Optimal Utilization of Capital and a Financial Sector in a Classical Gravitation Process

In a production price framework, a two‐sectoral gravitation process with cross‐over adjustments of prices and quantities is advanced. To overcome an inconsistency in the treatment of fixed capital in disequilibrium, the socio‐technological input coefficients are assumed to vary with the sectoral output–capital ratio, such that for each relative price there exists an optimal degree of capital utilization which maximizes the sectoral rate of profit. Production prices prevail if these maximizing rates of profit are equalized. In addition, a financial sector determining the rate of interest is incorporated into the model. The mathematical analysis establishes a broad scope for local stability of the long‐run equilibrium position once a condition applies that ensures stability of the output adjustments in the short period.