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Interest and the Marginal Product of Capital: A Critique of Samuelson

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  • Murphy, Robert P.

Abstract

The association of the equilibrium real rate of interest with the marginal product of capital is a staple of modern mainstream economics. Indeed, when graduate students are asked to find a typical model's equilibrium values of the real wage and interest rate, there is apparently nothing more natural than calculating the derivative of the production function with respect to labor and capital, respectively. This seems to make perfect economic sense, because under competitive conditions, the laborer gets paid the marginal product of his labor, while the capitalist gets paid the marginal product of his capital. Students can even derive the “factor-price frontier” (developed in, for example, Samuelson 1953) to show the inverse relationship between real wages and the real rate of interest, where the “factors” are, of course, labor and capital.

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  • Murphy, Robert P., 2007. "Interest and the Marginal Product of Capital: A Critique of Samuelson," Journal of the History of Economic Thought, Cambridge University Press, vol. 29(4), pages 453-464, December.
    • Handle: RePEc:cup:jhisec:v:29:y:2007:i:04:p:453-464_00
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