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Malinvestment vs. overinvestment?

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Koen Swinkels posted on Sun, Nov 9 2008 3:55 PM

What  do people mean when they say that ABCT is not about overinvestment but malinvestment. What would overinvestment look like if all investing takes the form of lengthening the structure of production?

Basically any *investment* lengthens the structure of production. other than investment you have 'machine etc. maintenance' and 'machine etc. consumption'. A lower interest rate will make firms invest more, which necessarily lengthens the structure of production.

Suppose you have a completely vertically integrated firm, then you cannot invest in for example intermediate goods without also (and likely earlier) investing in higher order goods. (there may be some leeway depending on complementariness and the law of returns) It would be pointless to invest in more machines to do task B if earlier in the structure there was no investment made in machine A that creates good x which is the input for machine B.

Although, if the investment in machine B is so that the machine can do more with the same number of goods x, then it does seem possible, but should we not have to consider an investment like that a lengthening of the structure of production in any case since that new machine or addition to an existing machine also has to be developed and produced whereas that didnt need to be done prior to that.

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Conrad:
What  do people mean when they say that ABCT is not about overinvestment but malinvestment.

Savings are directed away from highly productive ventures towards less productive ventures because the price mechanism has been distorted.

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true. A better way to formulate my question would be: 'what would overinvestment look like?'

I think I understand what malinvestment is and does, but what would overinvestment be?

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I think overinvestment is not used because according to the Austrian view of subjectivity, there can't be "too much" or "too little" investment. Malinvestment is used because it is investment that is not profitable.

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Well, if I was going to come up with a definition I'd say, when a decrease in the marginal return fails to cause an equal reduction in the level of investment. Though others may disagree.

 

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krazy kaju:
Malinvestment is used because it is investment that is not profitable.

Not neccesarily negative returns though

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JonBostwick:

krazy kaju:
Malinvestment is used because it is investment that is not profitable.

Not neccesarily negative returns though

It would be at an interest rate lower than the net interest rate(the interest rate that would form in an ERE), assuming that the investor valued investing in anything the same (what if he invests in cars because he is a car fanatic?).

 

Schools are labour camps.

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Answered (Not Verified) Cesar replied on Mon, Nov 10 2008 7:21 AM
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Overinvestment: you have capital equipment sitting idle because there is no demand for them.

Malinvestment: You have invested in projects that will be unprofitable or at best will yield lower returns for similar projects.

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