What is Capital Accumulation? Discuss the factors that influence Capital accumulation


Capital formation or capital accumulation means the increase of the stock of real in a country. In other words, capital formation involves making more capital goods, such as machines, tools, factories, transport, equipment, materials, electricity, etc., which are used for the further production of goods. For making an addition to the stock of capital savings investments and technical progress are essential. Capital accumulation is the very core of economic development. It may be a predominantly private enterprise system like the American one or a socialist economy like China and Cuba. Economic development cannot take place with technical progress such as the construction of irrigation works, the production of agricultural tools and equipment and reclamation, the building of dams, bridges, and factories with machines installed in them, roads, railways and airports, ships and harbors, all the produced means of further production associated with high-level productivity. In the view of many economists, capital formation occupies the central and strategic position in the process of economic development.

Factors influencing Capital Formation:
Capital formation is not an automatic process. The rate of capital formation is different in different countries. This shows that capital formation is conditioned by certain factors. The following are the chief factors that govern capital formation in a country.

(a)        Saving Creation: Savings are done by individuals or households. They do savings by not spending all their income on consumer goods. When individuals or households save they release resources from the production of goods. Workers' natural resources, materials, etc. thus released are made available for the production of capital goods.

A high rate of savings is possible if people are prepared to put forth the effort to maximize output even with the resources available and are willing to keep down their expenditures within reasonable limits. In other words level of savings in a country depends upon the power to save and the will to save. The power to save or the saving capacity of an economy mainly depends upon the average level of income and the distribution of national income. The greater the level of income greater will be the amount of savings. Another source of savings is government. The government savings constitute the money collected as taxes and profits made by the state undertakings i.e. government enterprises. Foreign trade constitutes third source of savings. Foreign trade is easily amenable to State control for revenue and other purposes.

(b)        Mobilizing of Savings: Next step in process of capital formation is that the savings of the household must be mobilized and transferred to businessmen or enterprise that requires them for investment. This stage depends on the efficiency of machinery for the collection of savings viz, the capital market, banks, insurance companies, etc.

(c)        Channelising Savings into investment: For savings to result in capital formation, they must be invested. In order that investment of savings should take place, there must be a good number of honest and dynamic entrepreneurs in a country who are able to take risks and bear the uncertainties of production. Given that a country has got enough good and venturesome entrepreneurs, the investment will be made by them only if there is sufficient inducement to invest. Inducement to invest depends on the marginal efficiency of capital i.e. progressive rate of profit on the one hand and rate of interest on the other hand.

(d)        Foreign Capital: Capital formation in a country can also take place with the help of foreign capital or foreign savings. Foreign capital can take the following form.

(i) Direct private investment by foreigners.
(ii) Loans or grants by foreign governments and
(iii) Loans by international agencies like World Bank.

Comments

Post a Comment

Popular posts from this blog

What is the Dynamic Theory of Profit

Image
Clark's Dynamic Theory of Profit And Its Criticism The Dynamic Theory of Profit is associated with the name of an American Economist, J. B. Clark. In the world of reality, according to J. B. Clark, profit arises only in a dynamic economy. An economy is said to be dynamic when there is a change in population growth or change in the method of production or a change in the consumer’s wants, etc. A society which is without these changes is called a static society. In a static society, only monopoly profits continue to exist. All other economic profits are gradually eliminated by competition. In a dynamic society, an entrepreneur is always confronted with continuous unpredictable changes in demand for his product. The variation in demand may take place due to changes in fashions, tastes, the standard of living, distribution of income, population, new inventions, international repercussions, technological advances, etc. A prudent entrepreneur will always keep an eye on future demand
Read more

Compare the anatomy of Bifacial and Isobilateral leaves

BIFACIAL LEAF: It is also called dorsiventral leaf. This leaf is more strongly illuminated on upper surface than on lower surface. This unequal illumination induces a difference in the internal structure between upper and lower sides. Its internal structure shows: (1)        Upper Epidermis This is single layer of cells with thick cuticle which checks excessive evaporation of water from the surface. It does not contains chloroplasts, stomata are also absent. (2)        Lower Epidermis This is also single layer but with a thin cuticle. It bears many stomata, two guard cells of which contain some chloroplast, none are present in the epidermal cells. Internal to each stomata is large cavity called respiratory cavity. Lower epidermis of leaf is meant for exchange of gases (oxygen and carbon dioxide) between the atmosphere and the plant body. Excess water also evaporates from lower epidermis. (3)        Mesophyll The ground tissue lying between upper epidermis and th
Read more

osmoregulation in terrestrial and aquatic animals

Mechanism of osmoregulation is very important for all groups of animals whether inhibting land or water. Unlike plant cells, animal cells when placed in hypotonic solution burst due to the continuous absorption of water. On the contrary they would shrink and die if constantly placed in hypertonic solution. Normally uptake and loss of water are in balance for proper survival of cell. (1)        Osmoregulation in terrestrial animals: Terrestrial animals are more likely to loose water by evaporation through their permeable surfaces exposed to amsophere. Among various animal groups only Arthropods and vertebrates became the most successful land dwellers. They have developed number of strategies to maintain osmoregulation of their body fluid. (a) Water proof external coverings: To prevent water loss through external surfaces, vertebrates like reptiles, birds and mammals have water proof keratinized epidermis. Similarly the insects have developed external water proof layer called
Read more