EVSEY D. DOMAR (17) K which is exactly the same result we had in(13) The second approach consists in treating the amounts I(s-a)/s not as capital losses but as a special allowance for obsolescence. Net invest- ment would then have to be defined not as I, but as Io/s. Other sym- bols would have to be redefined accordingly, and the whole problem could then be reworked out in the same way as on pp 142-143 In a sense the choice between these two methods is a matter of bookkeeping; depending upon the character of the problem in hand, one or the other can be used, though I suspect that the second method can easily become misleading. The nature of the process will be the same whichever method is used. The fact is that, owing to a difference between 8 and o, the construction of new investment projects makes certain assets(not excluding the new projects themselves ) useless, be- cause under the new conditions brought about by changes in demand, or a rise in the wage rates, or both, the products of these assets cannot be sold. 4 As stated on p. 140 the difference between s and o is created M either by misdirection of investment or by the lack of balance between the propensity to save on the one hand, and the growth of labor, dis- So long as mistakes are made or this lack of balance exists, the junking overy of natural resources, and technological progress on the other. process is inevitable From a social point of view, the junking pr undesirable. In this country, where saving involves little hardship, it may be perfectly justified. But it may present a serious obstacle to the achievement of full employment, because the owners of capital assets headed for the junk pile will try to avoid the losses. So long as they confine themselves to changes in their accounting practices,no special consequences will follow. But it is more likely that they will try to accumulate larger reserves either by reducing their own con- To be strictly true the statement in the text would require considera divisibility of capital assets. In the absence of such junking"should not be taken too literally. The fact that these assets may still be operated to some extent or that their products are sold at lower prices or that both these conditions exist, does not invalidate our argument, because o, being expressed in real terms, will be higher than it would be if the assets were left completely unused