Capital accumulation is the dynamic that motivates the
pursuit of profit, involving the
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing is ...
of money or any
financial asset
A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such ...
with the
goal
A goal 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 a purpose or ...
of increasing the initial monetary
value
Value or values may refer to:
Ethics and social
* Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them
** Values (Western philosophy) expands the notion of value beyo ...
of said asset as a
financial return Return on capital (ROC), or return on invested capital (ROIC), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested by sharehold ...
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
Rent may refer to:
Economics
*Renting, an agreement where a payment is made for the temporary use of a good, service or property
*Economic rent, any payment in excess of the cost of production
*Rent-seeking, attempting to increase one's share of e ...
,
interest
In finance and economics, interest is payment from a borrower 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 distin ...
,
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 o ...
or
capital gains
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares. ...
. The aim of capital accumulation is to create new fixed and working capitals, 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 operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
, 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 a society or a given geographic area. It includes the combination of the various institutions, agencies, entit ...
.
[''Capital'', Encyclopedia on Marxists.org: http://marxists.org/glossary/terms/c/a.htm#capital]
Definition
The definition of capital accumulation is subject to controversy and ambiguities, because it could refer to:
*a ''
net
Net or net may refer to:
Mathematics and physics
* Net (mathematics), a filter-like topological generalization of a sequence
* Net, a linear system of divisors of dimension 2
* Net (polyhedron), an arrangement of polygons that can be folded up ...
addition'' to existing
wealth
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
*a ''redistribution'' of wealth.
Most often, capital accumulation involves both a net addition and a
redistribution of wealth, which may raise the question of who really benefits from it most. If more wealth is produced than there was before, a
society
A society is a group of individuals involved in persistent social interaction, or a large social group sharing the same spatial or social territory, typically subject to the same political authority and dominant cultural expectations. Soc ...
becomes richer; the total
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
of wealth increases. But if some accumulate
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
only at the expense of others, wealth is merely shifted from A to B. It is also possible that some accumulate capital much faster than others. When one person is enriched at the expense of another in circumstances that the law sees as unjust it is called
unjust enrichment
In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
. In principle, it is possible that a few people or organisations accumulate capital and grow richer, although the total stock of wealth of society ''decreases''.
In
economics
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
and
accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
, capital accumulation is often equated with investment of profit income or savings, especially in
real
Real may refer to:
Currencies
* Brazilian real (R$)
* Central American Republic real
* Mexican real
* Portuguese real
* Spanish real
* Spanish colonial real
Music Albums
* ''Real'' (L'Arc-en-Ciel album) (2000)
* ''Real'' (Bright album) (2010) ...
capital goods
The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...
. The concentration and
centralisation
Centralisation or centralization (see spelling differences) is the process by which the activities of an organisation, particularly those regarding planning and decision-making, framing strategy and policies become concentrated within a partic ...
of capital are two of the results of such accumulation (see below).
Capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
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
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 o ...
, fees or
capital gains
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares. ...
.
*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 is a concept used by social scientists 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 substantial ...
, i.e., new education and training increasing the
skills
A skill is the learned ability to act with determined results with good execution often within a given amount of time, energy, or both. Skills can often be divided into domain-general and domain-specific skills. For example, in the domain of w ...
of the (potential)
labour force
The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic reg ...
which can increase earnings from work.
*
social capital
Social capital is "the networks of relationships among people who live and work in a particular society, enabling that society to function effectively". It involves the effective functioning of social groups through interpersonal relationships ...
, i.e. the wealth and
productive capacity Productive capacity is the maximum possible 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 productive ''resources ...
that the people in a society hold in common, rather than as individuals or corporations.
* etc.
Both non-financial and financial capital accumulation is usually needed for
economic growth
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate o ...
, since additional
production
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
usually requires additional funds to enlarge the scale of production. Smarter and more
productive
Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...
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 ...
(oil, gold, minerals, etc.), the sale of property, etc.
In modern
macroeconomics
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
and
econometrics
Econometrics is the 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. ...
the term ''
capital formation
Capital formation is a concept used in macroeconomics, national accounts and financial economics. Occasionally it is also used in corporate accounts. It can be defined in three ways:
*It is a specific statistical concept, also known as net inve ...
'' is often used in preference to "accumulation", though the
United Nations Conference on Trade and Development
The United Nations Conference on 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 ...
(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 techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
.
