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

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  • James N. Devine

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.

Suggested Citation

  • James N. Devine, 1987. "Cyclical Over-Investment and Crisis in a Labor-Scarce Economy," Eastern Economic Journal, Eastern Economic Association, vol. 13(3), pages 271-280, Jul-Sep.
  • Handle: RePEc:eej:eeconj:v:13:y:1987:i:3:p:271-280
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume13/V13N3P271_280.pdf
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    References listed on IDEAS

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    1. Shaikh, Anwar, 1978. "Political Economy and Capitalism: Notes on Dobb's Theory of Crisis," Cambridge Journal of Economics, Oxford University Press, vol. 2(2), pages 233-251, June.
    2. Hahnel, Robin & Sherman, Howard, 1982. "The Rate of Profit over the Business Cycle," Cambridge Journal of Economics, Oxford University Press, vol. 6(2), pages 185-194, June.
    3. Kahn, Lawrence M, 1980. "Bargaining Power, Search Theory and the Phillips Curve," Cambridge Journal of Economics, Oxford University Press, vol. 4(3), pages 233-244, September.
    4. Roemer, John E, 1978. "The Effect of Technological Change on the Real Wage and Marx's Falling Rate of Profit," Australian Economic Papers, Wiley Blackwell, vol. 17(30), pages 152-166, June.
    5. Ashenfelter, Orley & Johnson, George E, 1969. "Bargaining Theory, Trade Unions, and Industrial Strike Activity," American Economic Review, American Economic Association, vol. 59(1), pages 35-49, March.
    6. Albert M. Wojnilower, 1980. "The Central Role of Credit Crunches in Recent Financial History," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 277-340.
    7. Andrew B. Abel, 1981. "A Dynamic Model of Investment and Capacity Utilization," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 379-403.
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    Cited by:

    1. Rudy Fichtenbaum, 1988. "'Business Cycles,' Turnover and the Rate of Profit: An Empirical Test of Marxian Crisis Theory," Eastern Economic Journal, Eastern Economic Association, vol. 14(3), pages 221-228, Jul-Sep.

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