ABSTRACT
The "theory of marginal productivity" is sometimes described as the "theory of distribution." This statement is misleading. The theory of mar ginal productivity at most analyzes the factors affecting the demand for a factor of production. The price of the factor depends also on conditions of supply. The tendency to speak of a "marginal productivity theory of dis t r ibut ion" arises because in many problems and contexts i t is useful to think of the supply of factors of production as given quantities, as per fectly inelastic. This is particularly relevant i f the problem concerns both market and nonmarket uses of factors of production. I n such cases, there is a sense in which supply conditions determine only the quantity of the
factors, while demand conditions (summarized in the phrase marginal productivity) determine price. But note that even in this case a change in supply-in the fixed amount of a factor-will change the price of the factor, unless demand is perfectly elastic. So i t w i l l be better i n all cases to regard the theory of marginal productivity as a theory solely of the de mand for factors of production. A complete theory requires a theory of both the demand for and the supply of factors of production.
