Anne Robert Jacques Turgot: The Importance of Capital

This chapter discusses Anne Robert Jacques Turgot's background and contributions to macroeconomics. His introduction of capital was not a mere semantic addition to the economists' lexicon. He was able to describe in detail the link between savings and capital formation. Crucial to this process was the role of the rate of interest. He was not prepared to accept that the rate of interest was determined by the supply and demand for money. Instead he saw it as determined by the supply of and demand for loanable funds. This savings-capital formation analysis would prove to be one of his...

This chapter discusses Anne Robert Jacques Turgot's background and contributions to macroeconomics. His introduction of capital was not a mere semantic addition to the economists' lexicon. He was able to describe in detail the link between savings and capital formation. Crucial to this process was the role of the rate of interest. He was not prepared to accept that the rate of interest was determined by the supply and demand for money. Instead he saw it as determined by the supply of and demand for loanable funds. This savings-capital formation analysis would prove to be one of his outstanding contributions and would provide the basis for the classical theory of savings and investment for most of the 19th century.