Over-Investment

Abstract

The term ‘over-investment’ is used principally in relation to a certain type of theory of the trade cycle in industrial capitalist economies. Such theories flowered into a brief prominence in the inter-war period, but disappeared virtually without trace after 1940, probably owing to the fact that they did not attach sufficient weight to the concept of effective demand. The key characteristic of these ‘over-investment’ theories was their stress on a disproportionate development of the producer goods industries not only as a feature of the boom but also as a cause of the subsequent relapse into depression. Since a similar pattern has been observed in some socialist economies since 1945 and has been held by many authors to be the major cause of fluctuations in the growth rates of real output, ‘over-investment’ theories of cycles in socialist economic systems will also be discussed.