DEFICIENCIES OF THE THREE-FACTOR THEORY OF VALUE External Deficiencies of the Modern Factor Theory of Value

: The marginal productivity theory is the modern form of the three-factor theory of value. It is the fundamental theory used in Western economics to describe value creation, as well as the fundamental Western theory dealing with wealth theory in the value category. Its original form is the “trinity formula,” composed of three propositions and formulated more than 200 years ago by Jean-Baptiste Say. Because of internal logical defects in the three propositions, the “trinity formula” is merely a hypothesis, and cannot be accepted as a scientific “theory.” The modern form of the three-factor theory of value is the marginal productivity theory proposed more than 100 years ago by John Bates Clark, and subsequently developed further by other researchers. The marginal productivity theory, however, still suffers from three defects of internal logic, and, correspondingly, from three external theoretical difficulties. The article explains that the marginal productivity theory, the modern form of the factor theory of value, has external deficiencies. First, the subject of distribution cannot be defined; second, the contributions made by the factors cannot be defined; and third, the ownership of the contributions cannot be defined.


The Original and Modern Forms of the Three-Factor Theory of Value
1.1 The "Trinity Formula": The Original Form of the Three-Factor Theory of Value Proposed by Say more than 200 years ago in A Treatise on Political Economy (Say [1803] 1982), the "trinity formula" was later refined and supplemented by other researchers to serve as an integral form.The "trinity formula" is composed of three propositions.First, the three factors of labor, capital, and land co-create value.Second, in the capitalist market economy, the rewards paid to the owners of the three factors (including wages, profit or interest, and rent) are equal, respectively, to the value these factors create in production.Third, the sum of the value created by the three factors constitutes the value of the produced commodity.It follows from this that the sum of the rewards for the three factors equals the sum of the value they create, as well as the value of the produced commodity.That is to say, the value of the commodity is distributed completely without any residue, according to the distribution of value created by the three factors, respectively.The trinity formula "explains" that the capitalist economic system is rational and does not involve exploitation.
However, there are internal logical defects in the three propositions of the "trinity formula."First, how are the value magnitudes created by the three factors, and the boundaries between these magnitudes, to be determined?Second, which mechanism ensures that the rewards paid for the owners of the three factors (including wage, profit or interest, and rent) will be, respectively, equal to their value created in production?Third, how can it be proved that the value of the commodity is distributed completely, without any residue, according to the distribution of value created by the three factors, respectively?
The "trinity formula" is merely a hypothesis lacking an adequate theoretical basis, and cannot represent a scientific "theory" unless these internal defects are solved.
The labor theory of value scientifically proposed by Marx, and the distribution theory based on it, are consistent in theoretical terms and do not suffer from the defects of internal logic found in the propositions of the "trinity formula."First, the value created by labor is certain in magnitude, and is measured by labor time.
Second, the division of value magnitude is analyzed in detail by Marx ([1894Marx ([ ] 1999) ) in Volume III of Capital, and is logically coherent.
The "trinity formula," the original form of the three-factor theory of value, is hard to sustain as a basis for the development of economic theories, due to its inherent theoretical difficulties and the relative advantages of the labor theory of value.

The Marginal Productivity Theory: The Modern Form of the Three-Factor Theory of Value
To overcome the internal logical defects in the original form of the three-factor theory of value, various economists have promoted the so-called marginal productivity theory.This theory was first proposed by John Bates Clark more than 100 years ago in The Distribution of Wealth ([1899] 1997), and was then refined and supplemented by other researchers, becoming the modern form of the three-factor theory of value.The theory features three propositions that correspond to the internal logical defects that need to be solved in the three propositions of the original form.

The First Proposition: The Value Created by a Factor Is Its Marginal Product Value
(1) The Neoclassical Production Function The marginal productivity theory is constructed on the basis of the so-called "neoclassical production function."By definition, the production function represents the technical relationship between input and output; in neoclassical economics, both input and output are measured in physical units.In the light of the neoclassical production function, it is considered that the three production factors, labor, capital, and land, constitute the input to production.Of these, land is relatively unimportant, so the neoclassical production function can be written in simplified form as: (1-1) Here q is output, while L and K, respectively, represent labor and capital, i.e., input.
(2) The Marginal Product of Factors In the marginal productivity theory, the first order partial derivative of output with respect to labor is termed the marginal product of labor, represented as: World revieW of Political economy vol.13 no. 1 SPring 2022 Similarly, the first order partial derivative of output with respect to capital is termed the marginal product of capital, represented as: (3) The Marginal Product Is the Contribution by the Factors, and the Marginal Product Value Is the Value Created by the Factors Under the marginal productivity theory, the contribution made to production by the various factors of production is described as the marginal product of factors.
The marginal product of factors multiplied by the commodity price is termed the marginal product value.That is: The theory further holds that the marginal product value of factors is the value created by those factors.That is to say, the marginal product value of capital is the value created by capital, and the marginal product value of labor is the value created by labor.

The Second Proposition: According to the Condition of Maximum Profit, Reward Equals the Marginal Product Value or Contribution
(1) Profit Function R represents the total revenue of a firm, and P represents the price of the commodity.Thus, the total revenue of a firm can be expressed as: (1-2) Supposing that C represents the total costs of a firm, w represents the wage rate, i.e., the price of labor, and r represents the normal profit rate (interest rate), i.e., the price of capital, the total costs of the firm can be expressed as: (1-3) And the profit of the firm is: (1-4) (2) The First Order Condition of Maximum Profit WRPE Produced and distributed by Pluto Journals www.plutojournals.com/wrpe/ The price P of the commodity, and the prices of the production factors, w and r, are supposed to be constants in a perfectly competitive market.If we let the first order partial derivative of formula (1-4) equal zero, we obtain the result: Hence, in a perfectly competitive market, the first order conditions of maximum profit or equilibrium of the firm with respect to production factors are: . (1-5a) This means that the marginal product value of the production factors equals the prices of the production factors.Supposing Z represents wages, and π represents profit, from formula (1-5a) we obtain: From formula (1-5a) it may be concluded that since the prices of the production factors equal their marginal product value, termed the marginal productivity of production factors, the prices of the production factors equal their productivity.From formula (1-6) it is known that the revenue of the owners of the production factors is equal to the quantity of factors multiplied by their marginal productivity, which is considered to be the contribution of the production factors, so that the revenue of the owners of the factors equals the contribution by those production factors.

