Need for Capital Formation

We have already discussed capital formation in a previous chapter and also the measures for promoting it to break the vicious circle of poverty. Here we discuss it from the point of view of economic growth.  Capital formation is the very core of economic development. It may be a predominantly private enterprise system like the American or a communist economy like the soviet . Economic development cannot take place without capital accumulation. No economic development is possible without the construction of irrigation works the production of agricultural tools and implements, land  reclamation, building of dams, bridges and factories with machines installed in them , roads, railways and airports, ships and harbors all the produced means of further production associated with high levels of productivity. It seems unquestionable that the insufficiency of capital accumulation is the most serious limiting factor in under developed countries. In the view of many economists, capital occupies the central and strategic position in the process of economic development. Capital formation indeed plays a decisive role in determining the level and growth of national income , hence economic development. This is due to the fact that of all factors of production capital has unlimited expansibility. It is man made and is capable of increasing in quantity and improving in quality. There us no doubt that productive capacity of an economy can be increased only by increasing the quantity and improving the quality of its capital equipment.