Capitalism Isn't Accumulation. Get It?

Because I've been reading around Marxist economics recently I have developed an allergic reaction to the word "accumulation." Marx and his epigones are always using the word in respect of capitalism, as in:

Primitive Accumulation: Marxists say this started with the enclosure of land and the expulsion of the resident population to create a landless proletariat. OK. Good point. Only it wasn't the capitalists that did this but the feudal nobles who, upon being disarmed by the absolute monarchs, kicked the peasants off their land because they couldn't use them as soldiers any more. By the way, Sir James Steuart, quoted by Marx, was a mercantilist who believed in a ban on the export of gold and silver (thus encouraging their "accumulation.")

Capital Accumulation: In Marx's notion (from La Wik), 

capital accumulation is the operation whereby profits are reinvested into the economy, increasing the total quantity of capital. Capital was understood by Marx to be expanding value, that is, in other terms, as a sum of capital, usually expressed in money, that is transformed through human labor into a larger value and extracted as profits.

Do you see the problem here? Marx and his epigones assume that capital accumulation is simply a mechanical or hydraulic operation. You pump your profits back into the economy and it accumulates as more profits. But it's not that simple.

Let us start with the profits from an investment. What should the capitalist do? Should he spend the money on a yacht? Should he reinvest it in his existing business? Should he put the money into creating a new line in his business? Should he start a completely new business? Should he invest the money in stocks and ETFs? If so, which ones? Should he invest the money in government bonds? The point is that his profits from this year do not just "accumulate." They must be spent or invested in a good idea, a good idea that works. To talk about this as "capital accumulation" completely misses the point.

Over-accumulation: According to the Marxists "A crisis of overaccumulation of capital occurs when the rate of profit is greater than the rate of new profitable investment outlets in the economy" and this is what causes capitalism to self-destruct and lead to socialism. I think that what he means here is that opportunities for profitable investment tend to reduce over time, leading to a crisis of capitalism.

Of course, there is a grain of truth in this. A General Motors may grow itself into the biggest automaker in the United States, but then what? What does it do for an encore? What does it do when the profits in auto-manufacturing start to level off and even decline? What does it do when business turns down and it can't afford to pay the above-market wages its workers have come to regard as their birthright? What does it do when the talent of its CEOs and managers reverts to the mean? 

We see this all the time in business. Any big corporation tends to be tuned up to do one thing. And then the world changes. And the corporation drops out of the Dow Jones Industrial Index of 30 top corporations.

OK. Enough about Marx. Let's talk reality, and the reality is that accumulation has nothing to do with the case.

"Intangible Capital:" The naked truth about capitalism is that that it bares the facts of human cooperation. Nothing is guaranteed; nothing works forever; even hard work isn't enough; good luck doesn't go on forever. You must serve the consumers or go broke.

And the biggest fact of all is the fact in the World Bank's study of capital: "Where is the Wealth of Nations?" Guess what: in the advanced nations, 80 percent of "capital" is so-called "intangible capital."

In other words, if you want to understand "wealth," the biggest part of it is not "natural capital," like oil or gold or silver or land. It is not "produced capital," like factories and industrial plants. It is the knowledge and know-how, the "intangible capital" that humans carry around with them between their ears.

Let's create a little table from the World Bank's Appendix 2 on the Per-Capita Wealth of Nations in 2000.

National Capital in $ per Capita

Country	Natural Capital	Produced Capital	Intangible Capital	Total Capital
Iran	$14,105	$3,336	$6,581	$24,023
Ireland	$10,534	$46,542	$273,414	$330,490
United States	$14,752	$79,851	$418,009	$512,612

Yipes. Notice how our three candidate countries all have about the same amount of "natural capital." But that don't mean nothing. Hey, "produced capital" ain't beanbag, but it is still second tier. The only thing that matters is "intangible capital."

So put that in your pipe and smoke it, Chuck old chap. And the same to all you Marxists and lefties and all the ships at sea.