ABSTRACT
Capital and capital accumulation play a central role in the work of both of the two giants of late-eighteenth-century economics, A. R. J. Turgot and Adam Smith. Both treated the stock of capital as a key determinant of the level of output, so that accumulation of capital over time leads to growth in output. Capital accumulation is the net result of independent savings decisions by individuals. Saving normally exceeds dissaving, so capitalist market economies normally grow over time, without any special stimulus and without requiring any special government action other than to refrain from obstructing growth. Growth, over very long periods of time, is normal, automatic, and endogenous. In this story, the return to capital is a distinct component of income, alongside wages and rent. With reasonable freedom to borrow and lend and to shift capital between different lines of business, the return on investment is equalized between different sectors of the economy, making due allowance for differences in risk and the like. Capital is distributed between different lines of activity by the market, so saving by anyone anywhere in the system is directed to the appropriate sector. 1 All of this is very familiar now, but I have argued elsewhere (ch. 2 above) that no-one before Turgot and Smith had argued in this way. What seem with hindsight like platitudes in the writings of Smith and Turgot were in fact new departures.
