View source for Capital accumulation

{{Short description|Dynamic that motivates pursuit of profit, central tenet of capitalism}}
{{redirect|Accumulation of capital|the book by Rosa Luxemburg|The Accumulation of Capital{{!}}''The Accumulation of Capital''}}
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{{Economics sidebar}}
'''Capital accumulation''' is the dynamic that motivates the [[Profit motive|pursuit of profit]], involving the [[investment]] of money or any [[financial asset]] with the [[Financial goal|goal]] of increasing the initial monetary [[Value (economics)|value]] of said asset as a [[financial return]] whether in the form of [[profit (accounting)|profit]], [[Economic rent|rent]], [[interest]], [[royalties]] or [[capital gains]]. The goal of accumulation of [[capital (economics)|capital]] is to create new [[fixed capital]] and [[working 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.<ref>{{Cite book|title=Encyclopedia of the City|last=Caves|first=R. W.|publisher=Routledge|year=2004|pages=65}}</ref> The process of capital accumulation forms the basis of [[capitalism]], and is one of the defining characteristics of a capitalist [[economic system]].<ref>''Unbounded Organization and the Future of Socialism'', by Howard Richards. 2013. Education as Change, Vol. 17, No. 2, pp. 229-242: "Capital accumulation is both a dynamic and a logic. It is a dynamic that motivates human action, namely the pursuit of profit. It is a logic that defines rational decision-making, namely optimizing profits by maximizing revenue from sales while minimizing costs...The case is better understood if one takes into account that accumulation is the mainspring (according to Marx, the invariable accompaniment and virtually the definition) of capitalism."</ref><ref name="Definition of Capital, Marxist Internet Archive Encyclopedia">''Capital'', Encyclopedia on Marxists.org: http://marxists.org/glossary/terms/c/a.htm#capital</ref>

==Definition==
{{Capitalism sidebar|Concepts}}
In [[economics]] and [[accounting]], capital accumulation is often equated with investment of profit income or savings, especially in [[real vs. nominal in economics|real]] [[capital goods]]. The concentration and [[centralisation]] of capital are two of the results of such accumulation (see below).

[[Capital (economics)|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, [[royalties]], 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]], i.e., new education and training increasing the [[Skill (labor)|skills]] of the (potential) [[labour force]] which can increase earnings from work.
*[[Social capital]], i.e. the wealth and [[productive capacity]] 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]], since additional [[Production (economics)|production]] usually requires additional funds to enlarge the scale of production. Smarter and more [[Productivity|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 [[Asset (economics)|assets]] (oil, gold, minerals, etc.), the sale of property, etc.

In modern [[macroeconomics]] and [[econometrics]] the term ''[[capital formation]]'' is often used in preference to "accumulation", though the [[United Nations Conference on Trade and Development]] (UNCTAD) refers nowadays to "accumulation". The term is occasionally used in [[national accounts]].

===Measurement of accumulation===
Accumulation can be measured as the monetary value of investments, the amount of [[income]] that is reinvested, or as the change in the [[Valuation (finance)|value of assets]] owned (the increase in the value of the capital stock). Using company [[balance sheet]]s, [[tax]] data and direct [[Statistical survey|surveys]] as a basis, government statisticians estimate total investments and assets for the purpose of [[national accounts]], national [[balance of payments]] and [[flow of funds]] statistics. Usually, the [[reserve bank]]s and the [[Treasury]] provide interpretations and analysis of this [[Economic data|data]]. Standard [[Economic indicator|indicators]] include [[capital formation]], [[gross fixed capital formation]], [[fixed capital]], household asset wealth, and [[foreign direct investment]].

==Demand-led growth models==
In [[macroeconomics]], following the [[Harrod–Domar model]], the [[savings ratio]] (<math>s</math>) and the capital coefficient (<math>k</math>) 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 (<math>K</math>) is:

:<math> {{\Delta K} \over K} = {{{\Delta K} \over Y} \over {K \over Y}} = {s \over k }</math>

where <math>Y</math> is the real national income. If the capital-[[Output (economics)|output]] ratio or capital coefficient (<math>k={K \over Y}</math>) is constant, the rate of growth of <math>Y</math> is equal to the rate of growth of <math>K</math>. This is determined by <math>s</math> (the ratio of net fixed investment or saving to <math>Y</math>) and <math>k</math>.

