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

  • Robert P. Murphy (a1)

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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Avi J. Cohen (1989) Prices, Capital, and the One-commodity Model in Neoclassical and Classical Theories, History of Political Economy, 21 (2), pp. 231–51.

P. Garegnani (1970) Heterogeneous Capital, the Production Function and the Theory of Distribution, The Review of Economic Studies, 37 (07), pp. 407–36.

L. L. Pasinetti (1966) Changes in the Rate of Profit and Switches of Techniques, Quarterly Journal of Economics, 80 (4), pp. 503–17.

Joan Robinson (19531954) The Production Function and the Theory of Capital, The Review of Economic Studies, 21 (2), pp. 81106.

Paul A. Samuelson (1943) Dynamics, Statics, and the Stationary State, The Review of Economic Statistics, 25 (02), pp. 5868.

Paul A. Samuelson (1953) Prices of Factors and Goods in General Equilibrium, The Review of Economic Studies, 21 (1), pp. 120.

Paul A. Samuelson (1966) A Summing Up, The Quarterly Journal of Economics, 80 (4), pp. 568–83.

Paul A. Samuelson (1970) Law of Conservation of the Capital-Output Ratio, Proceedings of the National Academy of Sciences of the United States of America, 67 (01 15), pp. 1477–79.

Paul A. Samuelson (1991) Sraffa's Other Leg, The Economic Journal, 101 (05), pp. 570–74.

Paul Samuelson and Robert Solow (1956) A Complete Capital Model Involving Heterogeneous Capital Goods, The Quarterly Journal of Economics, 70 (11), pp. 537–62.

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Journal of the History of Economic Thought
  • ISSN: 1053-8372
  • EISSN: 1469-9656
  • URL: /core/journals/journal-of-the-history-of-economic-thought
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