Following the Great Depression, capital investment fell because of excess capacity and lack of good investment opportunities. Secular stagnation theory blamed inadequate capital investment for hindering full deployment of labor and other economic resources. Secular stagnation theory differs from the theory of the tendency of the rate of profit to fall in that businesses will curtail investment in industries with falling rates of return.
Chapter IV in Postwar Economic Problems is titled Secular Stagnation Theory.
“The basic changes going on since the beginning of the century are not only important in explaining the unprecedented severity and persistence of the depression of the thirties but also in appraising the outlook for the future. The reduced rate of growth, with respect to both population and territory, is likely to be permanent. Technological change is still going on, at a rapid rate, and, so far as anyone can see, is likely to continue for a long, long time to come. In the thirties the changes were predominantly of the sort that requires relatively small investment of new capital. This, of course, may change. There may be innovations in the future comparable in their effect on investment to the railroad, the automobile, or electricity. It is highly unlikely, however, that further technical change will be so much ‘’more’’ capital using as to make up for the reduced rate of territorial expansion and population growth. This is the basis on which the stagnation school predicts a long-run deficiency of investing opportunity.” Harris (1943): Chap.IV by Alan Sweenzy
According to Harris (1943) "the idea of secular stagnation runs through much of Keynes General Theory".
Read more about this topic: Economic Stagnation
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