Now on-line in PDF: Friedrich Hayek’s Profits, Interest and Investments and Other Essays on The Theory of Industrial Fluctuations, originally published in 1939 by George Routledge & Sons (London), via the on-line book repository of the Mises Institute.
Besides the essay “Profits, Interest and Investments” the book also includes a number of other classic Hayek essays, including “Price Expectations, Monetary Disturbances and Malinvestments”, “A Note on the Development of the Doctrine of ‘Forced Saving'”, and “The ‘Paradox’ of Saving”.
From the title essay:
We shall start here from an initial situation where considerable unemployment of material resources and labour exists, and we shall take account of the exiting rigidity of money wages and of the limited mobility of labour. More specifically, we shall assume throughout this essay that there is in the short run practically no mobility of labour between the main industrial groups, that money wages cannot be reduced, that the existing equipment is fairly specific to the purposes for which it was made, and finally, that the money rate of interest is kept constant.
.. [I will provide here] an account of how such cyclical fluctuations, once started, tend to become self-generating, so that the economic system may never reach a position which could be described as equilibrium … I hope to show that to introduce these more realistic [non-equilibrium] assumptions strengthens rather than weakens my argument. In a sense the assumptions made here, and particularly the assumption of complete immobility of the rate of interest and of complete rigidity of money wages maintained through the greater part of this paper, are as artificial as the opposite assumption ..
With high real wages and a low rate of profit, investment will take highly capitalistic forms: entrepreneurs will try to meet the high costs of labour by introducing very labour-saving machinery-the kind of machinery which it will be profitable to use only at a very low rate of profit and interest. The first increase of investment, induced by the high real wages, would not aim at producing a larger final output.