The Third Proposition: According to the Euler Theorem, the Sums Are Equal, without Any Residue
Suppose that the production function is first order homogeneous (constant returns to scale).That is to say, for the production function ) is established.According to the "Euler Theorem" in mathematics, 1 for a first order homogeneous production function, the formula World revieW of Political economy vol.13 no. 1 SPring 2022 is established.If P is multiplied by both sides in the formula (1-7), the following result is obtained: where Pq is the total value of the products (or the total revenue of the firm), represented by R. According to the formula (1-6), the result is: In formula (1-8), this means that the total value of the products (or the total revenue of the firm) equals the sum of the marginal product value of the factors.In formula (1-9), it means that the total value of the products (or the total revenue of the firm) equals the sum of the revenue from the factors.That is to say, according to the contributions of the factors, the value of the products is completely distributed, without any residue.
The three propositions of the marginal productivity theory are used to implement the "three-factor theory of value," and to prove its correctness.

The Internal Logical Defects of the Marginal Productivity Theory
The marginal productivity theory contains inevitable internal logical defects, which have still not been solved.Three of these internal logical defects correspond to the three propositions of the theory.

The Internal Logical Defect of the First Proposition: Problems in the Measurement of Capital and the Existence of the Neoclassical Production Function
The premise of the first proposition of the marginal productivity theory is the neoclassical production function.The neo-Cambridge school criticized the neoclassical production function as follows.
In neoclassical economics, the production function is defined as the technical relation between input and output, which is equivalent to the relation between things.Consequently, both input and output should be measured with physical units.However, output q and labor input L have physical quantity units of their own, exclusive of capital.According to the neoclassical school, capital is defined as production elements produced.These are of diverse kinds, such as plants, lathes, cutters, and lubricating oil, so they cannot be measured using a single physical unit.Is it possible, then, to measure capital by the sum of the prices of these production elements?That is to say, is it possible to measure capital by the money value of these production elements?Obviously, it is impossible; if the sum of the prices of these production elements is employed to measure capital, then once the prices of the production elements experience any change, even if the technology remains unaltered, the form of the production function will vary accordingly.In these circumstances, it diverges from the definition of the production function advanced by the neoclassical school.In any case, the neoclassical production function is not tenable unless capital can be measured in a single unit (Asimakopulos 1978, 168).
This criticism was presented by the prominent British economist Joan Robinson, the leader of the neo-Cambridge school, in her famous 1953 paper "The Production Function and the Theory of Capital."She pointed out: The production function has been a powerful instrument of miseducation.The student of economic theory is taught to write O=f (L, C) where L is a quantity of labour, C a quantity of capital and O a rate of output of commodities.He is instructed to assume all workers alike, and to measure L in man-hours of labour; he is told something about the index-number problem involved in choosing a unit of output; and then he is hurried on to the next question, in hope that he will forget to ask in what units C is measured.Before ever he does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next.(Robinson 1953, 81) The neoclassical school is unable to answer this criticism, basically taking an evasive attitude, as, for example, in the popular textbook Microeconomics: Theory and Application by Edwin Mansfield (1975).At the beginning of this text, the author discusses production using labor and land as two production factors, illustrating this with the unit of labor as the person-year and the unit of land as mu.Then in his geometric figures, capital is substituted for land; labor and capital are assumed to be the two relative inputs in the figures, but not labor and land.In his figures, however, Mansfield does not define any unit as a measure of capital.Samuelson takes the same evasive attitude in his work Economics (Samuelson 2009).
If capital cannot be measured, and the neoclassical production function is not tenable, the marginal product of capital cannot exist.Consequently, the first proposition of the marginal productivity theory cannot be substantiated.
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The Internal Logical Defect of the Second Proposition: The Problem of the Tenability of Cost Production
As illustrated previously, the second proposition of the marginal productivity theory, which holds that the prices of factors equal their marginal product value, is derived by maximizing the profit function of a firm while the profit function is determined based on the neoclassical production function and the cost equation Previously, it was shown in detail that the neoclassical production function taking capital as an input is not tenable.Consequently, the first premise of the second proposition of the marginal productivity theory is false, and not tenable.It will now be shown that cost equation (1-3), the second premise of the second proposition of the marginal productivity theory, is also false and is not tenable either.

The Problem of Measurement of Capital
In the cost equation (1-3), the labor L in the first item is a physical quantity, and w is the wage rate, i.e., the price of labor.Consequently, the capital in the second item should be a physical quantity too.Further, the theory of the neoclassical school also requires that capital should be a physical quantity.Nevertheless, and as with capital in the neoclassical production function (1-1), the capital in the cost equation is an aggregate magnitude, and cannot be measured by a physical unit.Thus the cost equation is not tenable either.

The Problem of the Unit of Dimension
If it is assumed that capital can be measured by a physical unit, r should be the purchasing price of the physical quantity of capital.But in the cost equation, r is the interest rate (the normal profit rate).How can a physical quantity be multiplied by an interest rate?And what is the result?When a physical quantity is multiplied by a pure percentage, the dimension is the unit of this physical quantity.However, the dimension of the first item in the cost equation is the unit of money.As the dimensions of the two items in the cost equation are different, the equation is not tenable.