A country might, for example, save and invest 12% of its [[Gross national income|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]] points out, [[saving]]s do not automatically mean investment (as [[Liquid capital|liquid funds]] may be [[Hoarding (economics)|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 [[Market (economics)|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).<ref>Serrano, F., Freitas, F., & Bhering, G. The Trouble with Harrod: the fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier.</ref> 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.<ref>Fagundes, L., & Freitas, F. (2017). The Role of Autonomous Non-Capacity Creating Expenditures in Recent Kaleckian Growth Models: An Assessment from the Perspective of the Sraffian Supermultiplier Model.</ref> For its turn, the model of the Sraffian Supermultiplier grants a static stable equilibrium and a convergence to the planned capacity utilization.<ref>{{cite journal | last1 = Serrano | first1 = F | year = 1995 | title = Long period effective demand and the Sraffian supermultiplier | journal = Contributions to Political Economy | volume = 14 | issue = 1| pages = 67–90 | doi = 10.1093/oxfordjournals.cpe.a035642 | doi-access = free }}</ref> 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==
{{See also|Marxian economics}}
{{Marxism sidebar|expand=Critique of political economy}}[[Karl Marx]] borrowed the idea of capital accumulation or the concentration of capital from early socialist writers such as [[Charles Fourier]], [[Louis Blanc]], [[Victor Prosper Considerant|Victor Considerant]], and [[Constantin Pecqueur]].<ref name="Blake1939">{{cite book|author=William James Blake|title=An American Looks at Karl Marx|url=https://books.google.com/books?id=iPnTAAAAMAAJ|year=1939|publisher=Cordon Company|page=622}}</ref> In Marx's [[critique 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 in [[Marxian economics#Money|money]], that is [[Transformation in economics|transformed]] through [[Labor theory of value|human labor into a larger value]] and extracted as profits. Here, capital is defined essentially as economic or commercial asset [[Value (economics)|value]] that is used by capitalists to obtain additional value ([[surplus-value]]). This requires property relations which enable objects of value to be appropriated and [[Ownership|owned]], and trading rights to be established. Marx argued that capital has the tendency for concentration and [[centralization]] in the hands of richest capitalists<ref>{{Cite web |title=Economic Manuscripts: Capital Vol. I - Chapter Twenty-Five |url=https://www.marxists.org/archive/marx/works/1867-c1/ch25.htm |website=www.marxists.org}}</ref>

According to Marxism during periods of [[Economic stagnation|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 Marxist thought leads to the formation of the [[bourgeoisie]].<ref>{{Cite web|url=https://researchoutreach.org/articles/capital-question-marx-identify-accumulation-capital/|title=A capital question: How did Marx identify accumulation of capital?|date=October 31, 2023}}</ref><ref>{{Cite journal|title=Alternative Perspectives in Marxist Theory of Accumulation and Crisis|first=Erik Olin|last=Wright|date=October 11, 1975|journal=Insurgent Sociologist|volume=6|issue=1|pages=5–39|doi=10.1177/089692057500600102|s2cid=143970546 }}</ref><ref>{{cite journal | url=https://www.tandfonline.com/doi/full/10.1080/03017605.2023.2267281 | doi=10.1080/03017605.2023.2267281 | title=Capitalist accumulation and its historical foundation and logical premise: On primitive accumulation | date=2023 | last1=Bonefeld | first1=Werner | journal=Critique | volume=51 | pages=197–215 | doi-access=free }}</ref>

"Accumulation of capital" sometimes also refers in Marxist writings to the reproduction of [[Capitalism|capitalist]] [[social relations]] (institutions) on a larger scale over time, i.e., the expansion of the size of the [[proletariat]] 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,<ref>{{Cite book |last=Marx |first=Karl |title=Das Kapital |year=1867 |volume=I |chapter=The Modern Theory of Colonisation |chapter-url=https://www.marxists.org/archive/marx/works/1867-c1/ch33.htm}}</ref> 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.<ref>{{Cite book |last=Marx |first=Karl |title=Das Kapital |year=1894 |volume=III |chapter=Externalization of the Relations of Capital in the Form of Interest-Bearing Capital |chapter-url=https://www.marxists.org/archive/marx/works/1894-c3/ch24.htm}}</ref>

