Stewart K. answered • 05/11/25
AP, Research Paper, and Classroom History, Gov, and Geo Tutoring
During the industrial revolution, manufacturing, the secondary sector of the economy, transitioned from artisanal to industrial production. That means that, instead of manufacturing being done by individual craftspersons who own their own tools, purchase raw materials, make products, and then sell them, a factory owner, or capitalist, owns the machines, buys the raw material, hires people for a cash wage to produce the product, and then sells it to make his profit. The second method is much more efficient because the factory can use machines to make more product more quickly and because the workers don't need to be highly skilled in all the steps of production to be effective workers. However, buying all those machines, and a building to put them in, and a source of power to run them, and laying out the cost of the raw materials and labor, all the while waiting to get those costs back with a profit through sales, requires lots of up-front money. That up-front money is called capital (especially we would use this term for the cost of machines, power production, buildings, transportation facilities, etc. - the fixed costs). Of course, the craft worker also has to buy tools and lay out money in advance for raw materials. We can think of this as a kind of capital, but mostly we use the term to refer to an investment someone makes in production that they don't work on directly themselves. One of the first steps in the industrial revolution was the "putting out system", where an entrepreneur would loan a craft worker the cost of their tools and raw materials and then recoup his loan by taking the product and selling it, splitting the profits with the worker.
