Theformationofcapital.docVIP

From The Formation of Capital Harold G. Moulton (1935) Chapter Xl: Conclusions (pp. 155-160) The foregoing analysis of the process by which capital is created in the modern world has necessarily been of a somewhat involved character — tending no doubt toward some confusion as to the precise import of the conclusions reached. It may be helpful accordingly if the fundamental elements of the analysis and the primary conclusions be here restated in as concise and simple form as possible. At the outset, we called attention to the fact that under any form of economic organization the formation of capital involves an allocation of the productive energy of society. Under primitive conditions the process was a simple matter, involving a direct apportionment by each individual of his own labor power as between the creation of consumption goods and capital goods. Under a communistic form of organization, the allocation of the energy of society is determined by centralized authority — one portion of the population being set to work producing consumers goods and another portion capital goods. In a capitalistic system, however, the allocation of energy results from a multitude of individual decisions and is dependent upon the functioning of a complex financial and business mechanism. The creation of capital here involves a roundabout process, which, operating in response to the profit motive, transforms monetary savings into capital goods. In neither economic nor business literature is there to be found any thorough analysis of the economic implications of the process of capital formation in a capitalistic society. According to the traditional analysis, the amount of new capital goods that will be created depends merely upon the proportion of the national money income that is set aside in the form of savings. When individuals save money instead of buying consumers goods, they express a demand for capital goods; and it is assumed that in response to this demand new capital goods w