The Problem of the Significance of the Result
In order to perfect the cost equation, it is necessary to step back again, which means two choices.First, it is necessary to assume that the quantity of capital K is measured by money, and second that r is not the interest rate, but the purchasing price of the physical quantity of capital.In the circumstances, however, the result of the calculation has nothing to do with the proposition involved, or with the conclusion of marginal productivity.
(1) The First Choice: The Ridiculousness of the Result of the Calculation In the first of the above choices, with the quantity of capital K assumed to be measured in money terms, rK is equal to the interest (normal profit).But the problem lies in determining why the cost is different from the money amount itself, and is instead the interest (normal profit) payable on the money amount.The answer, according to marginal productivity theory, is that the firm needs to pay the interest (normal profit) when borrowing the money required.Marginal productivity theory, however, neglects the fact that besides paying this interest (normal profit), the firm needs to compensate for the loss of capital in production; if the revenue or products of the firm cannot compensate for this loss, production cannot continue.Meanwhile, if the firm uses the borrowed money to purchase its means of production with the interest (normal profit) as cost, it can also use the borrowed money to purchase labor, with the mere interest (normal profit) as cost.In these circumstances, L should also be measured in money terms, and not as physical units.Additionally, it should not be multiplied by w, but r.The cost equation (1-3) should be written as where (L + K ) is the actual total amount of capital.Thus, the total normal amount of profit (amount of interest) is The conclusion is that cost equals profit, which, as any normal human knows, is completely false.
(2) The Second Choice: The Result of the Calculation Has No Significance for Marginal Productivity Theory In the second choice, capital K is assumed to be measured in physical units.It must be multiplied not by the interest rate (normal profit rate) r, but by its purchasing price P K .Assuming two back steps, the cost function can be written as: World revieW of Political economy vol.13 no. 1 SPring 2022 If the neoclassical production function is assumed to exist, the profit function can be written as: (2-2) Let its first order partial derivative equal zero: The first order condition of maximum profit is then: That is to say, the marginal product value of labor equals the wage rate, and the marginal product value of capital equals the purchasing price.This view does not allow a derivation of what interest (normal profit) equals, or of what determines the so-called "income of capitalists."What significance does this result have for the marginal productivity theory?None.
Based on the analysis of the cost function in the marginal productivity theory, the cost equation itself is false, and is not tenable.Since the neoclassical production function and cost equation are false and untenable as the premise of the second proposition of the marginal productivity theory, the second proposition, namely, that the wage equals the marginal product value of labor, and the normal profit equals the marginal product value of capital is also false and untenable.
According to the third proposition of the marginal productivity theory, once distribution is based on "wage rate = marginal product value of labor" and "normal profit (interest) = marginal product value of capital," the total value of the product (total revenue) of a firm is completely distributed without any residue, and hence without any exploitation.This argument is used in an attempt to prove that the distribution theory is perfect.Previously, it was demonstrated that the second proposition of the marginal productivity theory is untenable, so any effort to prove its "perfection" is futile.Nevertheless, this article will now take a step backward and assume the tenability of the neoclassical production function, with capital as a variable.The purpose will be to illustrate that even given this assumption, the third proposition of the marginal productivity theory is untenable in logical terms.

Criticism of the Third Proposition of the Marginal Productivity Theory
(1) The First Criticism: No Generality in the First Order Homogeneous Production Function Previously, it has been noted that the third proposition of the marginal productivity theory assumes the first order homogeneous production function.This assumption has been criticized by a number of economists (Bai 1988, 157).
At the first level, the criticism notes that the production function is generally non-homogeneous, and that the homogeneous production function is merely a special case.If the production function is non-homogeneous, the third proposition of the marginal productivity theory is not tenable.Accordingly, the third proposition of the marginal productivity theory is not tenable in general.
At the second level, the criticism takes a step back and assumes that the production function is homogeneous.The production function cannot always be first order homogeneous, since this is only a special case of the homogeneous production function.If the production function is homogeneous, but not of the first order, the third proposition of the marginal productivity theory is not tenable.Consequently, the third proposition of this theory is not tenable in general.
The discussion now proceeds to the question of the k-order homogeneous production function.Let us assume that the production function is k-order homogeneous, that is, for the production function ) is established.According to the Euler Theorem, we obtain where That is: If we multiply both sides of the above formula by P, we get World revieW of Political economy vol.13 no. 1 SPring 2022 Substituting the second proposition of the marginal productivity theory, formula (1-6), (2-4a) From formula (2-4a), it is known that when k > 1, i.e., when there is an increasing return to scale, the total value of the product (total revenue of the firm) R is smaller than the wage costs plus the normal profit.The question that must then be asked is what, in these circumstances, is available to distribute.When k < 1, i.e., when there is a decreasing return to scale, the total value of the product (total revenue of the firm) R is greater than the wage plus the normal profit, which is the conclusion of the general form of the Euler Theorem in applied mathematics.The question then becomes: who should own the residue that exists in this case?If the residue is owned by the capitalists, does this constitute exploitation?The marginal productivity theory takes an evasive attitude toward these questions.
(2) The Second Criticism: If It Is Assumed that the Production Function Is First Order Homogeneous, the Second Order Condition of the Maximum Profit of a Firm, as the Premise of the Second Proposition of the Marginal Productivity Theory, Cannot Be Satisfied A number of economists have pointed out: if the production function is first order homogeneous, the second order condition of the maximum profit of the firm, as the premise of the second proposition of the marginal productivity theory, cannot be satisfied.The marginal productivity theory is itself imperfect in logical terms, and the proposition is thus untenable (Henderson and Quandt 1980, 109).The specific demonstration is as follows.
As shown earlier, if the production function is first order homogeneous, then according to the Euler Theorem we obtain: When the above equation is differentiated, we get: In formula (2-5), let dK = 0 and divide by dL on both sides of the equal sign, to obtain: Thus In formula (2-5), let dL = 0, and divide by dK on both sides of the equal sign, to get: Thus Substituting formula (2-6) and formula (2-7) in the Hessian determinant, we obtain: The second order condition of the maximum profit function (1-4), as the premise of the second proposition of the marginal productivity theory, is the Hessian determinant Accordingly, if the production function is first order homogeneous, it cannot satisfy the second order condition of profit maximization, as the premise of the second proposition of the marginal productivity theory.Thus, the marginal productivity theory cannot be self-perfected in logical terms.
From another angle, the above point can be demonstrated as follows.
If the production function is first order homogeneous, the profit function of the firm is which is also first order homogeneous; i.e., World revieW of Political economy vol.13 no. 1 SPring 2022 is established.Obviously, in this case, the maximum profit cannot be determined.
If the values of P, w, and r allow the combination of L and K to generate positive profit, then as long as the value of λ selected is great enough, the positive profit can reach any level.Conversely, if the values of P, w and r mean that the combination of L and K generates negative profit, then whatever value is selected forλ, the profit is certain to be negative.When the values of P, w, and r result in the combination of L and K generating zero profit, then whatever value is selected for λ the profit is certain to be zero.

