Economic Progress and Capital Accumulation

The lesson about the heterogeneous nature capital accumulation is important too. Just as the increase in the labor force allows for a specialization of labor, an increased stock of capital goods allows for their specialization and division into a more unique and complex arrangement of individual capital goods.

Rarely would an increase in capital mean duplicating the individual goods of capital that currently exist. Because consumers have unmet demands, profit-seeking entrepreneurs recognize that an increased availability in capital renders some forms of capital less important and makes other uses of capital economically viable. This complex specialization of capital makes it possible to increase the marginal value of capital from what it otherwise would have been if it were just a homogenous stock. The lesson is that it would be a mistake to think that increasing the availability of capital would necessarily reduce the marginal efficiency of capital.

Another conclusion to draw is that increased capital accumulation, which makes it more feasible to increase the complexity of the composition of capital goods, typically requires an increase in the stages of process to form those capital goods. The knowledge required to construct, operate, and coordinate ever remote stages of production becomes increasingly lost on central planners. An expanding economy continues its progress in spite of central planners, not because of them.

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