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The Marginal Productivity Theory of Capital in Intermediate Microeconomics Textbooks

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  • Fred Moseley

    (Mount Holyoke College, South Hadley, MA, USA)

Abstract

This paper focuses on the marginal productivity theory of capital and the price of capital, and examines some fundamental problems in this theory and how these problems have been dealt with in three leading undergraduate intermediate microeconomics textbooks by Varian, Frank, and Nicholson-Snyder. The three main problems to be discussed are: (1) it is impossible to incorporate materials inputs (and intermediate inputs in general) into marginal productivity theory because the existence of materials inputs in production processes invalidates the basic concept of the marginal product of capital (or labor), which is the foundation of the theory; (2) because the concept of the marginal product of capital (or labor) is invalid, so is the derivation of the demand for capital (or labor), which is based on the marginal product of capital; and (3) ultimately the marginal productivity theory of capital takes as given what it is supposed to explain: the return to capital.

Suggested Citation

  • Fred Moseley, 2015. "The Marginal Productivity Theory of Capital in Intermediate Microeconomics Textbooks," Review of Radical Political Economics, Union for Radical Political Economics, vol. 47(2), pages 292-308, June.
    • Handle: RePEc:sae:reorpe:v:47:y:2015:i:2:p:292-308
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    More about this item

    Keywords

    marginal products; marginal product of capital; return to capital; production function;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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