Although the level of U.S. per capita output was higher than that of any other industrialized country at the end of World War II, output has increased by more than four times and per capita output has more than doubled. Empirical evidence has shifted the terms of professional debates over the importance of investment and productivity as sources of postwar growth. This volume traces this outstanding growth performance to investments in tangible assets and human capital.
The distinctive feature of investment as a source of economic growth is that returns can be internalized by the investor. The most straightforward application of this idea is to investments that create property rights. These include rights to transfer the resulting assets and benefit from the incomes that are generated. This volume broadens the meaning of capital formation to include the investments in education and training. The contributions of these investments to economic growth can be identified from their impacts on labor incomes.
After the slowdown in U.S. economic growth that began in 1973 it became apparent that economic research had failed to produce a satisfactory basis for policies to generate growth. This volume provides the starting point for development of a new consensus based on the policies that stimulate and reward investments in tangible assets and human capital. These policies will focus on returns that can be internalized by investors, ending the fruitless search for "spill overs" that can generate growth without providing incentives for capital formation.