The Marginal Productivity Theory of Distribution Term Paper

The Marginal Productivity Theory of Distribution - Term Paper Example As such, each factor of production can be paid based on what it contributes to the production of the output. This paper argues that the marginal productivity theory of distribution is valid, and, on certain highly limited assumptions, bears relevance to micro-economic problems such decisions of individual firms with regard to employment of factors of production. Marginal productivity theory of distribution presented a unified inter linkage between the pricing of commodities and the â€Å"pricing of persons† by indicating that the returns to all factors of production, are grounded in a single, marginal productivity principle. However, from the start, it was apparent that the marginal productivity theory could not stand by itself and only represented a derivative section of the theory of value. Three core properties of marginal productivity theory make this apparent: (1) the theory is essentially a theory of the demand for factors rather than their supply; (2) it adopts prices o f products as derived in the determination of demand for factors; (3) the theory cannot be applied to the determination of values within an exchange economy (Rima, 2001). ... the previous political economy with a novel science of economics or a discipline that employed rigorous methods mimicking those of the physical sciences (Fetter & Rothbard, 2007). Since its inception in the early 19th century, the marginal productivity theory of distribution (MPTD) has been cited by some economists as the solution to the ethical problem of distributive justice (as a means of determining fairness in wages, interest, profits, and rent). Other economists have rebuffed this ethical claim but have perceived the MPTD as a valid demand-side criterion, which forms the basis of determining equilibrium and efficiency (Blaug, 1996). Some of the pioneers of the theory such as John Bates and Philip Henry Wicksteed argued that a business enterprise would be prepared to remunerate a productive agent only that which it adds to the firm’s utility. Clark sought to establish that each unit of labour and capital can be settled based on the value that it adds to the total product or its marginal productivity (Wicksteed & Robbins, 1935). Clark maintained that, although, all tasks within an enterprise vary in significance the remaining work can be reassigned to ensure that all essential tasks would be undertaken; hence, no single unit of labour can be considered to be more critical than the other (Stigler, 1994). Clark’s marginal productivity theory can be considered to be a rebuttal to Marx’s assertion that competitive capitalism methodically robs workers their labour since the workers contributes more to the total product relative to the wages that they receive. According to Clark, the payment to capital can be established based on its marginal productivity, and that there cannot be a â€Å"surplus value† expropriated from the labour as Marx had claimed (Blaug, 1996).