A note on the mechanism of substitution of labour with capital in the production processes

Abstract: Considering the production processes, it was noted that the use of various equipment leads to an increase in output -- the phenomenon that is usually described as the substitution of labor with capital. The proposed theory of substitution is based on the assumption that not the quantity of capital (production equipment) does substitute labor, but rather its ability to operate similar to the workers. This is the true content of the substitution of labor by capital. To formulate a correct mechanism of substitution requires considering three factors of production: the amount of production equipment (capital $K$), human activity (labor $L$), and the substitutive capacity of equipment (substitutive work $P$). The technological properties of production equipment are characterized by the technological coefficients $\overline \lambda$ and $\overline \varepsilon$, indicating the amount of labor and energy required to engaged with a unit of equipment. The production function can assume various forms, none of which coincide with the popular Cobb-Douglas expression, which seems to be erroneous in its core.