Capital accumulation means collecting or gathering of objects that have value, increasing wealth by concentrating it or creating of wealth. Capital refers to money or any financial asset that is utilized for generating money. The generated money can be received in the form of interest, profit, rent, capital gain, royalties or any other type of return. This activity is the foundation of the economic system of capitalism in which all the economic activities are planned and prepared around accumulating the capital. That is to say, all investments are made for realizing financial profit.
Workers are also considered as a type of capital. Investment in human capital is made to improve a worker’s abilities which will increase the potential of that worker.
In economics, Marxian economics and accounting, capital accumulation is usually equated with the investment of profit income or with savings. It is especially done in real capital goods. The outcome of capital accumulation is concentration and centralization.
Accumulation of capital can be increase in the capital stock, investment in means of production which is tangible, investment in financial assets shown on paper that give profit, rent, interest, fees, royalties or capital gains, investment in physical assets which are non-productive, for example works of art having value or residential real estate. It also refers to investment in human capital which involves training and developing labor force for increasing their skill and efficiency which can ultimately increase the earnings or income from work.
For economic growth, financial as well as non financial capital accumulation is usually required, as additional fund is required for additional production for increasing the scale of production. More productive and wiser organizations can even increase their production without expending more capital. Creation of capital does not always require additional investment. It can be made by improved organization or by invention that would improve productivity, increase sale of property, etc.
In modern econometrics and macroeconomics, the term ‘accumulation’ is less preferred and often capital formation is used in its place. However, the term ‘accumulation’ is preferred by United Nations Conference on Trade and Development (UNCTAD). It is sometimes used in national accounts.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Accounts Payable Turnover Ratio
- Debt Service Coverage Ratio
- Solvency Ratio
Have 10 minutes to relax?Play our unique
Play The Game