It is not at all to be supposed that according to the marginal productivity theory of distribution the reward of each factor is settled independently of the reward of other factors. On the contrary, there is a very close correlation between the rewards and the services of the different factors. This is so because the different units of each factor compete for employment not only among themselves but also with the other factors. Thus the enterpriser, in making up his mind in what proportion to combine the land and labor and capital, may be undecided as to whether he should pay out a final one hundred dollars for the use of an additional tract of land or as wages to additional laborers or as interest for the use of additional capital. In arriving at a conclusion as to the most profitable manner in which to spend the final outlay he will consider whether the total product will be more increased by the addition of the land in question or of the labor or of the capital, and he will make the expenditure for the use of the factor which will bring to him the largest return. The constant substitution of factors for one another at this margin of indifference will tend to keep the rewards of the different factors in close relation to the services of the different factors.

Questions

1. What is meant by the distribution of wealth?

2. Name the shares in distribution. To whom does each of these shares go?

3. Of what does the real income as distinguished from the money income consist?

4. Make use of the illustration of the division of a stream of water to show how the income stream is divided.

5. Show that the forces regulating exchange are also forces influencing distribution.

6. Explain the nature of the problems of distribution.

7. State the general principle of distribution according to marginal productivity.

8. Does the marginal productivity theory of distribution assert that the owner of each unit of a factor in production gets the actual product of that unit? Explain.

9. What is meant by the marginal product of a unit of a factor in production?

10. What is the relation of the law of diminishing returns to the problem of marginal productivity? Illustrate by examples.

11. According to the marginal productivity theory of distribution, is the reward of each of the factors determined independently of the rewards of the other factors? Give a reason for your answer.

Supplementary Reading

Carver, Distribution of Wealth, Chap. iii. Clark, Distribution of Wealth, Chaps. ii.-vi. Devas, Political Economy, Book III, Chap. i. Ely, Outlines, Chaps. xix. and xx. Marshall, Principles, Book VI., Chaps. i. and ii. Seager, Principles, Chap. xi.