CHAPTER 5
CONSUMPTION AND INVESTMENT

FOR the goods which are being sold to-day, costs of production were incurred some time in the past (bread was baked last night; the field where the wheat was sown was ploughed last autumn). Sales are out of stock, and current production is replenishing stocks with a view to future sales. Thus from the point of view of a very short period all production is investment, and sales disinvestment. But when a regular cycle of production is being carried out and everything is going according to expectations, the greater part of current cost of production is being provided for out of current sales, and for this part it is a legitimate simplification to speak of the sales value of production week by week as though it was the same thing as actual sales week by week. Normally some of the production, in any week, is not merely replacing last week's sales, but is directed to increasing the rate of output in the future. When entrepreneurs are in course of expanding their activities they are expending finance over and above the costs of current output, and investing in capital goods, including additions to work-in-progress. (When the rate of output is running down they are expending less than current sales proceeds, and disinvesting.)


GROSS AND NET INVESTMENT

How should we regard outlays upon replacements of wornout equipments? If no new investment was being made, or technical changes taking place, and if output of every kind had long been at a steady rate, and was planned to remain at that rate over a long future, all production would consist in a continual repetition of an identical cycle, so that whenever

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