The Marginal Productivity Theory of Distribution: A critical history

Abstract

The history of the Marginal Productivity Theory of Distribution (MPTD) is characterized by vigorous debate. In the writings of J.B. Clark the MPTD was accorded the status of a scientific law and a moral imperative – a status that it seems to have retained in many modern textbooks. But early twentieth-century critics, such as J.A. Hobson, accused it of 'false separatism', and argued that the impossibility of disentangling the specific products of the various factors of production destroyed both its intellectual respectability and its practical usefulness. By the mid-twentieth century the MPTD was developed as a purely positive theorem, purporting to be an essential element in explaining the path to profit maximization and equilibrium, claiming to be devoid of normative implications, and enjoying the status of one of the fundamental truths of neoclassical economics. D.H. Robertson said of it: 'the statement that 'wages tend to measure the marginal productivity of labour' is at once the most illuminating analytically and the most important practically for the consideration of wage policy' (1950, 221). More recently, it has been said: "It is difficult to exaggerate the importance of marginal productivity. Without a general theory of production and distribution, neoclassical economics would never have displaced classical thinking ... marginal productivity offered a clear rationale for why factor prices are determinate, a problem that had vexed late nineteenth-century economists." (Mandler 1999, 19-20) However, beginning in the 1950s, during the Cambridge capital theory controversy, arguments came from the side of Cambridge (UK) that challenged its status even as a positive theorem. As the name suggests, the MPTD claims that in a free-market economy the demand for a factor of production will depend upon its marginal product - where 'marginal product' is defined as the change in total product that is caused by, or that follows, the addition or subtraction of the marginal unit of the factor used in the production process, with all other inputs held constant.