Capital Accumulation in a Firm Most of Essay
- Length: 6 pages
- Sources: 3
- Subject: Economics
- Type: Essay
- Paper: #88200184
Excerpt from Essay :
In a firm, most of the capital source comes from accumulation. This concept of capital accumulation defines how wealth is generated for the company by adding up amount in cash or other forms of asset into the capital account. Capital accumulation is solely for increasing the profits on the possession of the firm and no other aims are attached with it other than bolstering the revenue holdings of the company. Capital accumulation is not connected with increment in labor input or output. It is dependent upon the existing company profits that the firm uses to maximize the existing capital. Assets that are in possession of the firm can be used to increase the capital by appreciating in their value or acquire assets that can be used to create further wealth. Other ways firms bring accumulation of capital into process is through acquiring shares or mutual funds. Capital accumulation is formed with its components of production capital, money capital and commodity capital. Since the accumulation depends upon the expectation of the profitability of production industrial assets, financial assets and tradable products form the core concept of accumulation (Hunt & Lautzenheiser, 2011).
Capital with its sole definition is the source of individuals or company gather or exchange to run the business processes and hence they have taken several forms to fit in the criteria they deal with. The forms of capital sources known to the world currently are eight however; they may be other undistinguished types too. The forms include experiential capital, intellectual capital, cultural capital, financial capital, social capital and material capital. A community and not a firm or individuals own cultural capital. A community that is formed for some purposes and conducts internal and external process. Experiential capital comes from learning and is a non-monetary asset for any firm, which holds equal importance to any asset of the firm. This can be acquired on individual level.
Similar is the case with intellectual capital. The global financial system was constituted due to financial capital. Any monetary asset is the financial capital for a firm or individual. Material capital is the non-processed resources for production and social capital is the networking with social groups or forming organizational networking.
Body: As capitals are invested in the production process, they take their own forms according to the type of function they are needed. Capital has three basic types. First is the constant capital, which includes all the fixed assets, raw materials and incident expenses, occurring in the production process (Hunt & Lautzenheiser, 2011). These are not regarded as resources that create continued value and add up to it. Second is the variable capital, which includes the varying input for production that is the labor. This is responsible for creating the value that keeps changing with the amount of usage. Semi-variable assets have both characteristics of constant and variable inputs. They keep changing from one point of production to another.
Constant capital: the constant capital for any production firm needs to be lowered to the extent that the variable cost for the production exceeds the fixed inputs. The reason for this states that fixed costs need to be paid despite the lowered production output. Since these costs are fixed, one cannot minimize the expenditures incurring on it. If the surplus value is increased and the variable capital remains with same proportion then the cost of fixed capital can be lowered since, it helps in generating profits to a high level. The volume of fixed capital remains same however if expensive expenditures are spent on their acquisition it may not benefit the firm on a long-term basis. The reason for this is that they do not appreciate in value with time whereas capital accumulation requires asset acquisition, which can appreciate its value from time to time.
In some case sift how firm is looking to increase its profit generation through acquisition of more fixed capital, the working hours of labors is increased. The working day is lengthened otherwise the strategy for acquiring further fixed capital can be a failure. This strategy can help in capital accumulation through greater amounts of profit generated (Giddens, 1996)
When fixed capital is increased the number of labors will also be increased which means that the variable capital is increased by the proportion of fixed capital. Many firms need to increase their capital assets when working with raw materials. Raw materials require more time in processing and in the given time the fixed capital used needs to be, working in the relating proportions of variable capital therefore machinery needs to be brought into acquisition according to the amount and rate at which materials are processed.
Variable capital: variable capital consists of the labor power and often the value of the labor that has been invested in the production processes. Variable cost creates new value to the production outputs and continues to do so by preserving the value by virtue of its characteristic of being a necessary element of production process. It is the variable capital, which incorporates the specific skills, requires for each job in the process of production otherwise the final output would not emerge as it was designed and planned. The power of labor creates surplus value with more time it gives to the working surplus value is created (Hunt & Lautzenheiser, 2011). This means of production shifts the value to the final product and transforms the processed material into something, which creates another unified form of value concept.
Surplus value: in simplest form, the worker produces production units and incurs some wages on the work they perform. The difference between the two elements determines the surplus value.
The surplus value should always be higher which determines that the work done by the labor is sufficient to produce amount of profit greater than the work put into the process. The greater number of profit includes additional efforts that are estimated to be the reason of producing those units of profit. Surplus value is a source of income and can be given the status of society's accumulation fund however; it is enforced that the surplus units be regarded solely as form of income.
Role of these three factors in process of capital accumulation:
Constant capital variable capital and surplus value are interrelated components of every production process sin a firm. These components work in accord to determine how much each of the three's contribution can bring positive or negative changes in the profit generation. According to economists, if the constant capital is increased without implementing enough efforts on increasing the variable capital, production units may begin to fall in lost units as the fixed cost incurred on the fixed capital cannot be altered and variable costs cannot be further lowered down to accommodate the expenditure balance. In process of capital accumulation, fixed capital assets can be brought into working by utilizing more potential of the capital assets (TR Jain, 2009). To do so, variable capital must interchange with same proportion of fixed capital. For some organizations, saving on the labor cost may work diligently to bring rise in their rate of profit however, the application of this capital can be lowered by creating constant capital. Here the constant capital can refer to reengineering which forms modified structure of the technology used in each department with much less input of labor put into process. Contrary to this, large concentration of variable capital may help save the organization on their fixed capital cost and become a source of greater revenue generation.
The organization must look into its internal economy and the foremost economy of the organization is its investment in labor force. The reduction of their labor can be a strategy to induce fixed capital usage however, the value of the machinery inputs cannot be appreciated from the time of acquisition and at one point, and the organization may have to consider making decisions for its fixed capital usage. The balance between the two cannot achieve the desired results related with increased capital accumulation therefore the organization itself must determine whether it chooses to go with the constant capital reduction or the variable capital.
Labor are of as much importance as the fixed capital and reducing the units of labor to production process for the purpose of increasing income generated ratio, it affects the living conditions and his/her economy greatly. In economic terms, the transformation of labor force into putting more efforts or in other words to increase the surplus value is a means of capital accumulation however the contrary strategy may directly affect their economies and employment situations of the region. In this case, organizations cannot risk exploiting their capital options to generate profit and damage the economy of the region. Moreover, the concept of surplus value in capital accumulation imposes adverse effects on labor force. It leads to negative approaches of discharging labor output by neglecting the basic labor rights (TR Jain, 2009).
With respect to surplus value, it can only be used to increase profit rate and…