Arguments Concerning the First Criticism, and Their Failures
The first criticism of the third proposition of the marginal productivity theory notes that the premise in this case is the first order homogeneous production function, and contends that as a result, the proposition is not tenable in general.
Responding to this criticism, advocates of the marginal productivity theory use two arguments.These arguments will now be introduced, and their failures demonstrated.
(1) The First Argument and Its Failure The first argument used to counter the above criticism is that the production function is certain to be first order homogeneous.The demonstration is as follows.It is assumed that the production function is k-order homogeneous.According to formula (2-4), when k > 1, the total revenue of a firm R is smaller than the wage costs plus the normal profit.Under these conditions, the firm is in a state of negative excess profit, so that it will quit the industry, leading to a rise in the product price until R is equal to the wage costs plus the normal profit.At that point, k = 1.When k < 1, the total revenue of the firm R is greater than the wage costs plus the normal profit.The firm is then in a state of positive extra profit, so that firms in other industries will enter this industry, leading to a decrease in the product price until R is equal to the wage costs plus the normal profit.At that moment too, k = 1.Thus, the production function is certain to be first order homogeneous.This argument is completely ridiculous.It attempts to transform the production function as a technical relation by invoking the economic behavior of firms quitting and entering the industry.This, however, is impossible, as is demonstrated by formula (2-4a), by multiplying both sides of the equal sign by P. Obviously, the change of price P cannot affect the relation between the two sides of the equal sign in formula (2-4a), or the value of k.Hence it cannot change the order of the homogeneous production function. 4  (2) The Second Argument and Its Failure The second argument employed to counter the first criticism holds that it is unnecessary for the third proposition of the marginal productivity theory to be tenable when the first order homogeneous production function is assumed as a premise.
The demonstration is as follows (Johnson 1973).Assumptions: (a) The first and second order conditions of profit maximization are satisfied.(b) When a firm is in long-term equilibrium, the maximum profit is zero.According to the second assumption, in long-term equilibrium As shown previously, the cost equation is: According to the first order condition of maximum profit, we have: . (1-5a) If formula (1-5a) is substituted in formula (1-3), we obtain: If formula (2-12) is then substituted in formula (2-11), we get: Formula (1-5a) is the second proposition of the marginal productivity theory, and formula (2-13) is the third proposition of the marginal productivity theory, formula (1-8).
The assumption of the first order homogeneous production function seems not to be the premise in the proof.But in fact, it is precisely the premise.If we substitute R Pq = in formula (2-13), we get: World revieW of Political economy vol.13 no. 1 SPring 2022 Dividing both sides of the above equation by P, we obtain: This is simply formula (1-7).It shows that the production function is first order homogeneous.
It can thus be seen that the second argument above cannot be used to show that the third proposition of the marginal productivity theory is tenable without the premise of assuming the "first order homogeneous production function."On the contrary, it shows precisely that the "first order homogeneous production function" is certain to be the premise.

The Argument concerning the Second Criticism, and Its Failure
The second criticism of the third proposition of the marginal productivity theory notes that if a first order homogeneous production function is assumed, the second order condition of the maximum profit of the firm cannot be satisfied.Thus the marginal productivity theory is not perfect and is untenable.In seeking to counter this criticism, advocates of the marginal productivity theory argue that if the scale of a firm and the number of firms can be determined by some arbitrary mechanisms that satisfy the condition of industrial output equaling industrial demand, the second order condition of maximum profit can be satisfied (Henderson and Quandt 1980, 110).
The demonstration is as follows.Assumptions: a) the production function is first order homogeneous, and b) the production scale of the firm is determined by arbitrary mechanisms that result in the output being q 0 , i.e., f L K q ( , ) .= 0 (2-14) Under this assumption, the profit of the firm is: (2-15) The firm achieves its maximum profit when formula (2-15) reaches its maximum under the constrained condition of formula (2-14).Establishing the Lagrange function: Let its first order partial derivative equal zero: (2-16) WRPE Produced and distributed by Pluto Journals www.plutojournals.com/wrpe/λ = P can be proved.When we substitute it in the former two equations of formula (2-16), we obtain which is exactly the second proposition of the marginal productivity theory.The second order condition of maximum profit will now be discussed.The bordered Hessian determinant is If this is expanded, we get: When formula (2-6) and formula (2-7), derived from the first order homogeneous function, are substituted in the above equation, we obtain Since w, r, f LK , and f KL are all greater than zero, it follows that That is to say, the second order condition of maximum excess profit can be satisfied.Since the production function is assumed to be first order homogeneous, the third proposition of the marginal productivity theory is tenable.This argument is clearly insubstantial, and actually settles nothing at all.According to the argument, the determination of the production scale of a firm can be boiled down to an "arbitrary mechanism"; meanwhile, the production scale determined by the "arbitrary mechanism" is a premise of the assumption.It is as though "God" were employed to settle the problem, and in fact nothing is settled.It can be seen that the advocates of the marginal productivity theory fail in their attempts to answer the second criticism as well.

Conclusion
From the above analysis, it can be seen that the third proposition of the marginal productivity theory is logically imperfect and is not tenable.First, the assumption of first order homogeneous production function is a premise of the third proposition of the marginal productivity theory, but it is in fact merely a special case within production function.Generally, production function is not first order homogeneous, so the third proposition is not tenable.Second, the fact that the World revieW of Political economy vol.13 no. 1 SPring 2022 production function is assumed to be first order homogeneous means that the second order condition of maximum profit cannot be satisfied.As a result, the marginal productivity theory cannot be self-perfected.All in all, it may be concluded that regardless of whether the first order homogeneous production function applies or not, the marginal productivity theory is untenable.Accordingly, the third proposition of the marginal productivity theory cannot be self-perfected logically.

External Theoretical Difficulties of the Marginal Productivity Theory
The marginal productivity theory is based fundamentally on the "contribution" made by each production factor to "distribution according to factors."However, the theory suffers from the internal logical defects noted earlier, and thus encounters difficulties in explaining "distribution according to factors" by "contribution."As a result, the theory is unable to explain simple economic phenomena.These difficulties, as outwardly visible problems, are external expressions of the theory's flawed internal logic.

Difficulties in Explaining the "Contributions" of Factors
According to the first proposition of the marginal productivity theory, the contribution made by each factor equals its marginal product.As explained previously, however, that proposition is not tenable.In the real economy, it is impossible to explain the "contribution" of factors by marginal product, and ridiculous even to try.
To take a simple example-the production of eggs-the marginal product of egg-laying hens is linear across a big range.When the number of hens is constant, the marginal product of the human workers in the egg industry is zero, as is the marginal product of the equipment required.If the view that marginal product equals contribution is correct, the contribution by the hens amounts to all the eggs, while the contributions made by the human workers and by the equipment are both zero.This is obviously unrealistic, and indeed ridiculous.
Based on the calculation above, and in accordance with the theory that "the 'contribution' of factors in wealth production determines the distribution," all the eggs should be distributed to the hens, which is obviously unrealistic and ridiculous too.

