Cyclical Over-Investment and Crisis in a Labor-Scarce Economy

James Devine

Eastern Economic Journal, 1987, vol. 13, issue 3, 271-280

Abstract: This paper incorporates a post-Marxian view of investment in an overinvestment theory of cyclical economic crises. The Marxian crisis theory based on the tendency for the profit rate to fall (because of overmechanization) is replaced with a theory of overaccumulation of fixed capital, while the high employment profit squeeze is restated in terms of this overinvestment. Historical conditions determine overinvestment's results: when labor power is potentially scarce (precapitalist or agricultural labor reserves are largely gone), overinvestment means rising costs, falling profit rates, and crisis. Also, the resulting slump can cause either a recovery or lasting stagnation. Finally, post-1949 U.S. data are presented to argue the theory's plausibility.

Date: 1987
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