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Capital Formation and U.S. Economic Performance - Review

Three years ago the physical capacity, supply of labor, and financial resources of the U.S. economy were insufficient to satisfy demands. Symptoms of these capital shortages included sharply rising prices, peaks in factory operating rates, increased unfilled orders, long delivery delays, higher wages, low unemployment rates, rapidly accelerating interest rates, widening yield differentials between risky and “safe” financial assets, surging loan demands, decumulation of financial assets, and credit rationing. Indeed, the unprecedented inflation of prices, wages and interest rates was the principal cause of the deep recession that followed.

research.stlouisfed.org/.../review/1977/06/01/capital-formation-and-u-s-economic-performance