Michael Perelman writes: > Thank you, Rakesh. I have repeated a similar theme in almost all of my writings -- but with a little bit different twist. Low profits suggests heightened competition, which calls for more intensive investment. This investment goes unnoticed in the macroeconomic data because of the manner in which investments is reported.<
Duménil and Lévy argue that a low profit rate encourages capitalists to respond in a more extreme way to economic shocks. That makes sense to me. > While gross investment may be higher during a boom, when profits are low > companies intensively invest in improving their old capital stock. Most or all of what's described below is "disinvestment," purging the oldest or most obsolete capital equipment. Unlike net investment, it doesn't create aggregate demand or help realize profits. It does have a beneficial supply-side effect for the capitalists. Part of the reason for the partial recovery of profitability in the United States from the 1980s to the 1990s was the shake-out of the 1980s, which involved disinvestment: very old steel mills, for example, were shut down, helping to create the "rust belt." This set the stage for investment in more up-to-date mini-mills producing specialty steel and for the shift of the old-fashioned steel industry to places outside of the U.S. > Here is a paragraph from my Keynes book: > > During the Depression, firms weeded out inefficient plant and equipment, > creating a much newer capital stock (Staehle, 1955, p. 124). By 1939, > one-half of all manufacturing equipment in the US that had existed in > 1933 had been replaced (Staehle, 1955, p. 127). Thereafter, business > produced as much output as a decade before with 15 per cent less capital > and 19 per cent less labour (Staehle, 1955, p. 133). French productivity > also improved noticably during the Depression (Aldrich, 1987, p. 98, > citing Carr'e, Dubois and Malinvaud, 1972). Similarly, in the > recessionary period of 1982-4, only 20 per cent of West German > manufacturers replying to IFO's investment survey gave capacity expansion > as their motive for investment; 55 per cent cited > rationalization (Anon., 1985a, p. 69). Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