Difficulties in Explaining the Distribution of "Contributions"
According to the second proposition of the marginal productivity theory, the "contribution" made by various factors constitutes their income.In light of this explanation, the products should be distributed to the factors that make contributions.But this cannot be carried out and has never been carried out; it is even ridiculous.There are difficulties with the tenability of the explanation.Two examples will be given.
Example 1: the "contribution" of the sun and the distribution.Everything that grows relies on the sun.In agricultural production, sunlight is a fundamental production factor because solar energy is transformed, by the chlorophyll in the plants, into the energy in the crops.Thus, the sun makes great "contributions" to crop production.
In fact, solar energy is the source of almost all the energy on the earth, with a few exceptions, such as atomic energy.Consequently, wealth production almost always has a connection to the sun, meaning that the "contribution" by the sun is the greatest of all.
If wealth is to be distributed according to the "contribution" made to wealth production by various factors, the subject of distribution should be the factor.It follows that, since everything that grows depends on the sun, and almost all energy is derived from the sun, it is the sun that should obtain the most wealth for its overwhelming "contribution" to wealth production.
Similarly, tidal and wind power, etc., are all production factors and make "contributions" to wealth production, so they should share in the wealth too.
Example 2: the production of eggs, the contribution of the hens, and distribution.
In the production of eggs, hens are the absolutely necessary production factor.Moreover, hens make the greatest "contribution."If wealth is to be distributed according to the "contribution" made to wealth production by various factors, these factors should be the subjects of the distribution.The majority of eggs should belong to the hens.The case with milk production is similar.
Obviously, in reality no wealth whatever is distributed to the sun, the tides, wind power, or the hens and cows.

Difficulties in Explaining the "Contributions" of Factors Not Subject to Ownership
Attempting to come up with a solution to the second external theoretical difficulty, various scholars have argued: the ownership of production factors determines the distribution of national income, and the "contributions" by production factors, marginal product, determine the magnitude and boundaries of distribution.Thus, only the "contributions" made by factors subject to ownership can be distributed to their owners.This explanation, introducing as it does the concept of ownership, undoubtedly represents progress.Nevertheless, two difficulties still exist.First, and as mentioned above, there is a difficulty with the calculation of "contribution" by marginal product.The second problem lies in how the "contributions" by factors without ownership are to be distributed: according to the "theory of contribution of factors," all the factors make contributions, but only the owners of factors World revieW of Political economy vol.13 no. 1 SPring 2022 subject to ownership are entitled to have their contributions recompensed.How, then, to reward the contributions made by factors without ownership, such as the sun?Who controls the contributions in such cases?The theory is unable to answer these questions.
If an economic theory cannot explain such simple issues, it is hard to regard it as tenable.

Explanations for the Errors in the Marginal Productivity Theory
The marginal productivity theory suffers from internal logical defects, and has difficulty in explaining simple economic phenomena.The reason lies in the presence of innate theoretical errors.The main errors are as follows.First, the theory fails to recognize that the marginal product does not represent the "contribution" of factors, but belongs to marginal labor productivity.Second, the theory fails to recognize that it is ownership that determines distribution, not the "contributions" made by various factors.Third, it fails to recognize the actual relations between product values, profits and wages, instead promoting the false idea that "the total value of a product is composed of wages plus profit."

The Marginal Product Is Not the "Contribution" of Factors, but Belongs to Marginal Labor Productivity
According to the first proposition of the marginal productivity theory, the marginal product of factors is the "contribution" made by these factors.It will now be demonstrated that the marginal product of factors exists as a technical category, but not as the contribution of factors.

An Analogy
As an analogy, let us take a 100-meter foot race.Various elements are necessary for this sport, including human activity, running shoes, and the track.These are equivalent to production factors, and athletic achievement is equivalent to the product.From the perspective of the physical process of running, human activity, running shoes, and the track are all indispensable factors, and in this sense constitute the source of the achievement.But the whole point of the race is the relationship it establishes between human beings.Thus, from the angle of the relationship between human beings in society, it is only the athletes' (human) activity that can be seen as the source of achievement.The glory and the sense of achievement belong to the athletes, not simultaneously to the running shoes.
It is assumed that in a 100-meter race, an athlete's achievement can reach 10 seconds with a pair of ordinary running shoes while his or her achievement can reach 9.5 seconds with a pair of high-quality running shoes.From the angle of the physical process, 0.5 seconds can be considered as the marginal achievement of the running shoes.However, when an athlete races with a pair of high-quality running shoes and wins, no one will attribute the victory to the running shoes but to the athlete, and no one will consider that the running shoes provided the conditions for the athlete's excellent achievement.The chairman of the Olympic Games hangs the gold medal on the athlete, not on the running shoes.
Likewise, from the standpoint of natural processes, all production factors make their "contributions" to production.However, from the standpoint of human social processes, it is only the activity of human beings, labor, that makes "contributions."

The Marginal Product Is Attributed to Marginal Labor Productivity
(1) The Labor Productivity Function and Its Analysis Volume I of Marx's Capital provides the following overall illustration of the determinants of labor productivity: In the terminology of modern economics, Marx's state of science, and the degree of its practical application corresponds to the technical state of production, while "the social organization of production" is management, and "the means of production" and "physical conditions" are the equivalents of "capital" and "land," respectively.As we would now say, the determinants of labor productivity include the skill levels of the workforce, the quantity of the means of production (including labor means and labor objects), the quality of management, and the state of the science and technology employed.
For present purposes, a represents the proficiency of the workforce, X 1 , X 2 , . .., X n represents the respective quantity of n kinds of the means of production, g represents the quality of management, s represents the scientific state, and t represents the technical state.The labor productivity function can then be written as: Within the labor productivity function, the measurement of each independent variable in (a, X i , g, s, t) is a problem still to be dealt with.Here, it is assumed that the World revieW of Political economy vol.13 no. 1 SPring 2022 variables can be measured and have measurement units.Measurements of these variables are to be studied specifically in future.
If we take the first order partial derivative of labor productivity with respect to each independent variable, we obtain: the marginal labor productivity corresponding to workforce proficiency: the marginal labor productivity of the means of production: , , ; 1 2  the marginal labor productivity corresponding to the quality of management: the marginal labor productivity of the scientific level: the marginal labor productivity of the technological level: The respective marginal labor productivity of these elements expresses the degree of the increase in these elements as it affects an increase in labor productivity.
(2) The Production Function and Its Analysis It is known that the quantity of product = labor time × labor productivity, meaning that q = hf (4-2) As indicated above, labor productivity depends on five elements: workforce proficiency, the quantity of means of production, the quality of management, the scientific state, and the technical state.These elements affect the quantity of product by affecting labor productivity.That is to say, increases in these five elements will improve labor productivity, and thus raise the quantity of product.This means that increases in the five elements will improve the efficiency of labor, and by raising labor productivity it will result in labor producing more products.
From formula (4-3), the marginal product of each element may be obtained: marginal product of labor time: marginal product of workforce proficiency: marginal product of the quality of management marginal product of the scientific state and marginal product of the technical state (3) The Production Function and the Significance of the Marginal Product As shown in formula (4-4), the marginal product of "each element that determines labor productivity" equals labor time multiplied by the marginal labor productivity of each element.This indicates that the marginal product of each element expresses the change in product quantity caused by the change of labor productivity resulting from a change in the quantity of that element.Formula (4-3) and every expression of (4-4) also show that these elements, including science, technology, quality of management, quantity of means of production, and workforce proficiency, do not arise in and of themselves, or in isolation.The development of these elements results in improved labor productivity, so that workers can produce more products.

