ABSTRACT
Initially Solow relinquishes the possibility of explaining distribution with this approach and instead he emphasises the consequences of investment decisions. Problems of uncertainty are summarily dismissed as unmanageable in the model. Solow sets out his new approach to capital theory through the method of planning as follows: ‘Thinking about saving and investment from this technocratic point of view has convinced me that the central concept of capital theory should be the rate of return on investment. In short, we really want a theory of interest rates, not a theory of capital’.2 This is quite a different approach from that previously put forward by Solow or any of the neoclassicists. This view denies that the marginal productivity of capital is relevant to the discussion or that the defined rate of return on investment has any relation to either the rate of profit or the observed market rate of interest that may be ruling at any point in time.3
