Capital accumulation is the dynamic that motivates the pursuit of profit, involving the

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

of money or any

financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), bank deposits, bond (finance), bonds, and participations in companies' share capital. Financial assets are usually more market li ...

with the

goal A goal or objective is an idea of the future or desired result that a person or a group of people envision, plan, and commit to achieve. People endeavour to reach goals within a finite time by setting deadlines. A goal is roughly similar to ...

of increasing the initial monetary value of said asset as a financial return whether in the form of

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

, rent,

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

royalties A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset or ...

or capital gains. The goal of accumulation of capital is to create new fixed capital and

working capital Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...

, 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. The process of capital accumulation forms the basis of

capitalism Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

, and is one of the defining characteristics of a capitalist

economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within an economy. It includes the combination of the various institutions, agencies, entities, decision-making proces ...

.''Capital'', Encyclopedia on Marxists.org: http://marxists.org/glossary/terms/c/a.htm#capital

Definition

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

and

accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

, capital accumulation is often equated with investment of profit income or savings, especially in real

capital goods In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services. A typical example is the machinery used in a factory. At the macroeconomic level, ...

. The concentration and

centralisation Centralisation or centralization (American English) is the process by which the activities of an organisation, particularly those regarding planning, decision-making, and framing strategies and policies, become concentrated within a particular ...

of capital are two of the results of such accumulation (see below). Capital accumulation refers ordinarily to: *Real investment in tangible means of production, such as acquisitions, research and development, etc. that can increase the capital flow. *Investment in financial assets represented on paper, yielding profit, interest, rent,

, fees or capital gains. *Investment in ''non-productive'' physical assets such as residential real estate or works of art that appreciate in value. and by extension to: *

Human capital Human capital or human assets is a concept used by economists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a subs ...

, i.e., new education and training increasing the

skills A skill is the learned or innate ability Abilities are powers an agent has to perform various Action (philosophy), actions. They include common abilities, like walking, and rare abilities, like performing a double backflip. Abilities are in ...

of the (potential)

labour force In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...

which can increase earnings from work. *

Social capital Social capital is a concept used in sociology and economics to define networks of relationships which are productive towards advancing the goals of individuals and groups. It involves the effective functioning of social groups through interper ...

, i.e. the wealth and

productive capacity Productive capacity is the maximum possible output (economics), output of an economy. According to the United Nations Conference on Trade and Development (UNCTAD), no agreed-upon definition of maximum output exists. UNCTAD itself proposes: "the pr ...

that the people in a society hold in common, rather than as individuals or corporations. Both non-financial and financial capital accumulation is usually needed for

economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...

, since additional production usually requires additional funds to enlarge the scale of production. Smarter and more productive 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 new

assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

(oil, gold, minerals, etc.), the sale of property, etc. In modern

macroeconomics Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...

and

econometrics Econometrics is an application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics", '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...

the term '' capital formation'' is often used in preference to "accumulation", though the

United Nations Conference on Trade and Development UN Trade and Development (UNCTAD) is an intergovernmental organization within the United Nations Secretariat that promotes the interests of developing countries in world trade. It was established in 1964 by the United Nations General Assembl ...

(UNCTAD) refers nowadays to "accumulation". The term is occasionally used in

national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting Scientific technique, techniques for measuring the economic activity of a nation. These include detailed underlying measures that ...

Measurement of accumulation

Accumulation can be measured as the monetary value of investments, the amount of

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

that is reinvested, or as the change in the value of assets owned (the increase in the value of the capital stock). Using company

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

data and direct surveys as a basis, government statisticians estimate total investments and assets for the purpose of

, national

balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a ...

and flow of funds statistics. Usually, the reserve banks and the

Treasury A treasury is either *A government department related to finance and taxation, a finance ministry; in a business context, corporate treasury. *A place or location where treasure, such as currency or precious items are kept. These can be ...

provide interpretations and analysis of this

data Data ( , ) are a collection of discrete or continuous values that convey information, describing the quantity, quality, fact, statistics, other basic units of meaning, or simply sequences of symbols that may be further interpreted for ...

. Standard indicators include capital formation, gross fixed capital formation, fixed capital, household asset wealth, and

foreign direct investment A foreign direct investment (FDI) is an ownership stake in a company, made by a foreign investor, company, or government from another country. More specifically, it describes a controlling ownership an asset in one country by an entity based i ...

Demand-led growth models

, following the Harrod–Domar model, the savings ratio (

s

) and the capital coefficient (

k

) are regarded as critical factors for accumulation and growth, assuming that all saving is used to finance fixed investment. The rate of growth of the real stock of fixed capital (

K

) is: :

=  =

where

Y

is the real national income. If the capital-

output Output may refer to: * The information produced by a computer, see Input/output * An output state of a system, see state (computer science) * Output (economics), the amount of goods and services produced ** Gross output in economics, the valu ...

ratio or capital coefficient (

k=

) is constant, the rate of growth of

Y

is equal to the rate of growth of

K

. This is determined by

s

(the ratio of net fixed investment or saving to

Y

) and

k

. A country might, for example, save and invest 12% of its national 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, as

Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...

points out,

saving Saving is income not spent, or deferred Consumption (economics), consumption. In economics, a broader definition is any income not used for immediate consumption. Saving also involves reducing expenditures, such as recurring Cost, costs. Methods ...

s do not automatically mean investment (as liquid funds may be hoarded 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 more markets 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). 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. For its turn, the model of the Sraffian Supermultiplier grants a static stable equilibrium and a convergence to the planned capacity utilization. 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.

