In the 1950s, U.N. economists considered capital shortage the major limitation to
LDC economic growth. By capital, they meant tools, machinery, plant, equipment,
inventory stocks, and so on, but not human capital.
On the basis of 19th- and 20th-century Western growth, however, the British economic
historian Sir Alex Cairncross, writing in 1955, questioned whether capital’s
role was central to economic growth. To be sure, he agreed with U.N. economists
that capital and income grow at about the same rate. But he felt that capital increases
do not explain economic growth – that, in fact, the reverse was true: The amount
of capital responds to increases in its demand, which depends on economic growth