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The Relation between the Rate of Interest and Investment in Post-Keynesian and Neo-Ricardian Analysis

Author

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  • Edward J. McKenna

    (Connecticut College)

  • Diane C. Zannoni

    (Trinity College)

Abstract

The results of the Cambridge capital controversy suggest that marginal productivity analysis cannot be used to derive an inverse relation between the rate of interest and investment. Nevertheless, post-Keynesians and neo-Ricardians continue to use an inverse relation. In this paper, the authors demonstrate that the analyses put forward by leading post-Keynesian and neo-Ricardian economists continue to use the suspect marginal productivity concepts to derive the inverse relation between investment and the interest rate. The authors then show that it is possible to replace such concepts with M. Kalecki's principle of increasing risk, thus providing a more satisfying basis for the theory of investment.

Suggested Citation

  • Edward J. McKenna & Diane C. Zannoni, 1990. "The Relation between the Rate of Interest and Investment in Post-Keynesian and Neo-Ricardian Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 16(2), pages 133-143, Apr-Jun.
    • Handle: RePEc:eej:eeconj:v:16:y:1990:i:2:p:133-143
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume16/V16N2P133_143.pdf
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    References listed on IDEAS

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    3. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    4. Geoffrey Maynard & Harold B. Rose, 1983. "Wages and Employment: A Reply," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 6(1), pages 97-100, October.
    5. Geoffrey Maynard & Harold B. Rose, 1983. "Wages and Employment: A Reply," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 6(1), pages 97-101, September.
    6. Paul Wells, 1979. "Modigliani on Flexible Wages and Prices," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 2(1), pages 83-93, October.
    7. Paul Davidson, 1978. "Money and the Real World," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-15865-2.
    8. Milgate, Murray, 1983. "Capital and Employment," Elsevier Monographs, Elsevier, edition 1, number 9780124962507 edited by Eatwell, John.
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    Cited by:

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    3. Gabrisch, Hubert, 2015. "Cross-border finance, trade imbalances and competitiveness in the euro area," MPRA Paper 68518, University Library of Munich, Germany.
    4. Capasso Salvatore & Oreste Napolitano & Ana Laura Vivero, 2023. "The Financial Conditions Index as an additional tool for policymakers in developing countries: the Mexican case," CSEF Working Papers 664, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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