Discuss the Criticism of Marginal Productivity Theory of Distribution.
Or, Critically evaluate the Marginal Productivity Theory of Distribution.
Or, Critically examine the Marginal Productivity Theory of Distribution.
Many economists have criticized the marginal productivity theory which are as follows:
Firstly, this theory emphasizes the demand for a factor, not the supply. But to determine the price of any factor, both demand and supply have to be depended on.
Secondly, the marginal productivity of a factor depends on the productivity of other factors. So, the marginal productivity of the factors is not separable. All factors are equally responsible for production. But, in this theory, in determining the marginal productivity of one factor, the productivity of other factors is assumed unchanged.
Thirdly, it is very difficult to determine the marginal productivity of capital. Because capital is a product of time and labour. That is, just as capital has a present value and productivity, it has a future value and productivity too. But it is not easy to forecast what the productivity of capital will be in the future.
Fourthly, it is not always possible to measure the marginal productivity of a factor. It is often seen that if one unit of a factor is reduced, the production will decrease, but if the factor is increased by one unit, the production will not increase in the same proportion. If the units of a factor are small, removing one unit or adding one unit may not significantly affect the production process. But if the factor is indivisible and very large, increasing or decreasing one unit of it affects the production process significantly.
Fifthly, the theory assumes perfect competition in the factor market and units of those factors are homogeneous. But some factors, such as labour, have many categories and those categories cannot be compared with each other.
Sixthly, in many cases, the price of the factor is not determined with the help of marginal production. In addition to the economic impact of society, other influences are more important, especially in the case of labour.
Seventhly, it is generally seen that wherever the law of marginal product is applied, perfect competition is assumed. But such an assumption is of no use for building a practical theory.
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