Capital Accumulation | What is Capital Accumulation in Economics?

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Hi friends, in today’s article we are going to know about the capital accumulation. So let’s discuss in details.

What is Capital Accumulation?

Capital Accumulation plays significant role in increasing economic growth. Economic growth of a country is functionally related to rate of investment and investment depends on capital stock of a country.

According to Smith, “Any increase in capital stock in a country. Generally leads to more than proportionate increase in output on account of continually growing division of labour.”

Capital stock consists of (a) goods for the maintenance of production workers, (b) goods for help helping the workers in their productive activities. Adam Smith distinguished capital into three parts non capital, circulating capital and ked capital goods.

Non capital goods refers to those which are useful directly and immediately to their owner. Fixed capital goods refers to those goods which are directly used in production processes, without changing hands. The rate of investment was determined by the rate of saving and savings were invested in full.

Smith also believed that, “Under stationary conditions wage rate falls to the subsistence level, whereas in periods of rapid capital accumulation, they rise above this level. The extent to which they rise depends upon the rate of population growth.

According to Smith the increase in prosperity, progress and population, the rate of interest falls and as a result capital is augmented. With the fall in interest rate, the money lenders will lend more to earn more interest for the purpose of maintaining their standard of living at the previous level.

But when the rate of interest falls, the money lenders unable to lend more in order to earn more to maintain their living standard. Under such situation, they will themselves start investing and becomes entry nears. Thus Smith believed that economic.

Conclusion

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