The Misunderstandings Within the Marginal Productivity Theory
In the marginal productivity theory, the elements that determine labor productivity are confused with production factors.The theory also confuses the marginal product of elements determining labor productivity with the marginal product of World revieW of Political economy vol.13 no. 1 SPring 2022 production factors, and further confounds it with the "product" created by the production factors or the "contribution" of production factors.

The "Distribution according to Factors" Is Determined by Ownership, Not by the "Contribution" of Factors
In a capitalist economy, distribution takes place "according to factors."Based on the second proposition of the marginal productivity theory, the "contribution" to wealth production made by different factors determines the "distribution according to factors" in national income.The main theoretical error that the marginal productivity theory commits involves confusing the natural function of factors in wealth production with their social function.
Here, and first, three kinds of processes involved in production will be illustrated.Second, and based on the first illustration, it will be shown that the functioning of non-labor factors in the natural process of production constitutes the natural basis of "distribution according to factors" for social value.Meanwhile, the ownership of non-labor production elements is the social reason that underlies "distribution according to factors" for social value, and that also determines the magnitude boundary of this distribution.Accordingly, what determines the "distribution according to factors" in a capitalist economy is the ownership of factors, not the "contributions" they make.

The Starting Point for the Study (1) Three Kinds of Processes in Production
The process of wealth production can be divided into three varieties.The first of these is the natural process seen in wealth production.The second is the human process in wealth production, and the third is the social process in wealth production.The process of wealth production represents the unity of these elements.
The process of wealth production involves first of all a process of transformation in material form.In bread production, for example, wheat, water, and salt undergo a process of transformation in their material forms, taking on the material form of bread.When studied from this perspective, the production process is described as the natural process of wealth production.
The production of wealth involves not just a transformation of natural materials, but also an anthropocentric process in which human beings act deliberately to meet their needs.For example, the production of bread is not only a process involving the transformation of material forms, but also a process in which human beings engage in deliberate action to satisfy their energy absorption needs (eating).If the transformation of material substances is not aimed at meeting human needs, it will make no sense.The anthropocentric production process, studied from the perspective of human beings, is called the human process of wealth production.
Wealth production is not only a human process, but is carried out within certain structures of social organization and in the context of certain social forms.For example, bread production is not just an active process carried out by human beings to meet their needs, but also a process carried out in a natural economy, in a commodity economy, in a feudal economy, in a capitalist economy, or in a socialist economy.Production when studied from the perspective of structures of social organization and social forms is described as the social process of wealth production, and is the social realization form of the human process of wealth production.
(2) The "Source" of Value and Distribution In the human process of wealth production, labor is the only human expense incurred.The expenditure of labor is the social process embodied in wealth, and provides a measure of wealth value.In a commodity economy, the value of a commodity is the representative form of wealth value.Consequently, labor is the only "source" of value. 5 In the social economy, social wealth will be distributed among different social groups.The distribution of social wealth is the distribution of social wealth value.In a commodity economy, it is also the distribution of total social value.In a social structure where the means of production (the non-labor factors in production) are controlled by a particular social group, the total social value is "distributed according to factors."

The Natural Basis of "Distribution according to Factors": The Function of Production Factors in the Natural Process of Production (1) Production Factors and Their Functions
There are three factors in the social process of wealth production, including labor, labor means, and labor objects.The last two are also described as means of production, as well as being the non-labor production factors.
In the process of wealth production, labor functions on the labor object using the labor means, changing the form of the labor object and transforming it into something useful to humans, thus creating utility.Labor cannot create material, but it can create utility (Mill 1848, 60;Marshall 1948, 64).Since material can neither be created nor destroyed, all that humans can do is to change the form in which it exists.
In the process of wealth production, the material content and form of existence of the labor object constitute the object on which labor operates.Under the function of labor, the labor object is transformed morphologically, and becomes an World revieW of Political economy vol.13 no. 1 SPring 2022 object useful to humans.In the absence of the labor object, labor has no significance or result, as expressed in the Chinese saying: "The cleverest wife can't cook a meal without rice." One of the greatest differences between humans and animals is that humans can use tools consciously and systematically, and can use various media to expand the scope of human activity.The labor means consist of generalized tools and a system of media.In the process of wealth production, under general conditions, the labor process cannot be carried out in the absence of the labor means; that is to say, labor cannot transform the labor object as expected.To expand on the above saying, "Even if there is rice, the cleverest wife can't cook a meal without a pot." The three factors studied in Western economics include labor, capital, and land.In Western economics, "capital" is the labor means and the processed labor object, so the function of "capital" in the process of wealth production is precisely that of the labor means and of the processed labor object."Land" is the raw labor object, so the function of "land" is specifically that of the labor object.
(2) The Three Factors That Jointly Constitute the Natural Source of Wealth From the angle of the natural process of production, the three factors, including labor, labor means, and labor object constitute the source of wealth, i.e., they create wealth jointly.The material content of the labor object constitutes the material content of wealth, and labor transforms that material content into a form useful to humans.The sum of the material content and labor constitutes utility.The labor means enable labor to work effectively.Nature is the first source of all labor means and labor objects.That is to say, along with labor, nature is also the source of wealth. 6 The key element in "the three factors jointly constituting the natural source of wealth" is the word "jointly."That is to say, their functions cannot be separated, and it is impossible to isolate the separate function or "contribution" of each factor.The American economist Paul Samuelson cites what William Petty, the father of classical economics, said to illustrate this issue: Labor is the father of product and land the mother.One cannot say which is more important in producing a baby-a mother or a father.So, too, it is generally impossible to say how much output has been caused by any one of the different factors taken by itself.The different factors interact with one another.(Samuelson 2009, 233) (3) The Non-labor Population Has No Function in the Natural Process of Production In the natural process of production, both labor and non-labor factors exert functions.The non-labor factors are objects, but are not human.The non-labor factors are either products of labor or products of nature, and in neither case have any relation to the non-labor population.Consequently, the non-labor population has no function at all in the natural process of production.

