The Use of Knowledge in Investment Theory

The neoclassical theory of investments, as formulated by Dale Jorgenson (1963, 1967), can be expressed in a fairly straightforward way. Neoclassical formulations such as Jorgenson's were preceded by contributions by many influential economists. Both John Maynard Keynes and Irving Fisher, for example, argued that investments are made until the present value of expected future revenues, at the margin, equals the opportunity cost of capital. This means that investments are made until the net present value is equal to zero.