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. Fo ...
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 ...
s,
tax
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
data and direct
surveys as a basis, government statisticians estimate total investments and assets for the purpose of
national accounts
National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
, 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., ...
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.
*A place or location where treasure, such as currency or precious items are kept. These can be state or royal property, church treasure or i ...
provide interpretations and analysis of this
data
In the pursuit of knowledge, data (; ) is a collection of discrete values that convey information, describing quantity, quality, fact, statistics, other basic units of meaning, or simply sequences of symbols that may be further interpret ...
. Standard
indicators
Indicator may refer to:
Biology
* Environmental indicator of environmental health (pressures, conditions and responses)
* Ecological indicator of ecosystem health (ecological processes)
* Health indicator, which is used to describe the health o ...
include
capital formation
Capital formation is a concept used in macroeconomics, national accounts and financial economics. Occasionally it is also used in corporate accounts. It can be defined in three ways:
*It is a specific statistical concept, also known as net inve ...
,
gross fixed capital formation
Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts such as the United Nations System of National Accounts (UNSNA), National Income and Product Accounts (NIPA) and the European System of Accounts (ES ...
,
fixed capital
In accounting, fixed capital is any kind of real, physical asset that is used repeatedly in the production of a product. In economics, fixed capital is a type of capital good that as a real, physical asset is used as a means of production which ...
, household asset wealth, and
foreign direct investment
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct c ...
.
Organisations such as the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
, UNCTAD, the
World Bank Group
The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and best-known development bank in the world and an observer at the United Nations Development Gr ...
, the
OECD
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...
, and the
Bank for International Settlements
The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks".
The BIS carries out its work th ...
used national investment data to estimate world trends. The
Bureau of Economic Analysis
The Bureau of Economic Analysis (BEA) of the United States Department of Commerce is a U.S. government agency that provides official macroeconomic and industry statistics, most notably reports about the gross domestic product (GDP) of the United ...
,
Eurostat
Eurostat ('European Statistical Office'; DG ESTAT) is a Directorate-General of the European Commission located in the Kirchberg, Luxembourg, Kirchberg quarter of Luxembourg City, Luxembourg. Eurostat's main responsibilities are to provide stati ...
and the Japan Statistical Office provide data on the US, Europe and Japan respectively.
Other useful sources of investment information are business magazines such as ''
Fortune
Fortune may refer to:
General
* Fortuna or Fortune, the Roman goddess of luck
* Luck
* Wealth
* Fortune, a prediction made in fortune-telling
* Fortune, in a fortune cookie
Arts and entertainment Film and television
* ''The Fortune'' (1931 film) ...
,
Forbes
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also r ...
,
The Economist
''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Eco ...
,
Business Week
''Bloomberg Businessweek'', previously known as ''BusinessWeek'', is an American weekly business magazine published fifty times a year. Since 2009, the magazine is owned by New York City-based Bloomberg L.P. The magazine debuted in New York City ...
'', etc., and various corporate "
watchdog
Watchdog or watch dog may refer to:
Animals
*Guard dog, a dog that barks to alert its owners of an intruder's presence
* Portuguese Watch Dog, Cão de Castro Laboreiro, a dog breed
* Moscow Watchdog, a breed of dog that was bred in the Soviet ...
" organisations and
non-governmental organization
A non-governmental organization (NGO) or non-governmental organisation (see spelling differences) is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in ...
publications. A reputable
scientific journal
In academic publishing, a scientific journal is a periodical publication intended to further the progress of science, usually by reporting new research.
Content
Articles in scientific journals are mostly written by active scientists such ...
is the ''
Review of Income and Wealth
The ''Review of Income and Wealth'' is a peer-reviewed academic journal published by Wiley-Blackwell on behalf of the International Association for Research in Income and Wealth. It was established in 1951 and published annually until 1966, when ...
''. In the case of the US, the "Analytical Perspectives" document (an annex to the yearly budget) provides useful wealth and capital estimates applying to the whole country.
Demand-led growth models
In
macroeconomics
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
, following the
Harrod–Domar model
The Harrod–Domar model is a Keynesian model of economic growth. It is used in development economics to explain an economy's growth rate in terms of the level of saving and of capital. It suggests that there is no natural reason for an economy to ...
, the
savings ratio
In Keynesian economics, the average propensity to save (APS), also known as the savings ratio, is the proportion of income which is saved, usually expressed for household savings as a fraction of total household disposable income (taxed income). ...
