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.