Capital accumulation
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Capital accumulation is the dynamic that motivates the
Definition
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The definition of capital accumulation is subject to controversy and ambiguities, because it could refer to:
Most often, capital accumulation involves both a net addition and a
In
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, 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:
- labour forcewhich 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 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 (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
Organisations such as the International Monetary Fund, UNCTAD, the World Bank Group, the OECD, and the Bank for International Settlements used national investment data to estimate world trends. The Bureau of Economic Analysis, Eurostat 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
Demand-led growth models
In
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, 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, savings 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).[5] 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.[6] For its turn, the model of the Sraffian Supermultiplier grants a static stable equilibrium and a convergence to the planned capacity utilization.[7] 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
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Marx borrowed the idea of capital accumulation or the concentration of capital from early socialist writers such as
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. 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 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 dissolution of capitalism and its replacement by socialism, which would operate according to a different economic dynamic.[9]
In Marxist thought, socialism would succeed capitalism as the
Concentration and centralization
According to Marx, capital has the tendency for concentration and
"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."[10]
Rate of accumulation
In Marxian economics, 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).
Other things being equal, the greater the amount of profit-income that is
In a boom period of capitalism, the growth of investments is
In a
As a rule, the larger the total sum of capital invested, the higher the return on investment will be. The more capital one owns, the more capital one can also borrow and reinvest at a higher rate of profit or interest. The inverse is also true, and this is one factor in the widening gap between the rich and the poor.
Circuit of capital accumulation from production
Strictly speaking, capital has accumulated only when realized
- The initial investment of capital (which could be labor power.
- The command over surplus labour and its appropriation.
- The valorisation (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
In fact Marx argues that the original or primitive accumulation of capital 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
His discussion of the simple and expanded
The
Ernest Mandel 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.
Balanced economic growth 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: 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.
Origins
According to Marx, capital accumulation has a double origin, namely in trade and in
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
Capital accumulation as social relation
This section contains too many or overly lengthy quotations. (December 2017) |
"Accumulation of capital" sometimes also refers in Marxist writings to the reproduction of
This interpretation emphasizes that capital ownership, predicated on command over labor, is a social relation: the growth of capital implies the growth of the
...Wakefield discovered that in the Colonies, property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative — the wage-worker, the other man who is compelled to sell himself of his own free-will. He discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things. Mr. Peel, he moans, took with him from England to Swan River, West Australia, means of subsistence and of production to the amount of £50,000. Mr. Peel had the foresight to bring with him, besides, 3,000 persons of the working-class, men, women, and children. Once arrived at his destination, “Mr. Peel was left without a servant to make his bed or fetch him water from the river.” Unhappy Mr. Peel, who provided for everything except the export of English modes of production to Swan River!
In
The relations of capital assume their most externalised and most fetish-like form in interest-bearing capital. We have here , money creating more money, self-expanding value, without the process that effectuates these two extremes. In merchant's capital, , there is at least the general form of the capitalistic movement, although it confines itself solely to the sphere of circulation, so that profit appears merely as profit derived from alienation; but it is at least seen to be the product of a social relation, not the product of a mere thing. (...) This is obliterated in , the form of interest-bearing capital. (...) The thing (money, commodity, value) is now capital even as a mere thing, and capital appears as a mere thing. The result of the entire process of reproduction appears as a property inherent in the thing itself. It depends on the owner of the money, i.e., of the commodity in its continually exchangeable form, whether he wants to spend it as money or loan it out as capital. In interest-bearing capital, therefore, this automatic fetish, self-expanding value, money generating money, are brought out in their pure state and in this form it no longer bears the birth-marks of its origin. The
social relation is consummated in the relation of a thing, of money, to itself.—Instead of the actual transformation of money into capital, we see here only form without content.
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) where popular products tend to become even more popular.[11]
See also
- 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
Notes
- ^ Caves, R. W. (2004). Encyclopedia of the City. Routledge. p. 65.
- ^ 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."
- ^ Capital, Encyclopedia on Marxists.org: http://marxists.org/glossary/terms/c/a.htm#capital
- ^ See generally: Mitchell et al, Goff & Jones Law of Unjust Enrichment (Sweet & Maxwell, 8th ed, 2011); Graham Virgo, The Principles of the Law of Restitution (3rd ed, 2015); Andrew Burrows, The Law of Restitution (3rd ed, 2011); Mason, Carter, and Tolhurst, Mason & Carter's Restitution Law in Australia (LexisNexis, 2nd ed, 2008). On unjust enrichment as a 'unifying legal concept', see the judgment of Deane J in Pavey & Mathews v Paul (1987) 162 CLR 221.
- ^ Serrano, F., Freitas, F., & Bhering, G. The Trouble with Harrod: the fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier.
- ^ 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.
- .
- ^ William James Blake (1939). An American Looks at Karl Marx. Cordon Company. p. 622.
- .
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.
- ^ Das Kapital, vol. 1, ch. 25
- PMID 28746334.
References
- 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. Vol. 2, Part 3.'s Environmental Crisis: An Inquiry into the Limits of National Development. Armonk: M.E. Sharpe, 1992.
- 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.