(
) and the
capital coefficient
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
(
) are regarded as critical factors for accumulation and growth, assuming that all saving is used to finance
fixed investment
Fixed investment in economics is the purchasing of newly produced fixed capital. It is measured as a flow variable – that is, as an amount per unit of time.
Thus, fixed investment is the accumulation of physical assets such as machinery, lan ...
. 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 its
national income
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted nat ...
, 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 macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...
points out,
saving
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recur ...
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
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
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
Marx borrowed the idea of capital accumulation or the concentration of capital from early socialist writers such as
Charles Fourier
François Marie Charles Fourier (;; 7 April 1772 – 10 October 1837) was a French philosopher, an influential early socialist thinker and one of the founders of utopian socialism. Some of Fourier's social and moral views, held to be radical ...
,
Louis Blanc
Louis Jean Joseph Charles Blanc (; ; 29 October 1811 – 6 December 1882) was a French politician and historian. A socialist who favored reforms, he called for the creation of cooperatives in order to guarantee employment for the urban poor. Alt ...
,
Victor Considerant
Victor Prosper Considerant (12 October 1808 – 27 December 1893) was a French utopian socialist philosopher and economist who was a disciple of Charles Fourier.
Biography
Considerant was born in Salins-les-Bains, Jura and studied at the Éco ...
, and
Constantin Pecqueur.
In
Karl Marx
Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
's
economic theory
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyze ...
, 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 ar ...
, 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
Value or values may refer to:
Ethics and social
* Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them
** Values (Western philosophy) expands the notion of value beyo ...
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 the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost ...
). This requires property relations which enable objects of value to be appropriated and
owned, and trading rights to be established.
Over-accumulation and crisis
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 combina ...
. 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 done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', '' prevailing wage'', and ''yearly bonuses,'' and remune ...
bill, leading to stagnant wages and high rates of
unemployment
Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refe ...
for the
working class
The working class (or labouring class) comprises those engaged in manual-labour occupations or industrial work, who are remunerated via waged or salaried contracts. Working-class occupations (see also " Designation of workers by collar colou ...
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 a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes th ...
, which would operate according to a different economic dynamic.
In Marxist thought, socialism would succeed capitalism as the
dominant mode of production when the accumulation of capital can no longer sustain itself due to
falling rates of profit in real production relative to increasing productivity. A
socialist economy
Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may ...
would not base production on the accumulation of capital, instead basing production on the criteria of satisfying human needs and directly producing
use-values. This concept is encapsulated in the principle of
production for use
Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish commu ...
.
Concentration and centralization
According to Marx, capital has the tendency for concentration and
centralization
Centralisation or centralization (see spelling differences) is the process by which the activities of an organisation, particularly those regarding planning and decision-making, framing strategy and policies become concentrated within a particu ...
in the hands of richest capitalists. Marx explains:
"It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals.... Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many.... The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, ''ceteris paribus'', on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the
capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages.... It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish."
''Das Kapital'', vol. 1, ch. 25
/ref>
Rate of accumulation
In Marxian economics
Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian ...
, the ''rate of accumulation'' is defined as (1) the value of the real net increase in the stock of capital in an accounting period, (2) the proportion of realized surplus-value or profit-income which is reinvested, rather than consumed. This rate can be expressed by means of various ratios between the original capital outlay, the realized turnover, surplus-value or profit and reinvestment's (see, e.g., the writings of the economist Michał Kalecki
Michał Kalecki (; 22 June 1899 – 18 April 1970) was a Polish Marxian economist. Over the course of his life, Kalecki worked at the London School of Economics, University of Cambridge, University of Oxford and Warsaw School of Economics ...
).
Other things being equal, the greater the amount of profit-income that is disbursed as personal earnings and used for consumption
Consumption may refer to:
*Resource consumption
*Tuberculosis, an infectious disease, historically
* Consumption (ecology), receipt of energy by consuming other organisms
* Consumption (economics), the purchasing of newly produced goods for curren ...
purposes, the lower the savings rate and the lower the rate of accumulation is likely to be. However, earnings spent on consumption can also stimulate
Stimulation is the encouragement of development or the cause of activity generally. For example, "The press provides stimulation of political discourse." An interesting or fun activity can be described as "stimulating", regardless of its physic ...
market demand
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
and higher investment. This is the cause of endless controversies in economic theory about "how much to spend, and how much to save".
