Editing Capital intensity (section)

==Growth==
The use of tools and machinery makes labor more effective, so rising capital intensity (or "[[capital deepening]]") pushes up the [[Productivity (economics)|productivity]] of labor. Capital intensive societies tend to have a higher standard of living over the long run.

Calculations made by [[Robert Solow]] claimed that economic growth was mainly driven by technological progress (productivity growth) rather than inputs of capital and labor. However recent economic research has invalidated that theory, since Solow did not properly consider changes in both investment and labor inputs.{{dubious|date=May 2013}}

Dale Jorgenson, of Harvard University, President of the American Economic Association in 2000, concludes that: 'Griliches and I showed that changes in the quality of capital and labor inputs and the quality of investment goods explained most of the [[Solow residual]]. We estimated that capital and labor inputs accounted for 85 percent of growth during the period 1945–1965, while only 15 percent could be attributed to productivity growth… This has precipitated the sudden obsolescence of earlier productivity research employing the conventions of Kuznets and Solow.'<ref>{{cite web|url=http://economics.harvard.edu/faculty/jorgenson/files/EconOfProductivity_Elgar_2009.pdf |title=The Economics of Productivity |accessdate=2009-05-28 |url-status=bot: unknown |archiveurl=https://web.archive.org/web/20090920084034/http://economics.harvard.edu/faculty/jorgenson/files/EconOfProductivity_Elgar_2009.pdf |archivedate=2009-09-20 }}</ref>

John Ross has analysed the long term correlation between the level of investment in the economy, rising from 5-7% of GDP at the time of the Industrial Revolution in England, to 25% of GDP in the post-war German 'economic miracle', to over 35% of GDP in the world's most rapidly growing contemporary economies of India and China.<ref>{{cite web |url=http://ablog.typepad.com/keytrendsinglobalisation/2009/05/investment-savings-and-growth-international-experience-in-relation-to-some-current-economic-issues-f.html |title=Investment, Savings and Growth - International Experience Relevant to Some Current Economic Issues Facing China |work=Key Trends in Globalisation |date=8 May 2009 }}</ref>

Taking the G7 and other largest economies, Jorgenson and Vu conclude: 'the growth of world output between input growth and productivity… input growth greatly predominated… Productivity growth accounted for only one-fifth of the total during 1989-1995, while input growth accounted for almost four-fifths. Similarly, input growth accounted for more than 70 percent of growth after 1995, while productivity accounted for less than 30 percent.'

Regarding differences in output per capita Jorgenson and Vu conclude: 'differences in per capita output levels are primarily explained by differences in per capital input, rather than variations in productivity'.<ref>{{cite journal |first1=Dale W. |last1=Jorgenson |first2=Khuong |last2=Vu |title=Information Technology and the World Economy |journal=[[Scandinavian Journal of Economics]] |volume=107 |issue=4 |pages=631–650 |year=2005 |doi=10.1111/j.1467-9442.2005.00430.x |s2cid=18602257 |url=http://www.frbsf.org/economics/conferences/0511/6_ITAndWorldEconomy.pdf }}</ref>

Some economists claimed that the Soviet Union missed the lessons of the Solow growth model, because starting in the 1930s, the Stalin government attempted to force [[capital accumulation]] through state direction of the economy. However, Solow's calculations have been proven invalid, so this is a poor explanation. Modern research shows the main factor for economic growth is the growth of labor and capital inputs, not increases in productivity.{{citation needed|date=February 2018}} Therefore,  other factors besides [[capital accumulation]] must have been big contributors to the Soviet economic crisis.

[[Free market]] economists tend to believe that capital accumulation should not be managed by government, but instead be determined by market forces. [[Monetary stability]] (which increases confidence), low taxation, and greater freedom for the [[entrepreneur]] would then promote capital accumulation.

The [[Austrian School]] maintains that the capital intensity of any industry is due to the [[roundaboutness]] of the particular industry and consumer demand.