The Marginal Efficiency of Investment

Luigi Lodovico Pasinetti

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

The author looks at Keynes's concept of the marginal effiiency of capital in Book IV of The General Theory, which is meant to analyse the factors determining 'The Inducement to Invest'. Keynes singles out two major sources of inducement. First : the state of long-term expectations' - the result of entrepreneurs' 'animal spirits - and a spontaneous urge to action rather than inaction'. It is 'autonomous', with respect to formal economic analysis. Second: a careful economic calculus. Let us call it 'endogenous' investment. It is with reference to the endogenous source of investment that Keynes coins the analytical concept of the 'marginal efficiency of capital'.
Original languageEnglish
Title of host publicationA “Second Edition” of the General Theory
EditorsGeoffrey Harcourt, Peter Riach
Pages198-218
Number of pages21
Publication statusPublished - 1997

Keywords

  • Animal Spirits and monetary policy
  • Criticism of orthodox savings-supply function
  • Keynes and the marginal efficiency of capital
  • Keynes' theory of the rate of interest
  • The General Theory of employment restated

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