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 Say (; 5 January 1767 – 15 November 1832) was a liberal French economist and businessman who argued in favor of competition, free trade and lifting restraints on business. He is best known for Say's law—also known as the law of ...
and elaborated by the American economist
John Bates Clark
John Bates Clark (January 26, 1847 – March 21, 1938) was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics, and spent most of his career as ...
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 the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
, the theory of imputation, first expounded by
Carl Menger
Carl Menger von Wolfensgrün (; ; 28 February 1840 – 26 February 1921) was an Austrian economist and the founder of the Austrian School of economics. Menger contributed to the development of the theories of marginalism and marginal utility ...
, maintains that
factor price
In economic theory, a factor price is the unit cost of using a factor of production, such as labor demand, labor or physical capital.
There has been much debate as to what determines factor prices. Classical economics, Classical and Marxist scho ...
s 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 before reaching the point
Pareto optimal
Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engine ...
). Thus,
Friedrich von Wieser
Friedrich Freiherr von Wieser (; 10 July 1851 – 22 July 1926) was an early (so-called "first generation") economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war m ...
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: 6X + Z = 900
* Industry 3: 4Y + 3Z = 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, 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 economic value of a good or service is determined by the total amount of " socially necessary labor" required to produce it.
The LTV is usually associated with Marxian e ...
, 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 (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
and
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British Political economy, political economist. He was one of the most influential of the Classical economics, classical economists along with Thomas Robert Malthus, Thomas Malthus, Ad ...
.
See also
*
Implicit cost In economics, an implicit cost, also called an imputed cost, implied cost, or notional cost, is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent. It is ...
*
Imputed income Imputed income is the accession to wealth that can be attributed, or imputed, to a person when they avoid paying for services by providing the services to themselves, or when the person avoids paying rent for durable goods by owning the durable go ...
*
Imputed rent
Imputed rent is the rental price an individual would pay for an asset they own. The concept applies to any capital good, but it is most commonly used in housing markets to measure the rent homeowners would pay for a housing unit equivalent to the ...
References
{{DEFAULTSORT:Theory of imputation
Costs
Economics and time
Theory of value (economics)
Austrian School