The Basic Model — the Capital Goods Sector

Abstract

The capital goods (or investment) sector will be producing capital goods for its own use and for use in the consumption sector to produce consumption goods. The first claim on capital goods in a growing system will be for replacements in both sectors. If the system is to keep its overall productive capacity constant, it must continuously provide replacements for those capital goods that have reached the end of their useful life. This may be because of simple physical wearing out, because of obsolescence due to the recent existence of more productive machines, or the result of rising real wages in line with overall rises in productivity, as in a vintage model.¹ Depreciation and the scrapping of capital equipment cause a number of technical problems that will not concern us here.²