Investment, capital and capital accumulation
Investment is strictly defined as the change in capital stock over a period of time and/or as the purchase or acquisition of new plant and equipment that leads to an increase in the country's stock of productive assets - the creation of resources - to be used in production (Eatwell et al., 1998: 980-81; Sherman and Evans, 1984: 156-58). The stock of capital grows as new investment, or what is known as gross fixed capital formation, is produced or purchased.1 Consequently, investment, in this sense, is a flow term - the Keynesian definition - unlike capital, which is a stock term). It needs to be measured over a period of time; this is in contrast to capital, which is measured at a point in time.2
From a static mathematical perspective, investment can be measured in gross or net terms. While gross investment is the sum of additions to the capital stock, net investment is gross investment minus any reductions from the existing capital stock (Hunt and Sherman, 1986: 453; Lund, 1971). Net investment is equivalent to the output of the capital-goods industries (plus additions to working capital) minus what is needed to replace worn-out equipment or used-up stocks (Eatwell et al., 1998: 981).
A more holistic standpoint defines investment as the key variable in the dynamics of capitalism and the means of growth in the national economy. The crucial driver of economic growth is productive investment or investment in new technology and plant and equipment (Harrod, 1936; Hicks, 1950; Samuelson, 1939). Employment growth arises from productive investment; that is, investment which incrementally adds to non-labour saving capital stock. In turn, the prospect of growth influences new net investment. In this cyclical process, if new technology is introduced exogenously or developed endogenously, the economy is locked into a virtuous circle whereby high investment levels repeatedly enhance economic performance. More generally, new firms will hire more workers, resulting in more employment and more demand for consumer goods. In the absence of significant external leakages, fluctuation in macroeconomic output - or what is known as a business cycle - is generated from the basic interaction between investment and the latter's amplified effect on output through the multiplier effect.3 More importantly, increasing investment not only creates effective demand and galvanises the utilisation of resources, but it also builds productive capacity, generating more goods and more wealth.4
Capital is here defined as a mass of human-made equipment used in the production process to produce other goods including machines and factories. The stock of capital grows as new capital or, more aptly, investment is produced or purchased (Sherman and Evans, 1984: 156-58). Capital, in this definition, involves two assumptions. First, the definition assumes that capital is ahistorical, meaning that it can be said to exist in all societies, past, present, and future. Second, it assumes that things of their own accord, by themselves, produce an income stream. However, the Marxist definition of capital is based on the rejection of these two assumptions, because capital cannot be understood apart from capitalist relations of production (Bottomore, 1983: 68). For Marx, 'capital' in the sense of human-made objects used in production - things - has always existed, but capital under capitalism is not a thing. It is a social relation which becomes manifest in things/commodities (Bottomore, 1983). Marx writes in Capital, Volume III, chapter 48:
Capital is not a thing, but rather a definite social production relation, belonging to a definite historical formation of society, which is manifested in a thing and lends this thing a specific social character ... It is the means of production monopolized by a certain section of society, confronting living labour-power as products and working conditions rendered independent of this very labour-power, which are personified through this antithesis in capital. (Marx, 1962)
Capital is an immaterial social relation of production that creates a social condition by which it privately appropriates socially produced wealth (Fine and Saad Filho, 2004; Meszaros, 1995; Wood, 2002). Within this Marxist understanding of capital, capital accumulation is the process by which 'social classes under capitalism relate to each other in the process of production, exchange, and distribution to create more commodities and wealth (Kadri, 2013).' Capital accumulation remains the fundamental dynamic of capitalism and of the capitalist class since its inception (Bottomore, 1983: 272). In more concrete terms, capital accumulation is the maximisation of profit and of capital growth. A crisis of capital accumulation is then the failure of the ruling social class to reproduce the necessary social conditions for increased production and growth. By the same token, the crisis of capital accumulation is manifested in the burden borne by the peripheral classes as a result of dislocation resulting from the accumulation process (Kadri, 2013). Thus, the very concept of capital accumulation varies drastically and acquires a new content in different stages of capitalist development. This form of capital accumulation, which is prone to overproduction crisis, is therefore specific to capitalism.