ABSTRACT
Considerable revaluation has recently occurred in assessing the role of capital in the Industrial Revolution in late eighteenth-century Britain. Although much of the present article is concerned with micro-economic relationships, in the firm or the locality and region, these reassessments have also applied to more aggregate judgements about capital in the economy. Expressed very crudely, much of this revision stems from the implications of two contrasting features of the eighteenth-century economy, which the flow of research has been revealing: the extent of savings being produced in the economy, both prior to industrialization and during its initial phases, and the modest capital demands made by the new technology for investment. A long intellectual tradition emphasized that capital was the critical factor of production and that shortage of savings, and hence capital, was a critical constraint upon the growth of an economy. This certainly was the main emphasis of classical economists, led by Adam Smith, who emphasized that expansion was limited by the powers of ‘accumulation’; and that capital was created by ‘parsimony’—sparing resources from consumption. The possible limits upon growth brought by the failure of effective demand to rise, although not completely absent from the debate, was given very much less prominence, and was denied by definition in the main stream of classical economics.
