CHAPTER 21
FLUCTUATIONS IN THE RATE OF INVESTMENT

THE accumulation of capital over the long run takes place as the result of decisions to invest made in a succession of short-period situations, for every day the sun rises upon an economy which has, that day, a particular who's who of capital goods in existence, and a particular state of expectations based upon past experience and the diagnosis of current trends. In the short period of a seller's market current experience indicates that more productive capacity could be profitably used, and this is likely to cause decisions to invest in replacements and extensions of plant. A high level of employment in the investment sector means high quasi-rents in the consumption sector.1 Thus, high profits cause profits to be high. Contrariwise, in a buyer's market there is excess capacity, and investment is discouraged. Low profits cause profits to be low.

This double interaction between investment and profits is the most troublesome feature of the capitalist rules of the game, both from the point of view of entrepreneurs who have to play it and of economists who have to describe it.


A BOOM

In the course of our examination of accumulation over the long run we have encountered a number of situations in which investment is speeded up, for instance when new inventions are causing innovations to be made at an unexpectedly rapid rate. Let us consider how the economy reacts to this situation. An increase in employment in the investment sector

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1
This conclusion, we shall find, is not contradicted by the introduction of rentiers into the model.

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