chapter  7
17 Pages

The institutional concept of capital and the process of capital formation

Introduction As has already been shown, the traditional distinction between consumption and investment cannot be maintained, particularly in light of the distinction we have made between minimum adequate living conditions (MALC) and wants which lie beyond them. The maintenance of MALC is not merely important and valuable for its own sake; it also possesses an instrumental value, in that the satisfaction of such essential minimum needs is a prerequisite of productivity, and indeed tends to raise productivity in cases where these needs were not previously satisfi ed. Although this is relevant to specifi c groups such as disadvantaged minorities even in developed countries, it is of particular signifi cance for all underdeveloped countries, where serious defi ciencies in nutrition, sanitation, medical care, and education (to name only the most obvious ones) impair the energy, effi ciency, and productivity, and thus decrease the labor output, of large parts of the population. As Myrdal has observed, this has far-reaching implications for the concept and theory of capital formation (including saving), as well as the conceptual differentiation of consumption, production, and investment, and indeed on the entire notion of the causes or sources of productivity. In this chapter we will attempt to sort out these problems and their implications.