Most macroeconomists identify economic progress with growth – a sustained increase in GDP, or GDP per capita, over time. But relying on GDP has its shortcomings. Standard national income statistics fail to capture many features of the economy that are important to our well-being. Plus, these measurements are not the best indicator of household living standards, since they ignore non-market production, do not fully reflect transfers, and fail to accurately capture the benefits of direct government services. Nevertheless, increases in national income are imperfectly correlated, at least on average, with outcomes people care about, such as living longer and healthier lives, enjoying better living conditions, and having more choices in the course of their lives. When growth turns negative, as happens during recessions and depressions, the effect can be devastating. People lose their livelihoods and feel their economic security evaporate. For these reasons, understanding the factors that contribute to long-run economic performance at the macro level remains an area of concern.

Robert Solow, a prolific US economist, is intimately associated with one early, and extremely influential, approach to theorizing growth at the macro level. The original Solow growth model identifies two factors of production that determine total market output: capital and labour (Solow 1956). In the Solow model, capital refers to investment in productive, physical assets, such as equipment, buildings and machinery. Labour represents the total volume of paid work that employed people perform. In most versions of the original Solow model, there is a technology parameter that increases the productivity of capital, or labour, or both factors simultaneously. In the model, capital is a produced factor of production, meaning that a certain fraction of total output is reserved for building more machines, equipment, production facilities, and other forms of physical investment. In contrast, factors outside of the macroeconomy determine the amount of labour available. In the basic model, population growth rates are fixed and are not influenced by the process of production or the accumulation of capital assets over time.

When it comes to modeling economic growth, capital has always had the pride of place as the quintessential produced factor of production. The Solow growth model is not alone in this regard.