CLASSICAL, KEYNES' AND NEOCLASSICAL INVESTMENT THEORY—A SYNTHESIS

This paper presents an investment theory for the firm and the indu stry under rational expectations that encompasses: (1) classical capital theory; (2) a solid microeconomic basis for Keynes's investment theory; and (3) traditi onal neoclassical investment theory for the firm. These three types of investmen t theory are consequently complementary rather than contradictory. Classical cap ital theory is relevant for a comparative statics analysis of long- run equilibri a. Keynes's investment theory is applicable for the determination of the industr y's investment, given any expected paths for demand, supply, and technology. Neo classical investment theory for the firm is relevant to analyze effects of chang es that affect a single firm only. Copyright 1986 by Royal Economic Society.