The theory of imputation is based on the so-called theory of factors of production proposed by the French economist
Jean-Baptiste Say
Jean-Baptiste () is a male French name, originating with Saint John the Baptist, and sometimes shortened to Baptiste. The name may refer to any of the following:
Persons
* Charles XIV John of Sweden, born Jean-Baptiste Jules Bernadotte, was K ...
and elaborated by the American economist
John Bates Clark in his work ''The Distribution of Wealth'' (1899; Russian translation, 1934). The proponents of the theory of imputation see its main task as elucidating which parts of wealth may be attributed (imputed) to labor and capital, respectively.
Principles
In
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
, the theory of imputation, first expounded by
Carl Menger, maintains that
factor prices are determined by output prices (i.e. the value of factors of production is the individual contribution of each in the final product, but its value is the value of the last contributed to the final product (the
marginal utility
Marginal utility, in mainstream economics, describes the change in ''utility'' (pleasure or satisfaction resulting from the consumption) of one unit of a good or service. Marginal utility can be positive, negative, or zero. Negative marginal utilit ...
before reaching the point
Pareto optimal). Thus,
Friedrich von Wieser identified a flaw in the theory of imputation as expounded by his teacher, Carl Menger: overvaluation may occur if one is confronted with economies where profits jump (maximums and minimums in his utility function, where its first derivative equals 0). Wieser thus suggested as an alternative, the simultaneous solution of a system of industrial equations:
* Industry 1: ''X'' + ''Y'' = 300
* Industry 2: 6''X'' + ''Z'' = 900
* Industry 3: 4''Y'' + 3''Z'' = 1700 ⇒ ''X'' = 100, ''Y'' = 200, ''Z'' = 300.
Given that a factor is used in the production of a range of first-order goods, its value is determined by the good that is worth the least among all the goods in the range. This value is determined at the margin, the marginal utility of the last unit of the ''least valuable'' good produced by the factor. In connection with his
opportunity cost
In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, ...
, the value so derived represents an opportunity cost across all industries, and the values of the factors of production and goods are determined in the whole system. Thus, supply and demand do not develop into the determinants of value; the determinant of value is the marginal utility.
That is the opposite of the
labor theory of value
The labor theory of value (LTV) is a theory of value that argues that the exchange value of a good or service is determined by the total amount of " socially necessary labor" required to produce it. The contrasting system is typically known as ...
, maintained by classical
economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
s such as
Adam Smith
Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
and
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, politician, and member of Parliament. He is recognized as one of the most influential classical economists, alongside figures such as Thomas Malthus, Ada ...
.
See also
*
Implicit cost
*
Imputed income
*
Imputed rent
References
{{DEFAULTSORT:Theory of imputation
Costs
Economics and time
Theory of value (economics)
Austrian School