the product from one operation to another. The use of improved capital thus offsets the tendency toward diminishing returns which is inherent in a growing population. Extension of the use of similar capital goods is subject itself to diminishing returns and must be offset by technological advances. Thus, in addition to the amount of capital available in an economy, the productivity of capital, or the ratio of capital to output, is an important consideration. The relationship of capital to productivity is apparent if we consider the different amounts of capital accumulated per worker in developed countries such as the United States and England as against that used in underdeveloped areas such as Africa and Southeast Asia. The high productivity of the United States is accompanied by the existence of large amounts of capital per worker, probably the largest in the world.

Many believe that the real limitation on growth is the amount of

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1
Capital is taken to mean material goods which are used to produce other goods. It is thus used in the sense of real or physical goods rather than in the financial sense of the amount of money spent to purchase such goods.

-84-

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Problems of American Economic Growth
Table of contents

Table of contents

  • Title Page iii
  • Preface v
  • Contents vii
  • Chapter One - Introduction 3
  • Chapter Two - The American Record 19
  • Chapter Three - The Supply of Raw Materials 39
  • Chapter Four - Population and the Supply of Workers 59
  • Chapter Five - The Supply of Capital 84
  • Chapter Six - Technological Change And Entrepreneurship 111
  • Chapter Seven - Consumer Demands 137
  • Chapter Eight - Government Expenditure 158
  • Chapter Nine - Relations with Other Economies 179
  • Chapter Ten - Problem of Balanced Growth 217
  • Bibliography 256
  • Chapter Twelve - Summary and Conclusions 257
  • Appendix A 262
  • Bibliography 266
  • Index 267
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