Over the years, economies have been struggling to ensure economic growth and development. Microeconomic goals such as stable prices and full employment of human resources are the indicators of a growing economy. In every investment, the backbone for growth is capital investment in the form of inputs such as labor and technology. The strength of the capital outlay stipulates the rate of growth of any investment and also when the capital structure is outlaid efficiently, the return to capital expected tends to be significant. This paper tries to discuss how capital accumulation and concentration affect the market that is the impact they to concepts have on aggregate demand and total supply in the market. The paper analyzes the relationship between employers and employees in the labor market, where both the employers and workers are competitive with the aim of maximizing their output to accumulate resources.
Capital concentration and capital centralization are both resources creating techniques that should be embraced. While capital centralization arises from the growth of already existing capital structure, capital concentration comes up as a result of investing in returns to capital. The concentration implies that there is the availability of resources in the form of credit facilities which in turn avails investable capital in the economy. The venture ensures growth and continuity in the business cycles. On the other hand, capital centralization has been enhanced by the growth of the banking sector which has made it possible for capital to gain value with time. The improved banking sector has ensured that people can invest in a wide range of investments such as stock and bonds which increase value at a relatively high rate.
The process of capital accumulation involves vigorous trading activities where every participant in the market what to acquire the best from their output. In the labor market, employers who purchase labor from their employees in the form of wages and salaries want to recover the costs they incur. The relationship led to Ellen Wood stipulating that markets are not places where people get their best deals but a place where the power and exploitation are dominant features. The implication is that the class or worth of an individual determines whether they are sellers or buyers in the market that are the purchasing power of the individual. The notion of wealth concentration implies that the households in the market have private property to trade in and accumulate wealth ("Ownership Concentration, Intellectual Capital, and Firm Performance: Evidence from Italy"). The possession of private ownership ensures that they have a legal ownership of the trade commodity and can take any action on the property without having to justify it to anyone.
Another aid in capital creation is the availability of accumulated property. The collective property refers to the public goods and services that ensure productivity in the society. These public goods can be the infrastructure that has been put in place by the authoritative department to ensure smooth running of production sector and industries. State-owned resources are run using taxpayers money and they are meant to help anyone willing to create wealth within the society. Sometimes the public goods are transferred to the private sector for either full or partial management in collaboration with the government. However, privatization of some crucial sectors of the economy such as health, electrification and water services proves to be inefficient since private firms seek profit maximization at the expense of consumers hence they are less equitable and fail to achieve their primary motive of consumer protection. Capitalization of enterprises makes the firms attain control of the market hence have a monopoly advantage over the others. According to Karl Marx, the advancement of an enterprise and growth of its monopoly power contradicts efficiency in production and tampers with the primary motive of capitalism which is resource allocation to all individuals and self-dependency.
In capitalistic economies, most of the consumer commodities are assigned monetary value such that to acquire any utility one must incur expenses. The strategy promotes the culture of capital accumulation in that the individuals in such societies want to have the relative purchasing power hence promoting economic growth and development (Rajala 2013). The case is so because every provider of a service has personal bills to cater for that is provided by another supplier in a different sector. The relationship creates interdependence among the economic state and ensures that there is money flow in the economy. Adam Smith states that, individuals focus on the promotion of each other, that is they work to attain a natural system of liberty. Hence wealth can easily flow from individual to another depending on their agreement. However, Smith fails to stipulate where the capital or the private property that is involved in market exchange originates.
According to Karl Marx, capital centralization takes place when working or existing resources are redistributed such that the ownership is left in the hands of few individuals. The process involves channeling the funds to main pools from where better management and utilization can be executed. Karl Marx argues that when the capital is concentrated in few large firms, economies of scale such as mass production and reduced cost of production are achieved which favors the general growth of society by increasing the aggregate supply.
Capital concentration and accumulation additionally is influenced by the role of corporate sector in organizations and sprouting credit markets. The latter comes with social implications such as high-interest loans that cut down growing enterprises’ profits. The corporate sector plays a role in the prediction of future stock worth which can be misguiding to the public hence wrong investment decisions. The sector promotes capitalism since it inhibits the freedom of people to trade with their private property independently; instead they depend on forecasts from bodies which are sometimes unreliable.
However, concentrating power on some few industries and allocating them resources leads to growth of monopoly hence diminishing healthy competition among firms. When companies are competing in a fair manner consumer protection is enhanced since the consumer can get quality goods at a cheap price. In addition, the output is increased since there are many firms offering the commodities hence the consumers’ choices are also broadened.
Capital concentration and resource centralization have implication on the both the labor market and the total market. Karl Marx explained the scenario as a situation whereby laborers had only their labor to sell in the labor market, which made the market handicapped and had limited access (Economictheories.org, 2016). The workers were forced out of the market with their subsistence farming replaced with British Textile industries which were earning more returns to capital invested. The laborers only option was to trade their labor in the textile industries to be able to purchase consumer products. The accumulation of wages and salaries enabled the workers also to accumulate capital and be able to venture in high return investments which ensured high returns. The investments promoted both personal growths of the laborers as well as improving the national economy in general.
Accumulation of capital ensures that there is increased productivity in the economy. The aggregate supply of labor and capital is beneficial in that it ensures mass production as evidenced in the case of Italy in Ownership Concentration, Intellectual Capital, and Firm Performance: Evidence from Italy, 2013. When determining the type of capital input to incorporate, the overall economic goals should be considered. Capital intensive methods endorse the application of technology to maximize output, but it is detrimental to the labors that are left unemployed as a result. The laborers should ensure that they are well equipped with technical skills that are so professional in the industry such they cannot be rendered jobless even with the adoption of new technology.
On the aggregate demand side, according to Keynesian Economists, when capital is accumulated; firms can embark on large scale production (Palacio-Vera, 2009). Hence, the investments should embark on the advertising and active competition such that capitalistic ventures can positively contribute to the economy. When trade is opened up or liberalized, capitalistic enterprises should ensure that they endorse innovation and new technology to keep up competing with the other firms. When ventures capitalize in innovation and modernization, production becomes technical and efficient. With this, the output is increased, and it can meet the increasing aggregate demand. Firms should target maximum sales as a backbone of business growth and should make the strategy their priority. A decreased commodity price as a result of economies of scale can attract a large share of market hence the increasing the aggregate demand in the economy.
References:
"Ownership Concentration, Intellectual Capital, And Firm Performance: Evidence From Italy". China-USA Business Review 12.12 (2013)
Karl Marx (2016). Economictheories.org: The Concentration and Centralization of Capital ~ ECONOMIC THEORIES. Retrieved 1 March 2016, from http://www.economictheories.org/2008/07/karl-marx-concentration-and.html
Ownership Concentration, Intellectual Capital, and Firm Performance: Evidence From Italy. (2013). China-USA Business Review, 12(12).http://dx.doi.org/10.17265/1537- 1514/2013.12.005
Rajala, U. (2013). The concentration and centralization of late prehistoric settlement in central Italy: the evidence from the Nepi Survey. Pap. Br. Sch. Rome, 81, 1-38. http://dx.doi.org/10.1017/s0068246213000032
Palacio-Vera, A. (2009). Capital Accumulation, Technical Progress and Labour Supply Growth: Keynes's Approach to Aggregate Supply and Demand Analysis Revisited. Review Of Political Economy, 21(1), 23-49. http://dx.doi.org/10.1080/09538250802516974
http://wcs.lms.athabascau.ca/mod/book/view.php?id=697&chapterid=1135
