The Morgan Report Blog

The Marginal Efficiency of Capital

The Marginal Efficiency of Capital
by Edward W. Fuller

The following paper was written by a friend of TMR that occasionally helps with our research. by Edward W. Fuller

The purpose of this paper is to explain the marginal efficiency of capital. The net present value diagram is derived and used to illustrate how the interest rate regulates the intertemporal allocation of resources. The net present value diagram is then used to show that the marginal efficiency of capital contradicts the net present value method of ranking investment projects. The net present value diagram is integrated into the capital-based framework to demonstrate that the interest rate cannot regulate the intertemporal allocation of resources in Keynes’s theory of investment.

Read full paper here… http://bit.ly/1oyrCuT

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