Marginal Productivity Theory of Distribution
MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION This concept of marginal productivity was taken from Ricardo and West. But both Ricardo and West applied the marginal productivity concept only to land. The references for the marginal productivity theory were taken from Thunen’s Der Isolierte Staat [1826], Longfield’s lectures on political economy , and in Henry George’s progress and poverty [1879]. This theory was rediscovered by economists like J.B. Clark, Jevons, Wicksteed, Walaras and later Marshall and J.R. Hicks popularised the doctrine of marginal productivity. Marginal productivity theory tries to explain how the price of the factor is determined. As we know that a firm motives to get profits that’s why it will not pay any factor more than its marginal productivity. Similarly, each factor will charge his price at least equal to his marginal productivity. That is how marginal productivity [not total productivity] determines the price of a factor of production. Since...