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]]. A crisis of [[overaccumulation]] of capital occurs when the [[rate of profit]] 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]] bill, leading to [[Wage growth|stagnant wages]] and high rates of [[unemployment]] for the [[working class]] while excess profits search for new profitable investment opportunities. Marx believed that this cyclical process would be the fundamental cause for the [[Post-capitalism|dissolution of capitalism]] and its replacement by [[socialism]], which would operate according to a different economic dynamic.<ref>{{cite journal |last1=Yunker |first1=James |year=1977 |title=The Social Dividend Under Market Socialism |journal=Annals of Public and Cooperative Economics |volume=48 |issue=1 |pages=93–133 |doi=10.1111/j.1467-8292.1977.tb01728.x |quote=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.}}</ref><ref>{{Cite journal |last1=Nikolaos |first1=Chatzarakis |last2=Tsaliki |first2=Persefoni |date=2021-06-01 |title=The dynamics of capital accumulation in Marx and Solow |url=https://www.sciencedirect.com/science/article/abs/pii/S0954349X21000254 |journal=Structural Change and Economic Dynamics |volume=57 |pages=148–158 |doi=10.1016/j.strueco.2021.03.003 |issn=0954-349X}}</ref> [[Anarchist]]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.<ref>{{Cite web|url=https://www.semanticscholar.org/paper/The-Global-Accumulation-of-Capital-and-the-of-the-Clarke/b5c4216ddd78071ce9c9e38b5f4cc496a56f75e1|title=The Global Accumulation of Capital and the Periodisation of the Capitalist State Form|first=Simon|last=Clarke|date=January 13, 2010|s2cid=195060852 |via=Semantic Scholar}}</ref>

==Effects==
The effects of wealth accumulation results in increased [[saving]]s for the individual. If economic growth is shared unevenly between different groups of the population [[wealth inequality]] emerges. Extreme wealth inequality leads to and economical power by the working class lowering, which can result in [[oligarchy]], in which super rich individuals hold most power and money is society.<ref>{{Cite web|url=https://www.icij.org/inside-icij/2021/07/american-oligarchs-report-details-how-the-wealthiest-us-dynasties-hoard-their-fortunes-and-accelerate-inequality/|title=American oligarchs: Report details how the wealthiest US dynasties hoard their fortunes – and accelerate inequality - ICIJ|quote=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.|date=July 6, 2021}}</ref>

==See also==
{{div col|colwidth=25em}}
*[[Business cycle]]
*[[Capitalist mode of production (Marxist theory)]]
*[[Charity (practice)]]
*[[Commodity fetishism]]
*[[Constant purchasing power accounting]]
*[[Culture of capitalism]]
*[[Dual-sector model]]
*[[History of capitalist theory]]
*[[Internal contradictions of capital accumulation]]
*[[Investment-specific technological progress]]
*[[Matthew effect]]
*[[Organic crisis]]
*[[Preferential attachment]]
*[[Prices of production]]
*[[Primitive socialist accumulation]]
*[[Productive and unproductive labour]]
*[[Proletarianization]]
*[[Property income]]
*[[Relations of production]]
*[[Return on capital]]
*[[Simple commodity production]]
*[[Surplus value]]
*[[The rich get richer and the poor get poorer]]
*[[Unearned income]]
*[[Unequal exchange]]
*[[Value investing]]
{{div col end}}

==References==
{{reflist}}

==Further reading==
{{refbegin|60em}}
*[[Michel Aglietta]], ''A Theory of Capitalist Regulation''.
*[[Elmar Altvater]], ''Gesellschaftliche Produktion und ökonomische Rationalität; Externe Effekte und zentrale Planung im Wirtschaftssystem des Sozialismus''.
*[[Samir Amin]], ''Accumulation on a World Scale''.
*Philip Armstrong, Andrew Glyn and John Harrison, ''Capitalism since World War II''. ''[[Das Kapital]]'': [[Capital, Volume I|Vol. 1]], Part 7 and [[Capital, Volume II|Vol. 2]], Part 3.'s Environmental Crisis: An Inquiry into the Limits of National Development''. Armonk: M.E. Sharpe, 1992.
*[[Hernando de Soto (economist)|Hernando de Soto]], ''The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else''.
*Manuel G. Velasquez, ''Business Ethics: Concepts and Cases.''
{{Refend}}

==External links==
{{Wikiquote}}
* [http://su.diva-portal.org/smash/record.jsf?pid=diva2%3A193148&dswid=6935 Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden 1800-2000 by Rodney Edvinsson]
*[[David Harvey (geographer)|David Harvey]], [http://davidharvey.org Reading Marx's Capital], [http://davidharvey.org/2008/08/capital-class-11/ Reading Marx’s Capital - Class 11, Chapter 25, The General Law of Capitalist Accumulation] (video lecture)

{{Globalization}}
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[[Category:Capital (economics)]]
[[Category:Economic growth]]
[[Category:Marxian economics]]
[[Category:Capitalism]]