In a boom period of capitalism, the growth of investments is cumulative, i.e. one investment leads to another, leading to a constantly expanding market, an expanding labor force
The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic ...
, and an increase in the standard of living
Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual. Standard of living is relevant because it is considered to contribute to an individual's quality ...
for the majority of the people.
In a stagnating, decadent capitalism, the accumulation process is increasingly oriented towards investment on military
A military, also known collectively as armed forces, is a heavily armed, highly organized force primarily intended for warfare. It is typically authorized and maintained by a sovereign state, with its members identifiable by their distinct ...
and security forces
Security forces are statutory organizations with internal security mandates. In the legal context of several nations, the term has variously denoted police and military units working in concert, or the role of military and paramilitary forces (su ...
, real estate
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...
, financial speculation
In finance, speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline in value.)
Many ...
, 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
In mathematics and logic, a corollary ( , ) is a theorem of less importance which can be readily deduced from a previous, more notable statement. A corollary could, for instance, be a proposition which is incidentally proved while proving another ...
an increase in the level of permanent unemployment.
As a rule, the larger the total sum of capital invested, the higher the return on investment
Return on investment (ROI) or return on costs (ROC) is a ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably ...
will be. The more capital one owns, the more capital one can also borrow and reinvest at a higher rate of profit or interest
In finance and economics, interest is payment from a borrower 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 distin ...
. The inverse is also true, and this is one factor in the widening gap between the rich and the poor.
Ernest Mandel
Ernest Ezra Mandel (; also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter (5 April 1923 – 20 July 1995), was a Belgian Marxian economist, Trotskyist activist and theorist, and Holocaust survivor. He f ...
emphasized that the rhythm of capital accumulation and growth depended critically on (1) the division of a society's social product between necessary product and surplus product
Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx in his critique of political economy. Roughly speaking, it is the extra goods produced above the amount needed for a community of workers to ...
, and (2) the division of the surplus product between investment and consumption. In turn, this allocation pattern reflected the outcome of competition
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, ind ...
among capitalists, competition between capitalists and workers, and competition between workers. The pattern of capital accumulation can therefore never be simply explained by commercial factors, it also involved social factors and power
Power most often refers to:
* Power (physics), meaning "rate of doing work"
** Engine power, the power put out by an engine
** Electric power
* Power (social and political), the ability to influence people or events
** Abusive power
Power may a ...
relationships.
Circuit of capital accumulation from production
Strictly speaking, capital has accumulated only when realized 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 ...
income has been ''reinvested'' in capital assets. But the process of capital accumulation in production
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
has, as suggested in the first volume of Marx's ''Das Kapital
''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, link=no, ; 1867–1883), is a foundational theoretical text in materialist phi ...
'', at least seven distinct but linked moments:
*The initial investment of capital (which could be borrowed capital) in means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as a ...
and labor power
Labour power (in german: Arbeitskraft; in french: force de travail) is a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, labour power, from the physical act of w ...
.
*The command over surplus labour
Surplus labour (German: ''Mehrarbeit'') is a concept used by Karl Marx in his critique of political economy. It means labour performed in excess of the labour necessary to produce the means of livelihood of the worker ("necessary labour"). The "su ...
and its appropriation.
*The valorisation
In Marxism, the valorisation or valorization of capital is the increase in the value of capital assets through the application of value-forming labour in production. The German original term is "''Verwertung''" (specifically ''Kapitalverwertung'') ...
(increase in value) of capital through production of new outputs.
*The appropriation of the new output produced by employees, containing the added value.
*The realisation of surplus-value through output sales.
*The appropriation of realised surplus-value as (profit) income after deduction of costs.
*The reinvestment of profit income in production.
All of these moments do not refer simply to an economic or commercial process. Rather, they assume the existence of legal, social
Social organisms, including human(s), live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary or not.
Etymology
The word "social" derives from ...
, cultural and economic power conditions, without which creation
Creation may refer to:
Religion
*''Creatio ex nihilo'', the concept that matter was created by God out of nothing
*Creation myth, a religious story of the origin of the world and how people first came to inhabit it
*Creationism, the belief that ...
, distribution Distribution may refer to:
Mathematics
* Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations
*Probability distribution, the probability of a particular value or value range of a vari ...
and circulation of the new wealth could not occur. This becomes especially clear when the attempt is made to create a market where none exists, or where people refuse to trade.
