Capital goods are a feature of human life that goes back millions of years; their existence doesn’t require exchange between people, or even multiple people. Capital accumulation is the fundamental mechanism that drove the Industrial Revolutions, which dramatically improved material abundance, quality of life, and life expectancy over the last several centuries. However, in the next decades, capital will be eclipsed by another factor of production, one which is often misclassified as merely another form of capital: knowledge, which behaves more like plant cultivars than like capital. This is the most significant change in the material conditions of human existence since the beginning of the Stone Age, a hundred and fifty thousand generations ago, and it is likely that people after this eclipse will not be what we recognize as “human” today, differing from us as much as chimpanzees do.
“Capital goods” are durable goods that are only used as a factor of production, rather than being consumed and thus having a use value in themselves. At least 2.6 million years ago — a hundred and thirty thousand generations — we began splitting river-smoothed cobbles in half to get sharp-edged stones to butcher animals with, among other things. Those tools were capital goods: what we consumed was the meat from the animals, which required labor to produce, but less labor with the tools, which also required labor to produce. By taking some time off from butchering animals to make tools, paradoxically, we could butcher more animals.
This is a recursive process. You can cut green wood with a hand axe held in your hand, but if you make an adze blade and mount it on a wooden haft, you can cut green wood much more easily — including making more hafts for more adzes. So accumulating some capital increases the productivity with which you can accumulate more capital. The “Primitive Technology” video blog demonstrates this process.
Knowledge is central to this process, as indeed it is central to hunting or gardening even without any capital goods.
During the Stone Age, it seems that capital accumulation was largely limited by available knowledge. One stone adze can make you much more productive at cutting wood; two adzes can perhaps make you a bit more productive still if they are suited for different purposes; but you run into diminishing returns fairly quickly. Adzes don’t appear in the fossil record until the Mesolithic. So from 2.6 million years ago until only 20 000 years ago — over 99% of the history of capital — people were apparently using choppers and hand axes without hafts, so accumulated capital perhaps did not yet recursively facilitate the accumulation of further capital; our productivity was determined more by our knowledge than by how much capital we had accumulated.
It should be apparent from the above that even if you are Robinson Crusoe alone on a desert island, accumulating some capital is likely to be useful. Indeed, the “Primitive Technology” video series shows a guy doing more or less just that, albeit with survival support from modern society. Beginning with only land, its anonymous author successively constructs hand axes, a rainproof shelter, a hafted stone adze and a hafted celt axe, a pottery kiln, and a cob house with underfloor fire heating and a ceramic-tile roof. He singlehandedly recapitulated the entire technological development of the Stone Age, reaching the level of our ancestors about 12000 years ago — six hundred generations — in a bit over a year. This shows convincingly that the primary limiting factor of production throughout the Stone Age was knowledge rather than capital or materials.
The principle of investing some percentage of your production in capital goods rather than consumption goods in order to achieve an exponential improvement in your material standard of living is thus not limited to scenarios where you can trade with other people; it is a principle that has worked to some extent for millions of years, recursively since the Neolithic, and spectacularly since the 18th Century.
And the reign of this principle, this fundamental aspect of our human nature, is coming to an end — not in millennia or centuries but in decades.
From the time agriculture triumphed in the Neolithic until the Industrial Revolutions began in the 1700s, the primary constraint on economic productivity was land. Land was wealth; landowners called themselves the “nobility”. The agricultural productivity of the land, which changed only slowly, determined its population, which would shrink when it periodically descended into wars of Malthusian desperation when food was scarce.
[XXX: okay, if that’s so, then why did the First Industrial Revolution even matter at all? Did people start living longer? They weren’t fertilizing their fields with industrial products, were they?]
In the 1700s, steam engines became capable of doing useful work, first sucking water out of coal mines and then driving boats and wagons around. This distinguished a new factor of economic production, one which had previously been confused with labor — what we now call “energy”. Although we had used draft animals, water wheels, and windmills to do heavy work before, steam engines immensely increased both the total wattage available and the total wattage manageable per worker. The marketing of motive energy as a commodity in the form of coal enabled economic production to be limited only by the necessary human labor to operate the machinery — and so machinery became immensely more complex and expensive in order to be able to turn energy into consumable goods with use value.
From the 1770s until, let’s say, the 1970s, the primary constraint on economic productivity was no longer land, labor, energy, or knowledge, but rather capital goods. The First Industrial Revolution pioneered mass production, as in Adam Smith’s pin factory, and mechanized the production of many goods; and the recursivity of capital goods increased dramatically, as the tools, materials, and processes used by machinists to make machines advanced in leaps and bounds; but the actual machines in question were relatively specialized, and the stock of them grew only slowly. The Second Industrial Revolution reduced the need for both labor and capital to reach a given level of productivity by way of “mass production”, which to a large extent was a matter of things like digging with a bigger shovel and never leaving it idle. This was the age when it was reasonable to value a publicly traded industrial or transportation company in large part by its book value, the accounting value of its assets, largely capital goods.