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Replacement Investment Theory

In: Keynes, Investment Theory and the Economic Slowdown

Author

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  • Michael Perelman

    (California State University)

Abstract

Investment is the engine of a capitalist economy. Replacement investment is the most important component of investment. In Hayek’s words: The essential characteristic of capital, and one which affects the current input, is that it needs replacement and in consequence leads to investment. This in turn leads to the creation of new capital, but once this new capital exists the historical aspect becomes irrelevant. The important thing is not that the capital has been produced, but that it (or some equivalent) has to be reproduced. (Hayek, 1941, pp. 87–8)

Suggested Citation

  • Michael Perelman, 1989. "Replacement Investment Theory," Palgrave Macmillan Books, in: Keynes, Investment Theory and the Economic Slowdown, chapter 3, pages 103-155, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-19940-2_3
    DOI: 10.1007/978-1-349-19940-2_3
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    Cited by:

    1. repec:cvs:starer:9816 is not listed on IDEAS
    2. repec:fth:starer:9816 is not listed on IDEAS
    3. Boyan Jovanovic, 1998. "Vintage Capital and Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 497-530, April.

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