Theory Of Capital
This essay is an explanation and importance
of complementarity and substitution in the
theory of capital. Complementarity
can be usually seen in goods with"sympathetic shifts in demand."
It is also
important to realize the narrowness of the traditional treatment of
complementarity. Complementarity is
analyzed in a single enterprise and also
in the economic system as a whole. In
the latter complementarity is analyzed
in an economic system in equilibrium and
also in disequilibrium. In an
economic system with equilibrium all the acts of
all individuals are
consistent with each other and all factors of production are
complementary.
The system with disequilibrium on the contrary, realizes that
while a factor
of substitution eliminates another factor, another will be
created, though
possibly it might be of a different mode. It is idealistic to
think that
capital structure can only exist in equilibrium, but realistically,
capital
structure is in a state of continuous transformation. Any major
change
creates a situation of instability of the capitalistic economy. A
clear example
of this is the accumulation of capital on profits and the
inducement to invest.
As capital accumulation grows, investment
opportunities and the rate of profit
decline. Also, the existence of unused
human or material resources provides
potential complements for new productive
combinations, which in result produce
the changes in capital. These unused
resources have two main functions in the
world of dynamic change. First, they
reduce the shock when disintegration
exists, and second they stimulate the
investment of capital goods complementary
to them. In conclusion, the theory
of capital is a dynamic discipline, and is
not in static equilibrium. It is
useless to view capital change as quantitative
change in one factor and
supposing that other factors remain constant. An
important topic in the
capital theory is the internal capital change, which is
the reorder of
existing capital for unexpected change. And finally, all that has
been
mentioned is not only essential in the theory of capital, but also has
a
great importance in the theory of industrial fluctuation.