Investment functions and the profitability gap

Abstract

We examine a variety of fixed asset investment theory approaches and show that, despite apparent differences, all contain a common "gene"—the profitability gap. This finding is equally applicable to the paradigms of neoclassical general equilibrium in logical time and postclassical fully adjusted stationary and steady states in historical time. The generic investment function and its characteristic gene appear to be one of the universals of economic science, equally at home as explanators of investment, inflation/deflation, and related cumulative processes.

Keywords:

• expected rate of profit
• investment function
• opportunity cost of capital
• profitability gap