HISTORY OF CAPITAL

   HISTORY OF CAPITAL

Although theories of capital are of relatively recent origin, capital itself has existed in civilized communities since antiquity. In the ancient empires of the Middle East and to a larger degree in the Greco-Roman world, a considerable amount of capital, in the form of simple tools and equipment, was employed to produce textiles, pottery, glassware, metal objects, and many other products that were sold in international markets. 

The decline of trade after the fall of the Roman Empire led to less specialization in the division of labor and a reduced use of capital in production. Medieval economies engaged almost wholly in subsistence agriculture and were therefore essentially noncapitalist. 

Trade began to revive during the time of the Crusades. The revival was accelerated throughout the period of exploration and colonization that began late in the 15th century. Expanding trade fostered greater division of labor and mechanization of production and therefore a growth of capital. The flow of gold and silver from the New World facilitated the transfer and accumulation of capital, laying the groundwork for the Industrial Revolution. 

With the Industrial Revolution, production became increasingly roundabout and dependent on the use of large amounts of capital. The role of capital in the economies of Western Europe and North America was so crucial that the socioeconomic organization prevailing in these areas from the 18th century through the first half of the 20th century became known as the capitalist system, or capitalism.

In the early stages of the evolution of capitalism, investments in plant and equipment were relatively small, and merchant, or circulating, capital—that is, goods in transit—was the preponderant form of capital. As industry developed, however, industrial, or fixed, capital—for example, capital frozen in mills, factories, railroads, and other industrial and transportation facilities—became dominant. Late in the 19th and early in the 20th centuries, financial capital in the form of claims to the ownership of capital goods of all sorts became increasingly important. 

By creating, acquiring, and controlling such claims, financiers and bankers exercised great influence on production and distribution. After the Great Depression of the 1930s, financial control of most capitalist economies was superseded in part by state control. A large segment of the national income of the United States, Britain, and various other countries flows through government, which exerts a great influence in regulating that flow, thereby determining the amounts and kinds of capital formed.