Capital Equipment
Vastly increasing productivity
Producing goods and services can be done better and more efficiently when you have some equipment, even if it is very simple:
Knives and pots for cooks
Scissors and needles for dressmakers
Axes for lumberjacks
Brushes for painters
Sponges and buckets for window cleaners
Nets for fishers
The list could go on and on. These tools are examples of capital equipment: products which are produced not to be consumed, but to be used in producing other products. Even the most apparently-basic tools, such as the ones above, can make people thousands of times more productive, allowing producers to increase their raw net worth1 at a much faster rate than they could without them. As a result, they can consume far more than they would be able to otherwise, or can consume at the same rate but have more time to do other things. Or some combination of the two.
Capital equipment ⇒ virtuous cycle
Capital equipment has to be produced. There’s a trade-off here: producing capital equipment means that you can’t spend that time, and those raw materials making something to consume. Irwin Schiff’s comic, How an Economy Grows and Why It Doesn't, which he wrote to explain economic concepts, has an excellent example of this. One of the characters, Able, goes without food one day in order to make a fishing net. But as a result, on subsequent days, he can catch fish to eat much quicker than trying to catch fish by hand.
So there’s a cost to making capital equipment. Or at least an opportunity cost, meaning that you are giving up what you could have otherwise produced. But as long as you can recoup this cost of making the capital equipment before it wears out, you will be much better off in the long run than you would have been without it.
Producing the first piece of capital equipment is just the start. Once someone can provide for their needs much more efficiently, they have more spare time and resources for producing either other things to consume, or even more capital equipment. And at a certain point, it becomes possible to make capital equipment which increases the productivity of creating other capital equipment. For example, making a saw lets you make wooden gears, which can be used in a water mill to grind wheat into flour.
Each time a new piece of capital equipment is created, the increase in productivity allows someone to work on improving productivity somewhere else, potentially leading to a virtuous circle. The British Agricultural Revolution and subsequent Industrial Revolution, and the corresponding developments in other nations, led to extraordinary advances in societies’ productive power. While some of this was due to improvements in techniques, much of it was a result of the production of capital equipment which vastly increased the rate at which a person could produce valuable goods and services.
Someone’s raw net worth (RNW) is what they own plus what they’re owed minus what they owe.