Marxist concept

Karl Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...

borrowed the idea of capital accumulation or the concentration of capital from early socialist writers such as Charles Fourier,

Louis Blanc Louis Jean Joseph Charles Blanc ( ; ; 29 October 1811 – 6 December 1882) was a French Socialism, socialist politician, journalist and historian. He called for the creation of cooperatives in order to job guarantee, guarantee employment for t ...

, Victor Considerant, and Constantin Pecqueur. In Marx's

critique of political economy Critique of political economy or simply the first critique of economy is a form of social critique that rejects the conventional ways of distributing resources. The critique also rejects what its advocates believe are unrealistic axioms, flawe ...

, 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 in

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

, that is transformed through human labor into a larger value and extracted as profits. Here, capital is defined essentially as economic or commercial asset value that is used by capitalists to obtain additional value (

surplus-value In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and ...

). This requires property relations which enable objects of value to be appropriated and owned, and trading rights to be established. Marx argued that capital has the tendency for concentration and

centralization Centralisation or centralization (American English) is the process by which the activities of an organisation, particularly those regarding planning, decision-making, and framing strategies and policies, become concentrated within a particular ...

in the hands of richest capitalists According to Marxism during periods of stagnation 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 the

means of production In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. While the exact resources encompassed in the term may vary, it is widely agreed to include the ...

in Marxist thought leads to the formation of the

bourgeoisie The bourgeoisie ( , ) are a class of business owners, merchants and wealthy people, in general, which emerged in the Late Middle Ages, originally as a "middle class" between the peasantry and aristocracy. They are traditionally contrasted wi ...

. "Accumulation of capital" sometimes also refers in Marxist writings to the reproduction of

capitalist Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

social relations A social relation is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more conspecifics within and/or between groups. The group can be a language or k ...

(institutions) on a larger scale over time, i.e., the expansion of the size of the

proletariat The proletariat (; ) is the social class of wage-earners, those members of a society whose possession of significant economic value is their labour power (their capacity to work). A member of such a class is a proletarian or a . Marxist ph ...

and of the wealth owned by the bourgeoisie. In the first volume of ''Das Kapital'' Marx had illustrated this idea with reference to Edward Gibbon Wakefield's theory of colonisation, and further refers to the "fetishism of capital" reaching its highest point with ''interest-bearing capital'', because of how capital appeared to grow almost of its own accord. The Marxist analysis of capital accumulation and the development of capitalism identifies systemic issues with the process that arise with expansion of the

productive forces Productive forces, productive powers, or forces of production ( German: ''Produktivkräfte'') is a central idea in Marxism and historical materialism. In Karl Marx and Friedrich Engels' own critique of political economy, it refers to the combin ...

. A crisis of overaccumulation of capital occurs when the

rate of profit In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment. Historical cost ''vs.'' mark ...

is greater than the rate of new profitable investment outlets in the economy, arising from increasing productivity from a rising organic composition of capital (higher capital input to labor input ratio). This depresses the

wage A wage is payment made by an employer to an employee for work (human activity), work done in a specific period of time. Some examples of wage payments include wiktionary:compensatory, compensatory payments such as ''minimum wage'', ''prevailin ...

bill, leading to stagnant wages and high rates of

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...

for the

working class The working class is a subset of employees who are compensated with wage or salary-based contracts, whose exact membership varies from definition to definition. Members of the working class rely primarily upon earnings from wage labour. Most c ...

while excess profits search for new profitable investment opportunities. Marx believed that this cyclical process would be the fundamental cause for the dissolution of capitalism and its replacement by

socialism Socialism is an economic ideology, economic and political philosophy encompassing diverse Economic system, economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. It describes ...

, which would operate according to a different economic dynamic.

Anarchist Anarchism is a political philosophy and Political movement, movement that seeks to abolish all institutions that perpetuate authority, coercion, or Social hierarchy, hierarchy, primarily targeting the state (polity), state and capitalism. A ...

s hold that the state always maintains a form of capital accumulation to the elite, even in self proclaimed socialist states and that for true equality the state should be abolished.

Effects

The effects of wealth accumulation results in increased

s for the individual. If economic growth is shared unevenly between different groups of the population

wealth inequality The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity. The distribution of wealth differs from the income distribution in that ...

emerges. Extreme wealth inequality leads to and economical power by the working class lowering, which can result in

oligarchy Oligarchy (; ) is a form of government in which power rests with a small number of people. Members of this group, called oligarchs, generally hold usually hard, but sometimes soft power through nobility, fame, wealth, or education; or t ...

, in which super rich individuals hold most power and money in society.

References

External links

Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden 1800-2000 by Rodney Edvinsson
* David Harvey
Reading Marx's CapitalReading Marx’s Capital - Class 11, Chapter 25, The General Law of Capitalist Accumulation
(video lecture) {{Authority control Capital (economics) Economic growth Marxian economics Capitalism