Capital Accumulation - Definition

Definition

The definition of capital accumulation is subject to controversy and ambiguities, because it could refer to:

• a net addition to existing wealth
• 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 becomes richer; the total stock of wealth increases. But if some accumulate capital 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. 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, accounting and Marxian economics, capital accumulation is often equated with investment of profit income or savings, especially in real capital goods. The concentration and centralisation of capital are two of the results of such accumulation (see below).

capital accumulation can refer to:

• real investment in tangible means of production, increasing the capital stock.
• 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.
• "human capital accumulation", i.e., new education and training increasing the skills of the (potential) labour force which can increase earnings from work.

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.