Economic influences of obsolescence

This article is devoted to a descriptive and analytical study of the economic effects resulting from the application of improvements in the techniques of producing commodities. Sometimes obsolescence of industrial equipment results from a decline in demand for the commodities produced, or from improved machinery which processes more serviceable commodities. This article emphasizes, however, that technical advances in many industries lower the per unit cost of producing commodities, thereby rendering less efficient machinery partially or completely obsolete. Formulas are presented for approximating the time when it would be profitable to discard existing equipment and to purchase the new, even though the old machinery still possesses the physical ability to produce goods. This continual, historical appearance of cost-reducing changes in the processes of production has provided an opportunity for the investment of savings; and it is noted also that savings have been invested, despite apparent risks, in industries which have experienced frequent improvements in their techniques of production. Often these mechanical improvements have resulted in an increased fixed cost per unit of output. Since this continual stream of improvements of production processes often necessitates an increase in the volume of invested capital, the tendency toward monopolization of production in some industries is hastened. For several reasons these cost-reducing innovations may enhance the instability of the economic system when they result in an increased output of commodities: (1) producers may refuse to lower the unit price as soon as the unit cost production is achieved, (2) not all firms in an industry may obtain simultaneously these improvements, and (3) the rate or time of installation of these technical changes may vary among the producers of different products. Changes in the general price level and cost curves, "technological" unemployment, and disturbances of international trade relationships are other notable economic effects of technical advances.