The Social Reason for "Distribution according to Factors": Ownership of Production Factors
(1) The Subjectivization of the Non-labor Population, and the Personification of Non-labor Factors in the Social Process of Production In certain social processes of production, the non-labor factors are controlled by particular social sectors or population groups.These non-labor sectors or groups own the production factors, and can "constrain" the non-labor factors.
The function of non-labor factors in the natural process of wealth production allows the person who can "constrain" the non-labor factors to achieve the status of "subject" independent of the worker in wealth production, and also allows him or her to behave as a "subject" independent of labor.This is the function of nonlabor factors in the social process of wealth production, and it is precisely why, in the social analysis of wealth production, non-labor factors enter into and become categories within economics.The social function of the non-labor factors lies in allowing the person who can "constrain" such factors to achieve the status of "subject" independent of the worker in wealth production.
Meanwhile, this ownership allows the non-labor factors to "own" the social existence of human beings.The non-labor factors are personalized, and are even treated as being integrated with the owners of non-labor factors; in this way, they enter into the scope of research, even becoming categories within economics.If a certain non-labor factor has no ownership and is not "constrained" by one or another person, it can neither be used to achieve the status of a "subject" independent of the worker in the natural process of wealth production, nor does it enter into economic discourse, much less become an economic category.Examples of such non-labor factors are sunlight, the power of the tides and the gravitation of the moon.In the natural process of wealth production these non-labor factors and their functions exist merely as objects of technological study, not as the objects of study by economists.
(2) The Owners of Production Factors Take Part in the Distribution of Value In an economic system where ownership of production factors exists, and where the owners of non-labor factors achieve the status of "subjects," all the owners of factors have the right to take part in the distribution of social wealth.From the World revieW of Political economy vol.13 no. 1 SPring 2022 perspective of human activity in the area of wealth production, the owners of factors possess rights to take part in the distribution of the fruits of human activity or of the labor congealed in production, i.e., they possess rights to take part in the distribution of total social value.The form of distribution depends on the form of ownership of production factors.Thus, it is the ownership of production factors that determines the distribution of total social value.
(3) Distribution in the Capitalist Economic System In the capitalist economic system, the capitalists and landowners control the labor means and labor objects while the workers own their labor power.Lacking the means or objects of labor, the workers can only sell their labor power to the capitalists.The capitalists organize production on the basis of the three production factors.As for the newly created products, the part needed to secure the reproduction of the workforce is distributed to the workers, while the rest remains in the hands of the capitalists (or landowners).In physical terms, the newly created products are natural objects, and the workers receive one part as payment for their labor power, while the capitalists and landowners retain another part as owners of the labor means and labor objects.From the angle of human wealth production, however, the newly created products embody the workers' labor, which determines the magnitude of the products' value.From the magnitude of the congealed labor, or the magnitude of the value created, the workers as owners of their labor power share the part that is equal to the value of this labor power, while the capitalists and landowners, as owners of the labor means and labor objects, appropriate the other part of the value imparted by the workers.This part of the congealed labor is the surplus-value.
In approximate terms, it can thus be said that the workers own the natural asset represented by their labor, but the capitalists and landowners appropriate this labor through their ownership of the natural wealth (and the materialized labor).The labor power naturally belongs to the workers, and the labor they expend is their self-activity.However, the nature (and the materialized labor) are not naturally owned by the capitalists and landowners, but are appropriated by them due to the prevailing social system.

The Limits of the Magnitude of Distribution according to Factors
Using the analysis that will now be outlined, Marx revealed the limits that apply to the magnitude of the total social value that is divided among the various owners of production factors within a capitalist market economy.The price of labor as determined in the capitalist labor market is the monetary expression of the value of labor, as well as being determined by it, and this states exactly the limits to the magnitude of the new-created social value that is divided among the workers.The rest of the new-created value constitutes the surplus-value, which is divided by the market among different groups of capitalists and landowners.To explain the limits that apply to the magnitude of the various shares, Marx used categories including average profit, commercial profit, interest rates and land rent.

Conclusion: What Determines Distribution Is Not the "Contribution" Made by Different Factors, but Ownership
From the standpoint of the human process of production, labor is the only source of value.In the natural process of wealth production, labor and non-labor factors jointly constitute the source of wealth, with the non-labor factors indispensable elements.The fact that these non-labor factors are indispensable allows the owners of non-labor factors to take part in the distribution of total social value, which is the "distribution according to factors" of this value.The function of non-labor factors in the natural process of wealth production constitutes the natural basis for "distribution according to factors," and the ownership of the non-labor factors provides the social reason for this manner of distribution.
In the natural process of wealth production, all factors exert functions and become the source of wealth jointly.In the social process of wealth production, however, the sole human expense that is contributed is labor.The social function of non-labor factors in the natural process of wealth creation can be summarized as follows: to enable their "owners" to become the subjects, independent of workers, in the social process of wealth production and in turn, to be the subjects of the distribution of social wealth.It is the "owners" that take part in the distribution of social wealth, rather than the production factors themselves, and the distribution is determined by the constraints applied by the "owners" to the production factors, rather than by the "contributions." In human society, the natural factors provide people with free "contributions."When factors are controlled by particular individuals, however, the "contributions" made by these factors are prone to be used as "reasons" for their owners to demand wealth.At this point, the discussion enters the category and field of research of economics.In economics, however, the study of natural factors does not in essence address their "contributions," but the "constraints" exercised by the owners over wealth production.That is to say, the owners are remunerated not because the natural factors make "contributions," but because these factors are "constrained," allowing the owners to extract payment.The scale of this payment does not depend on the size of the "contribution," but on the character of the "constraint." The non-labor factors processed by human labor-"capital" in Western economics-should naturally provide humans with free "contributions," above all else because these non-labor factors become production factors after human World revieW of Political economy vol.13 no. 1 SPring 2022 processing.In logical terms, this "capital" has no entitlement to ask humans for any reward.Similarly, the only "contributions" controlled by certain people are non-labor factors; nevertheless, the non-labor "contributions" made by these factors are cited as the "reason" why their owners should receive wealth.At this point, the phenomena concerned enter the category of economics and the scope of economic research.However, the rewards paid to what Western economics terms "capital" do not stem essentially from its "contribution," but from the "constraint" exercised by its owners over wealth production.That is to say, "capital" receives payment not because it makes a "contribution," but because it exercises "constraints," and the owners must be accommodated.How much the owners are paid does not depend on the size of the "contribution" made by the factors, but on the form and size of the "constraints."