In fact Marx argues that the original or primitive accumulation of capital
In Marxian economics and preceding theories,Perelman, p. 25 (ch. 2) the problem of primitive accumulation (also called previous accumulation, original accumulation) of capital concerns the origin of capital, and therefore of how class distinctio ...
often occurs through violence, plunder, slavery, robbery, extortion and theft. He argues that the capitalist mode of production requires that people be forced to work in value-adding production for someone else, and for this purpose, they must be cut off from sources of income other than selling their labor power.
Simple and expanded reproduction
In volume 2 of ''Das Kapital'', Marx continues the story and shows that, with the aid of bank credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
, capital in search of growth can more or less smoothly mutate from one form to another, alternately taking the form of money capital (liquid deposits, securities, etc.), commodity capital (tradeable products, real estate
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...
etc.), or production capital (means of production and labor power).
His discussion of the simple and expanded reproduction
Reproduction (or procreation or breeding) is the biological process by which new individual organisms – "offspring" – are produced from their "parent" or parents. Reproduction is a fundamental feature of all known life; each individual or ...
of the conditions of production offers a more sophisticated model of the parameters of the accumulation process as a whole. At simple reproduction, a sufficient amount is produced to sustain society at the given living standard
Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual. Standard of living is relevant because it is considered to contribute to an individual's qualit ...
; the stock of capital stays constant. At expanded reproduction, ''more'' product-value is produced than is necessary to sustain society at a given living standard (a surplus product); the additional product-value is available for investments which enlarge the scale and variety of production.
The bourgeois
The bourgeoisie ( , ) is a social class, equivalent to the middle or upper middle class. They are distinguished from, and traditionally contrasted with, the proletariat by their affluence, and their great cultural and financial capital. ...
claim there is no economic law
Economic law is a set of legal rules for regulating economic activity.Ferdinand Joseph Maria Feldbrugge, Gerard Pieter van den Berg, William B. Simons (1985) "Encyclopedia of Soviet Law", '' BRILL'', O. S. (Olimpiad Solomonovich) Ioffe, Mark W. Ja ...
according to which capital is necessarily re-invested in the expansion of production, that such depends on anticipated profitability, market expectations and perceptions of investment risk. Such statements only explain the subjective experiences of investors and ignore the objective realities which would influence such opinions. As Marx states in Vol.2, simple reproduction only exists if the variable and surplus capital realized by Dept. 1—producers of means of production—exactly equals that of the constant capital of Dept. 2, producers of articles of consumption (pg 524). Such equilibrium rests on various assumptions, such as a constant labor supply (no population growth). Accumulation does not imply a necessary change in total magnitude of value produced but can simply refer to a change in the composition of an industry (pg. 514).
Ernest Mandel
Ernest Ezra Mandel (; also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter (5 April 1923 – 20 July 1995), was a Belgian Marxian economist, Trotskyist activist and theorist, and Holocaust survivor. He f ...
introduced the additional concept of ''contracted economic reproduction'', i.e. reduced accumulation where business operating at a loss outnumbers growing business, or economic reproduction on a decreasing scale, for example due to wars, natural disasters or devalorisation
In Marxism, the valorisation or valorization of capital is the increase in the value of capital assets through the application of value-forming labour in production. The German original term is "''Verwertung''" (specifically ''Kapitalverwertung'') ...
.
Balanced economic growth
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate o ...
requires that different factors in the accumulation process expand in appropriate proportions. But markets themselves cannot spontaneously create that balance, in fact what drives business activity is precisely the imbalances between supply and demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
: inequality is the motor of growth. This partly explains why the worldwide pattern of economic growth is very uneven and unequal, even although markets have existed almost everywhere for a very long time. Some people argue that it also explains government regulation of market trade and protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulation ...
.
Origins
According to Marx, capital accumulation has a double origin, namely in trade and in expropriation
Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to p ...
, both of a legal or illegal kind. The reason is that a stock of capital can be increased through a process of exchange or "trading up" but also through directly taking an asset or resource from someone else, without compensation. David Harvey
David W. Harvey (born 31 October 1935) is a British-born Marxist economic geographer, podcaster and Distinguished Professor of anthropology and geography at the Graduate Center of the City University of New York (CUNY). He received his P ...
calls this accumulation by dispossession
Accumulation by dispossession is a concept presented by the Marxist geographer David Harvey. It defines neoliberal capitalist policies that result in a centralization of wealth and power in the hands of a few by dispossessing the public and priv ...
