Capital Accumulation: Definition and Meaning

Investing money or any other financial asset with the intention of raising the original monetary value of said asset as a financial return, whether in the form of profit, rent, interest, royalties, or capital gains, is known as capital accumulation. These dynamic drives the pursuit of profit.

The goal of capital accumulation is to produce new fixed and operating capitals, expand and modernize the ones that already exist, increase the material foundation of social and cultural activities, and provide the required resources for reserves and insurance. One of the distinguishing features of a capitalist economic system is the process of capital accumulation, which serves as its foundation.

Meaning of Capital Accumulation

The primary goal of capital accumulation is the expansion of current prosperity through the speculation of generated income and savings. This speculation is targeted across the economy in a number of different ways. Investing in tangible products that fuel production is one way to increase capital. This can also refer to tangible things like apparatus. Investigate and expansion, also referred to as human capital, can also propel output.

If the worth of monetary assets such as frameworks and bonds rise, investing in them is another way to build up your capital. Appreciation is a crucial component of wealth accumulation. This usually involves investments in tangible property, like real estate, whose worth increases over time. It's essential to keep in mind that capital accumulation doesn't always require financial investment. Simple techniques like improved order can be used to accomplish this. For instance, a business can boost output by organizing its factory to be more effective without needing to invest in more equipment or employ more personnel. Profits would then rise as a result of the greater output.

Marxist Concept

Charles Fourier, Louis Blanc, Victor Considering, and Constantin Pecqueur, early socialist authors, are credited with originating the concept of capital accumulation or the concentration of capital, which Marx appropriated. Capital accumulation is the process by which profits are reinvested into the economy, growing the overall amount of capital, according to Karl Marx's critique of political economy.

Marx viewed capital as expanding value, or, to put it another way, as a sum of capital, typically expressed in dollars, that is transformed through human work into a bigger value and extracted as profits. The value of an economic or commercial asset used by capitalists to create more value is the basic definition of capital in this context.

Attentiveness and Centralization

Marx argued that capital has a propensity to become concentrated and centralized in the hands of the wealthiest businessmen. According to Marx, it is the attentiveness of already-formed capitals, the destruction of their individual autonomy, the appropriation of capitalists by capitalists, and the conversion of numerous minor capitals into a small number of significant capitalstion of capitalists by capitalists, and the conversion of numerous minor capitals into a small number of significant capitals.

Because it has been lost by many in another location, capital develops in one location into a massive mass in the palm of one hand. Cheapening of goods is one way that competition is battled. Ceteris paribus, the affordability of goods places demands on labor productivity, which in turn puts pressure on the size of production.

Capital-Accumulation Cycle Starting with Output

The only time capital has actually accumulated, strictly speaking, is when realized profit money has been ploughed in capital assets. However, the first book of Marx's Das Kapital makes the following seven points about the process of capital accumulation in production −

  • The early expenditure of capital (which might be borrowed capital) on production equipment and labor control of excess labor and its allocation.

  • The process by which capital is valorized (it’s worth is raised) through the creation of new outputs.

  • The taking of the new output with the added worth that employees create. the process of realizing surplus worth through product sales.

  • The use of realized surplus value as (profit) income after expenses have been deducted.

  • The practice of investing earnings back into manufacturing.

At any given time, not just an economic or commercial procedure is being discussed. Instead, they presuppose that there are power structures in place at the legal, social, cultural, and economic levels without which the creation, distribution, and circulation of the new riches would be impossible. When attempts are made to create a market where none already exists or where people are unwilling to trade, this becomes particularly obvious.

Marx actually contends that extortion, stealing, robbery, pillage, and violence are common ways in which the initial or primitive accumulation of capital takes place. He contends that the capitalist mode of production necessitates coercing people to work in value-added production for another party, and that in order to achieve this, they must be isolated from sources of revenue other than selling their labor power.

The Social Relationship of Capital Growth

In Marxist writings, "accumulation of capital" can also refer to the reproduction of capitalist social relations (institutions) on a larger scale over time, i.e., the growth of the proletariat and the bourgeoisie's wealth. This view highlights the social relationship between capital ownership, which is based on the command of labor, and the development of the working class. (a "law of accumulation"). In the first volume of Das Kapital, Marx used Edward Gibbon Wakefield's theory of colonization to demonstrate this concept −

Capital Accumulation and Inequality

According to a lot of economists, accumulating wealth causes social inequality. The Marxist Theory's foundational element is this. The theory behind it holds that because a large portion of capital accumulation originates from commercial or investment profits, and because those profits are consistently reinvested, creating a self-reinforcing cycle, the affluent continue to collect more investment and wealth and later additional regulator various aspects of the economy and society. However, some contend that a country's overall wealth redistributes as a result of a general rise in wealth.


The primary indicator of capital accumulation is the shift in asset value. This would focus on the reinvestment of earnings into the company in the case of a establishment. This could involve reinvesting in material assets or human capital, depending on the type of company, and then calculating the value-added of the re-investments.

Frequently Asked Questions

Q1. What Is the Accumulation Phase?

Ans. During the accumulation era, contributions are made to an account, like an annuity. Up until distribution, the contributions and any relevant earnings accumulate.

Q2. Define the term Surplus Value?

Ans. Surplus value is the difference between the proceeds from the sale of a good and the expense of producing it, or the proceeds from the sale of the good less the

Q3. What do you mean by Return On Capital?

Ans. Return on capital (ROC), also known as return on invested capital (ROIC), is a ratio used in accounting, valuation, and finance to assess a company's profitability and capacity to create value in relation to the capital that shareholders and other debtholders have put into it. It reveals the efficiency with which a business converts money into profits.

Q4. What is Gross income?

Ans. Gross income is the total of all revenue, including wages, salaries, profits, interest, rent, and other types of income, before any withholdings or taxes. Net income, which is the gross revenue less any applicable taxes and other deductions, is in opposition to it.

Updated on: 08-May-2023


Kickstart Your Career

Get certified by completing the course

Get Started