Relation between Production, Value and Distribution Theories

Relation between Production, Value and Distribution Theories

Relation Between value and Distribution Theories

Value means the price of a product and distribution which makes it possible to build a theory ofdis!ribution based on the concept of marginal productivity.It was Prof. I licks who introduced the concept of elasticity uf substitution betweati’actors and pointed out its importance for detcrmiRing the distributive shares of the various factors of production. If there were a change in the ratio of the prices of factors of production, the cheaper factor would be substituted for the factor whose price is relatively higher. If for instance. wages rise relatively to interest, the entrepreneur will substitute capital for labour. This would naturally reduce the distributive share of labour and raise that of capital. It may also be pointed out that the possibility of substitution between the factors discourages unions from unduly pressing for higher wages. Any unreasonable behaviour on the part of unions will simply compel the enler prcn eur to substitute capital for labour. TIle result would be that volume of employment will diminish and the labour itself would suffer. THUS.we find that there is a very intimate relation not only between the theories of distribution and production but also of between value and distribution