. Marx does not discuss gifts and grants
Grant or Grants may refer to:
Places
*Grant County (disambiguation)
Australia
* Grant, Queensland, a locality in the Barcaldine Region, Queensland, Australia
United Kingdom
*Castle Grant
United States
* Grant, Alabama
* Grant, Inyo County, ...
as a source of capital accumulation, nor does he analyze taxation in detail (he could not, as he died even before completing his major book, ''Das Kapital''). Nowadays the tax take is often so large (i.e., 25-40% of GDP) that some authors refer to state capitalism
State capitalism is an economic system in which the state undertakes business and commercial (i.e. for-profit) economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital ...
. This gives rise to a proliferation of tax havens
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...
to evade tax liability.
The continuation and progress of capital accumulation depends on the removal of obstacles to the expansion of trade, and this has historically often been a violent process. As markets expand, more and more new opportunities develop for accumulating capital, because more and more types of goods and services can be traded in. But capital accumulation may also confront resistance, when people refuse to sell, or refuse to buy (for example a strike
Strike may refer to:
People
* Strike (surname)
Physical confrontation or removal
*Strike (attack), attack with an inanimate object or a part of the human body intended to cause harm
*Airstrike, military strike by air forces on either a suspected ...
by investors or workers, or consumer resistance).
Capital accumulation as social relation
"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 operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
social relations
A social relation or also described as a social interaction or social experience is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more individuals ...
(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 only possession of significant economic value is their labour power (their capacity to work). A member of such a class is a proletarian. Marxist philo ...
and of the wealth owned by the bourgeoisie.
This interpretation emphasizes that capital ownership, predicated on command over labor, is a social relation: the growth of capital implies the growth of the working class
The working class (or labouring class) comprises those engaged in manual-labour occupations or industrial work, who are remunerated via waged or salaried contracts. Working-class occupations (see also " Designation of workers by collar colou ...
(a "law of accumulation
Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form ...
"). In the first volume of ''Das Kapital'' Marx had illustrated this idea with reference to Edward Gibbon Wakefield
Edward Gibbon Wakefield (20 March 179616 May 1862) is considered a key figure in the establishment of the colonies of South Australia and New Zealand (where he later served as a member of parliament). He also had significant interests in Brit ...
's theory of colonisation:
In the third volume of ''Das Kapital'', Marx refers to the "fetishism of capital" reaching its highest point with ''interest-bearing capital'', because now capital seems to grow of its own accord without anybody doing anything. In this case,
Markets with social influence
Product recommendations and information about past purchases have been shown to influence consumers choices significantly whether it is for music, movie, book, technological, and other type of products. Social influence often induces a rich-get-richer phenomenon (Matthew effect
The Matthew effect of accumulated advantage, Matthew principle, or Matthew effect, is the tendency of individuals to accrue social or economic success in proportion to their initial level of popularity, friends, wealth, etc. It is sometimes summar ...
) where popular products tend to become even more popular.
See also
*Business cycle
Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examin ...
*Capitalist mode of production (Marxist theory)
In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production (German: ''Produktionsweise'') refers to the systems of organizing production and distribution within capitalist societies. Private m ...
*Charity (practice)
The practice of charity is the voluntary giving of help to those in need, as a humanitarian act, unmotivated by self-interest. There are a number of philosophies about charity, often associated with religion.
Etymology
The word ''charity'' o ...
*Commodity fetishism
In Marxist philosophy, the term commodity fetishism describes the economic relationships of production and exchange as being social relationships that exist among things (money and merchandise) and not as relationships that exist among people ...
*Constant purchasing power accounting
Constant purchasing power accounting (CPPA) is an accounting model that is an alternative to model historical cost accounting under high inflation and hyper-inflationary environments. It has been approved for use by the International Accounting St ...
* Culture of capitalism
*Dual-sector model
The Dual Sector model, or the Lewis model, is a model in Developmental economics that explains the growth of a developing economy in terms of a labour transition between two sectors, a traditional agricultural sector and a modern industrial sec ...
*History of capitalist theory
A theory of capitalism describes the essential features of capitalism and how it functions. The history of various such theories is the subject of this article.
Overview
Conceptions of what constitutes capitalism have changed significantly over ti ...
