Read carefully the passages given below and answer the questions.

Capital is made possible by saving. Only by forgoing present consumption can a society shift resources  to  the  production  of  capital  equipment.  It  is  generally  admitted  that  in  any agricultural society, given the low per capita income, per capita saving is – in absolute terms

–  very  low.  This  circumstance  is  badly  aggravated by  the  way  saved  resources  are  used. Temples, pyramids, mansions, jewelry, warfare, and so forth generally absorb a large quota of resources squeezed out of current income. Furthermore, pre-industrial societies are typically characterized by inadequate transport facilities. Mass transportation is generally non-existent and  communications  are costly  and  insecure.  Consequently  any  pre-industrial  society  must keep inventories in much larger proportion to current production than any industrial society does.  This  is  true  for  any  type  of  commodity,  but  particularly  so  for  basic  necessities.

‘Keeping  capital intact’ recurrently  requires  large  quotas  of  saving  to  rebuild  inventories depleted by  frequent  famines.  Such  inventories  are a  form  of  investment,  i.e. of  capital accumulation, but with  a  ‘stabilizing’ character.  Generally investment of a ‘developmental’ character is very small in any agricultural society.

It has been indicated that a society needs different amounts of capital at different stages. In order to pass from, let us say, an agriculture type of economic organization to an industrial one,  a  society  must  make  substantial  efforts  to  build  up  the  capital  necessary  for  the transition.  If  this  transition  is  gradual,  the  process  can  be  relatively  smooth.  If,  on  the contrary, the transition is forced to take place in a very short time, the process is bound to be painful. In such case, ‘ industrial’ capital must be squeezed out from an income that is still

‘agricultural’. The more abrupt the transition, the greater the hardships.

To  accomplish  the  transition,  a  given  society  must  reach  an  absolute  level  of  capital formation, the so-called ‘critical minimum level’, failing which the transition is not possible. But an agricultural society cannot industrialize by increasing beyond the ‘critical minimum’ the  total  volume  of  wooden ploughs  or  hoe-sticks  produced,  any  more  than hunters  can become farmers by increasing their output of flaked stones and arrows. Indeed, the required changes  in  capital  formation  are  of  qualitative  as  well  as  of  a  quantitative  nature.  The qualitative changes imply that the active population must acquire new skills, and that the total population must adopt new patterns of living. Here we only have to remember that the need for new skills may mean that further capital is needed for investment in education.

In  all agricultural society of our past we  find  that,  mainly because  of limitations of energy sources known and exploited, the great mass of people can hardly afford to satisfy anything but  the  more  elementary  needs,  food,  clothing,  and  housing,  and  even  these  at  rather unsatisfactory  levels.  Correspondingly,  most  of  the  available  resources  are  employed  in agriculture, textile manufacture, and building.

Of  these  three  sectors,  agriculture  is  always  by  far  the  predominant  one.  It  absorbs  the greatest quota of available capital and labour. Further, it somehow represents the pivotal point around which all other activities tend to revolve. Building makes a large use of timber. And textile manufacture uses materials – wool or linen, cotton or silk – that are also produced ‘in the fields’.

On the fringe, there is always some trade – in one form or another – heavily concentrated on agricultural  products  (grains,  wines,  spices,  timber,  etc.)  and  textiles.  In  terms  of  labour employed, trade is generally a minor sector, and merchants a minority. But trade always plays a strategically dynamic role. It allows specialization and better use of available resources. Its fluctuations are of paramount importance to the fortunes of the whole economy. All historical records seem to demonstrate that where trade flourished, demographic and economic levels were the highest attainable within the range of agricultural possibilities. Actually, almost all the great agriculture civilizations of the pre-industrial past were founded on the expansion of the mercantile sector. And it was an exaggerated expansion of this sector in seventeenth- and eighteenth-century England that created the material preconditions for the emergence of the Industrial Revolution.