Capital Formation

According to classical economists, the main factor which helped capital formation was the accumulation of capital . Profits made by the business community constituted the major part of the savings of the community and what was saved was assumed to be invested. Adam smith too emphasized the virtues of savings.  He said “ Capital are increased by parsimony and diminished by prodigality and misconduct.” Kynes also described the economic development of Europe to the accumulation of capital . He said “ Europe was so organized socially and economically as to secure the maximum accumulation of capital”.       Thus the crux of the problem of economic development in and under developed economy lies ina rapid expansion of the rate of its capital investment so that it attains a rate of growth of population by a significant margin. Only with such a f=rate of capital investment will the living standards begin to improve in a developing country.