*Internal contradictions of capital accumulation
The internal contradictions of capital accumulation is an essential concept of crisis theory, which is associated with Marxist economic theory. While the same phenomenon is described in neoclassical economic theory, in that literature it is referr ...
*Investment-specific technological progress Investment-specific technological progress refers to progress that requires investment in new equipment and structures embodying the latest technology in order to realize its benefits. To model the influence of technological change upon production t ...
*Matthew effect
The Matthew effect of accumulated advantage, Matthew principle, or Matthew effect, is the tendency of individuals to accrue social or economic success in proportion to their initial level of popularity, friends, wealth, etc. It is sometimes summar ...
*Preferential attachment
A preferential attachment process is any of a class of processes in which some quantity, typically some form of wealth or credit, is distributed among a number of individuals or objects according to how much they already have, so that those who ...
*Prices of production
Prices of production (or "production prices"; in German ''Produktionspreise'') is a concept in Karl Marx's critique of political economy, defined as "cost-price + average profit". A production price can be thought of as a type of supply price for p ...
*Primitive socialist accumulation Primitive socialist accumulation, sometimes referred to as the socialist accumulation, was a concept put forth in the early Soviet Union during the period of the New Economic Policy. It was developed as a counterpart to the process of the primitive ...
*Productive and unproductive labour
Productive and unproductive labour are concepts that were used in classical political economy mainly in the 18th and 19th centuries, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian ...
*Proletarianization
In Marxism, proletarianization is the social process whereby people move from being either an employer, unemployed or self-employed, to being employed as wage labor by an employer. Proletarianization is often seen as the most important form of down ...
*Property income
Property income refers to profit or income received by virtue of owning property. The three forms of property income are rent, received from the ownership of natural resources; interest, received by virtue of owning financial assets; and profit, ...
*Relations of production
Relations of production (german: Produktionsverhältnisse, links=no) is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in ''Das Kapital''. It is first explicitly used in Marx's publish ...
*Return on capital Return on capital (ROC), or return on invested capital (ROIC), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested by sharehold ...
* Simple commodity production
*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 the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cos ...
* The rich get richer and the poor get poorer
* Unearned income
* Unequal exchange
*Value investing
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. The various forms of value investing derive from the investment philosophy first taught by Benjamin Graham an ...
Notes
References
* Michel Aglietta, ''A Theory of Capitalist Regulation''.
*Elmar Altvater
Elmar Altvater (Kamen, Province of Westphalia, 24 August 1938 – 1 May 2018) was Professor of Political Science at the Otto-Suhr-Institut of the Free University of Berlin, before retiring on 30 September 2004. He continued to work at the institut ...
, ''Gesellschaftliche Produktion und ökonomische Rationalität; Externe Effekte und zentrale Planung im Wirtschaftssystem des Sozialismus''.
*Samir Amin
Samir Amin ( ar, سمير أمين) (3 September 1931 – 12 August 2018) was an Egyptian-French Marxian economist, political scientist and world-systems analyst. He is noted for his introduction of the term Eurocentrism in 1988 and considered ...
, ''Accumulation on a World Scale''.
*Philip Armstrong, Andrew Glyn and John Harrison, ''Capitalism since World War II''. ''Das Kapital
''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, link=no, ; 1867–1883), is a foundational theoretical text in materialist phi ...
'': Vol. 1, Part 7 and Vol. 2, Part 3.'s Environmental Crisis: An Inquiry into the Limits of National Development''. Armonk: M.E. Sharpe, 1992.
*Hernando de Soto
Hernando de Soto (; ; 1500 – 21 May, 1542) was a Spanish explorer and '' conquistador'' who was involved in expeditions in Nicaragua and the Yucatan Peninsula. He played an important role in Francisco Pizarro's conquest of the Inca Empire ...
, ''The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else''.
*Manuel G. Velasquez, ''Business Ethics: Concepts and Cases.''
External links
Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden 1800-2000 by Rodney Edvinsson
*David Harvey
David W. Harvey (born 31 October 1935) is a British-born Marxist economic geographer, podcaster and Distinguished Professor of anthropology and geography at the Graduate Center of the City University of New York (CUNY). He received his P ...
Reading Marx's Capital
Reading Marx’s Capital - Class 11, Chapter 25, The General Law of Capitalist Accumulation
(video lecture)
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Capital (economics)
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