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Capital accumulation is the dynamic that motivates thepursuit of profit, involving theinvestment of money or anyfinancial asset with thegoal of increasing the initial monetaryvalue of said asset as afinancial return whether in the form ofprofit,rent,interest,royalties orcapital gains. The goal of accumulation ofcapital is to create newfixed capital andworking capital, broaden and modernize the existing ones, grow the material basis of social-cultural activities, as well as constituting the necessary resource for reserve and insurance.[1] The process of capital accumulation forms the basis ofcapitalism, and is one of the defining characteristics of a capitalisteconomic system.[2][3]
Ineconomics andaccounting, capital accumulation is often equated with investment of profit income or savings, especially inrealcapital goods. The concentration andcentralisation of capital are two of the results of such accumulation (see below).
Capital accumulation refers ordinarily to:
and by extension to:
Both non-financial and financial capital accumulation is usually needed foreconomic growth, since additionalproduction usually requires additional funds to enlarge the scale of production. Smarter and moreproductive organization of production can also increase production without increased capital. Capital can be created without increased investment by inventions or improved organization that increase productivity, discoveries of newassets (oil, gold, minerals, etc.), the sale of property, etc.
In modernmacroeconomics andeconometrics the termcapital formation is often used in preference to "accumulation", though theUnited Nations Conference on Trade and Development (UNCTAD) refers nowadays to "accumulation". The term is occasionally used innational accounts.
Accumulation can be measured as the monetary value of investments, the amount ofincome that is reinvested, or as the change in thevalue of assets owned (the increase in the value of the capital stock). Using companybalance sheets,tax data and directsurveys as a basis, government statisticians estimate total investments and assets for the purpose ofnational accounts, nationalbalance of payments andflow of funds statistics. Usually, thereserve banks and theTreasury provide interpretations and analysis of thisdata. Standardindicators includecapital formation,gross fixed capital formation,fixed capital, household asset wealth, andforeign direct investment.
Inmacroeconomics, following theHarrod–Domar model, thesavings ratio () and the capital coefficient () are regarded as critical factors for accumulation and growth, assuming that all saving is used to financefixed investment. The rate of growth of the real stock of fixed capital () is:
where is the real national income. If the capital-output ratio or capital coefficient () is constant, the rate of growth of is equal to the rate of growth of. This is determined by (the ratio of net fixed investment or saving to) and.
A country might, for example, save and invest 12% of itsnational income, and then if the capital coefficient is 4:1 (i.e. $4 billion must be invested to increase the national income by 1 billion) the rate of growth of the national income might be 3% annually. However, asKeynesian economics points out,savings do not automatically mean investment (asliquid funds may behoarded for example). Investment may also not be investment in fixed capital (see above).
Assuming that the turnover of total production capital invested remains constant, the proportion of total investment which just maintains the stock of total capital, rather than enlarging it, will typically increase as the total stock increases. The growth rate of incomes and net new investments must then also increase, in order to accelerate the growth of the capital stock. Simply put, the bigger capital grows, the more capital it takes to keep it growing and the moremarkets must expand.
The Harrodian model has a problem of unstable static equilibrium, since if the growth rate is not equal to the Harrodian warranted rate, the production will tend to extreme points (infinite or zero production).[4] The Neo-Kaleckians models do not suffer from the Harrodian instability but fails to deliver a convergence dynamic of the effective capacity utilization to the planned capacity utilization.[5] For its turn, the model of the Sraffian Supermultiplier grants a static stable equilibrium and a convergence to the planned capacity utilization.[6] The Sraffian Supermultiplier model diverges from the Harrodian model since it takes the investment as induced and not as autonomous. The autonomous components in this model are the Autonomous Non-Capacity Creating Expenditures, such as exports, credit led consumption and public spending. The growth rate of these expenditures determines the long run rate of capital accumulation and product growth.
Karl Marx borrowed the idea of capital accumulation or the concentration of capital from early socialist writers such asCharles Fourier,Louis Blanc,Victor Considerant, andConstantin Pecqueur.[7] In Marx'scritique of political economy, capital accumulation is the operation whereby profits are reinvested into the economy, increasing the total quantity of capital. Capital was understood by Marx to be expanding value, that is, in other terms, as a sum of capital, usually expressed inmoney, that istransformed throughhuman labor into a larger value and extracted as profits. Here, capital is defined essentially as economic or commercial assetvalue that is used by capitalists to obtain additional value (surplus-value). This requires property relations which enable objects of value to be appropriated andowned, and trading rights to be established. Marx argued that capital has the tendency for concentration andcentralization in the hands of richest capitalists[8]
According to Marxism during periods ofstagnation in capitalism, the accumulation process is increasingly oriented towards investment on military and security forces, real estate, financial speculation, and luxury consumption. In that case, income from value-adding production will decline in favour of interest, rent and tax income, with as a corollary an increase in the level of permanent unemployment. Capital accumulation of themeans of production in Marxist thought leads to the formation of thebourgeoisie.[9][10][11]
"Accumulation of capital" sometimes also refers in Marxist writings to the reproduction ofcapitalistsocial relations (institutions) on a larger scale over time, i.e., the expansion of the size of theproletariat and of the wealth owned by the bourgeoisie. In the first volume ofDas Kapital Marx had illustrated this idea with reference toEdward Gibbon Wakefield's theory of colonisation,[12] and further refers to the "fetishism of capital" reaching its highest point withinterest-bearing capital, because of how capital appeared to grow almost of its own accord.[13]
The Marxist analysis of capital accumulation and the development of capitalism identifies systemic issues with the process that arise with expansion of theproductive forces. A crisis ofoveraccumulation of capital occurs when therate of profit is greater than the rate of new profitable investment outlets in the economy, arising from increasing productivity from a risingorganic composition of capital (higher capital input to labor input ratio). This depresses thewage bill, leading tostagnant wages and high rates ofunemployment for theworking class while excess profits search for new profitable investment opportunities. Marx believed that this cyclical process would be the fundamental cause for thedissolution of capitalism and its replacement bysocialism, which would operate according to a different economic dynamic.[14][15]Anarchists hold that the state always maintains a form of capital accumulation to the elite, even in self proclaimedsocialist states and that for true equality the state should be abolished.[16]
The effects of wealth accumulation results in increasedsavings for the individual. If economic growth is shared unevenly between different groups of the populationwealth inequality emerges. Extreme wealth inequality leads to and economical power by the working class lowering, which can result inoligarchy, in which super rich individuals hold most power and money in society.[17]
Nevertheless, while Marx employed the surplus labor value theory to undermine the moral foundations of capitalism, it was, in his view, neither to be the instrumentality of capitalist collapse, nor was it the primary reason for the desirability of the abrogation of capitalism...Surplus value was seen as providing the fuel for the cyclical engine and therefore as the fundamental cause of the impending dissolution of capitalism.
IPS, a think tank focused on foreign and domestic policy, human rights and economics, notes numerous negative consequences of dynastic wealth accumulation. Firstly, dynasties wield serious political and philanthropic power that can be used to pursue their own agendas. Additionally, the IPS report contends that these dynasties do more than hoard wealth across generations; they grow it. For example, ISP cites the cases of the Mars candy and Estée Lauder cosmetics dynasties, whose wealth multiplied by billions between 1983 and 2020. The staggering rate of wealth growth for the country's top dynastic families only accelerated during the coronavirus pandemic, IPS found.
