In a number of the models of industrialisation outlined above, capital accumulation plays a vital part. It is particularly important in the models of Marx, Lewis and Rostow, and it is also integral to Schumpeter’s. The available figures suggest that the rate of accumulation, and the total volume of investment, grew impressively throughout the Industrial Revolution period.
The rapid advance of mechanisation is integral to the popular image of the Industrial Revolution, but in fact, machinery was a very small part of total investment. A substantial amount took the form of increases of stocks of raw material and goods in various stages of production, that is circulating capital, although as industrialisation proceeded this became less important. Around one-third of investment in the late eighteenth century was in agriculture, one-fifth in housing, and only a quarter in industry and trade, of which much was stockbuilding. Transport was also important. By 1830 the agricultural share had halved and one-third of a much larger total went into trade and industry. Even this proportion seems low but it is important to remember that economic growth needs all types of investment. Transport is essential to industry while workers need houses, particularly if they move to new areas of work such as towns.
Investment is financed by savings, although whether savings are causally prior to investment is a matter of debate. Individuals could save and lend their money to others, who invested it in capital assets. This could be done without an intermediary, for instance through a mortgage, that is a loan secured on assets; or it could be done by placing the savings in a bank or with some other intermediary which then lent them on to others. Alternatively, savings could be applied direct to investment. This would occur if a firm was started by individuals using their own savings, or if the surplus cash of an existing enterprise was used to buy further assets. The latter, often known as ploughback, is at the root of Lewis’s model of capital accumulation. Lewis thought that capitalist firms would be most likely to do this, but in theory peasant farms or one-person enterprises could plough back their surplus cash. Governments could invest directly. And a final method of raising money for investment is through credit creation, by banks or by other means.