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.
While gross investment may be higher during a boom, when profits are low companies intensively invest in improving their old capital stock. 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). -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
