Marginalism As A Distortion Of Classical Rent Theory

I want to note some instances in the literature that argue that one strain in the marginal revolution was an extension of (a misunderstanding of) the theory of intensive rent in classical political economy to all factors of production, particularly capital. This this is not of only historical interest. It suggests that another approach, that of classical political economy, to value and distribution exists. Furthermore, a treatment of intensive rent exists that is opposed to marginalism, in some sense.

The classical theory of rent first became widely known through pamphlets published in February 1815 by Thomas Robert Malthus, David Ricardo, Robert Torrens, and Edward West. James Anderson was an eighteenth century predecessor. Was Karl Marx to first point out that Anderson was overlooked? I have previously provided a taxonomy of some kinds of rent. Pasinetti (2015) has an interesting essay on these pamphlets. He argues Ricardo's was most comprehensive.

Krishna Bharadwaj has an article in which she writes about Marshall's reading of J. S. Mill:

"It is in the third class of commodities, marked by the coexistence of 'several costs of production' and by costs which vary with changes in supply, that provided the basis for the later marginalist conception of a supply function. The law of value in their case is stated by [J. S.] Mill thus: The value is determined by the cost of that portion of the supply which is produced and brought to markt at the greatest expense. (Mill, 1871 [1929], p. 471). To so-called 'law of diminishing returns' was to interest Jevons⁹ and Marshall and to play a significant role in the analytical development of marginalism, through its generalization to situations other than that of explaining rent: 'The law of diminishing marginal utility' was to be its counterpart in the theory of consumption, while it led to a more general notion of diminishing returns to a variable factor in the theory of production (see Bharadwaj, 1978). The Early Writings of Marshall reveal his great interest in the rent doctrine; as he himself remarked, 'improvements in cultivation decided me to adopt curves as an engine' (Marshall, 1975, I, pp. 40-1, p. 41, n. 12). In this third law of value, the functional link between costs and scale of output was clearly evident and provided the ground for a generalized 'supply function'.

⁹ Jevons wrote in the Preface to the first edition of his Theory of Political Economy (included in the fourth edition): 'There are many portions of Economical doctrine which appear to me as scientific in form as they are consonant with facts. I would especially mention the Theories of Population and Rent, the latter a theory of distinctly mathematical character, which seems to give a clue to the correct mode of treating the whole science (Jevons, 1911, p. vi, italics added)." -- Krishna Bharadwaj (1978).

Gehrke (2019) reports on some presentations at the Nationalökonomische Gesellschaft (NOeG), an interwar Vienna circle (not that one). Apparently, Oskar Morgenstern induced them to discuss Sraffa's 1925 article. Karl Menger, the mathematician son of the economist Carl Menger, was inspired by this and a conversation in which Ludwig Von Mises claimed that the law of diminishing returns could be proven. Karl Menger looked at the literature, and found it full of mistakes. The law of diminishing marginal returns could not be validly deduced from the assumptions that marginalist economists made:

"Yesterday ... Menger gave a brilliant paper on the law of dimishing returns. It was an exemplary performance for showing the need for exact reasoning in economics. interestingly, Haberler completely failed in the discussion; I very much noticed this. Of all these exact things he still does not understand the essence. Mises uttered pure nonsense." -- Oskar Morgenstern (31 December 1935, as quoted by Gehrke).

Some decades later Ronald Shepard introduced some arbitrary assumptions 'which are contrived to obtain the result'. Apparently, textbook presentations of increasing supply curves in partial equilibrium analysis of individual markets for consumer goods are still quite confused.

References

• Krishna Bharadwaj. 1978. The subversion of classical analysis: Alfred Marshall's early writings on value. Cambridge Journal of Economics 2(3): 253-271. (Reprined in Krishna Bharadwaj. 1989. Themes in value and distribution. Unwin Hyman)
• Christian Gehrke. 2019. The outstanding NOeG presentations: Morgenstern, Viner, and Menger on the laws of costs and returns. Empirica
• Christian Gehrke. 2021. Differences, switches and 'consistently side by side': Krishna Bharadwaj and the Sraffian critique of economic theory. Indian Economic Journal I-22.
• Luigi L. Pasinetti. 2015. On the origin of the theory of rent in economics. In Resources, Production and Structural Dynamics (ed. by Mauro L. Baranzini, Claudi Rotondi and Roberto Scazzieri). Cambridge University Press.
• Beth Stratford. 2023. Rival definitions of economic rent: historical origins and normative implications. New Political Economy 28(3): 347-362.