Total Product Value Is Not Composed of "Wages plus Profit"
According to the third proposition of the marginal productivity theory, the value of a commodity is made up of wages plus profit.See formula (1-8) and formula (1-9) R Z = +π , which are expressions of this proposition.In fact, this argument amounts to a mistaken inheritance from "Smith's Dogma" and the "theory of production expense" (production expense theory of price).In the following, we will first illustrate the real relation between value and distribution, and will then explain how the real relation evolves into an erroneous perception.

The Real Relation
(1) The Essential Relation on the Value Level As we know, the value of a commodity equals the magnitude of the labor expended in its production, including the cost of materialized labor and outlays for living labor.The expenditure on living labor may be decomposed into the part that pays for wages and the part that goes to form profit.This relation is expressed in Figure 1.
In Figure 1, W is the value magnitude of the commodity produced, i.e., the labor magnitude expended in commodity production.W w represents the materialized labor that is expended, and W h the living labor.W π represents the magnitude of the labor that goes to form the profit, and W z the magnitude of the labor that forms the wages.The upward arrow denotes the composition relation.Here, it shows that the labor magnitude expended in commodity production W is composed of the expended materialized labor W w and the expended living labor W h .The downward arrow denotes the decomposition relation.Here, it shows that the living labor expended in production W h is decomposed into the labor magnitude that forms the profit W π and the labor magnitude that forms the wages W z .(2) The Expression on the Price Level On the price level, the commodity value is expressed as the price and the labor expense is expressed as the (full) cost.The labor expense is composed of two parts, the materialized labor expense and the living labor expense.The (full) cost is composed of two parts, the materialized labor cost and the living labor cost.The living labor expense is decomposed into the part paying for wages and the part forming the profit; this is expressed as the decomposition of the living labor cost into two parts, the wages and the normal profit.The relation at the price level is shown in Figure 2.
In Figure 2, C represents the (full) cost, C w represents the materialized labor cost, and C h represents the living labor cost.P represents the commodity price and R represents the money revenue of an enterprise.Z represents wages, and π represents the profit.What Figure 2 shows is that on the price level, the essential relation expressed on the value level is that the commodity price P, i.e., the money revenue of an enterprise R, is equal to the (full) cost C, which is composed of the materialized labor cost C w and the living labor cost C h .The expended living labor cost C h is decomposed into wages Z and profit π.

A Wrong Perception of the Expression of the Real Relation
The expression on the price level has concealed the essential relation that appears on the value level; this prevents people from seeing the essential relation on the value level directly, and probably results in their having a wrong perception of the actual relation in the economy.In the real economy, people are also unable to perceive the real relation on the price level.For a variety of reasons, people may have the wrong perspective, so that the essential relation is not reflected correctly, becoming vaguer and even inverted.
(1) "Smith's Dogma" A number of researchers consider that the materialized labor cost expended in commodity production is formed by the products consumed in production.The price of the consumed products is composed of the materialized labor cost and the cost of the living labor expended in creating these products.The cost of the living labor can also be decomposed into the wages and the normal profit, and so on.The conclusion can be drawn that the product price and (full) cost are merely composed of the living labor cost, and can be decomposed only into the wage and the profit.This perception is shown in Figure 3.
Readers familiar with economics may recognize this as the so-called "Smith's Dogma," which maintains that prices can be decomposed into various kinds of income.
Marx ([1907] 1956) made a detailed analysis of "Smith's Dogma" in Volume II of Capital, and pointed out its errors.Here, we will only examine the error made by "Smith's Dogma" in confusing the relation between the infinite time series and the coexistence of space.The analysis is as follows.
From the point of view of the infinite time series, the (full) cost of the products in the tth phase is composed of the living labor cost and the materialized labor cost, while the materialized labor cost is composed of the products consumed in production in the t-1th phase.The (full) cost of the products in the t-1th phase is also composed of the living labor cost and the materialized labor cost, while the materialized labor cost is composed of the products consumed in production in the t-2th phase. . .and so on to infinity.In every phase, the (full) cost of the products is ultimately composed of the expended living labor cost.The situation from the point of view of the infinite time series is shown in Figure 4. From Figure 4, it can be seen that the (full) cost in the tth phase can be written as: That is to say, the (full) cost and the price of a commodity, and the money revenue of a firm, are ultimately composed of the living labor cost, correctly reflecting the fact that expenditures on commodity production are ultimately expenditures on labor.
From the point of view of space coexistence at a single time point, however, the (full) cost is composed of the living labor cost and the materialized labor cost at every time point.In Figure 4, for example, at the time point of the tth phase, P=C t is composed of C h t and C w t .Although one part of the materialized labor cost in this phase is formed by the living labor cost in the former phase, the living labor expense in the former phase has been transformed into the materialized labor in the present phase.
In conclusion, and from the point of view of the infinite time series, it can be seen that the (full) cost of a product is composed precisely of the expended living labor cost, while from the point of view of the space coexistence at a single time point the (full) cost of a product is composed precisely of the living labor cost and the materialized labor cost.The study of the production process, the labor expense, and the production cost in the above is all conducted at a single time point.It can thus be seen that the error in "Smith's Dogma" lies in mechanically applying a conclusion derived from an infinite time series into a space with one time point.
The common-sense practice of producers demonstrates that if the price of a product (and moreover, the revenue of a firm) is distributed as income at one time point, the loss of production means cannot be compensated, and reproduction cannot continue.Simple common sense thus shows that "Smith's Dogma" is wrong.
(2) The Theory of Production Expense (the Production Expense Theory of Price) According to "Smith's Dogma," prices can be decomposed into wages and the normal profit.But amid the superficial processes of the actual capitalist economy, people fail to realize that the living labor cost is the monetary expression of the living labor expense, and that the living labor expense can be decomposed into the part paying for wages and the part forming the profit.What people instead perceive is that wages are the cost paid directly by the firm (capitalist), and that the normal profit (interest) is the opportunity cost of the firm (capitalist).Thus, the (full) cost is composed of wages plus the normal profit, and in the long-run equilibrium, since the price equals the average cost, the price is also composed of wages plus the normal profit.This perception is expressed in Figure 5. (In Figure 3, the downward arrow represents the decomposition, while in Figure 5, the upward arrow represents the composition.) Readers familiar with economics can see that this is exactly the so-called "theory of production expense."The above illustration shows that the "theory of production expense" amounts merely to a wrong perspective on superficial economic phenomena.

The Errors in the View Put Forward by the Marginal Productivity Theory
From the above discussion, it is clear that the position of the marginal productivity theory that the price, cost and revenue of a firm are composed of the wage and the (normal) profit is a mistaken inheritance from the "theory of production expense," as well as being the result of a false perspective based on the expression, on the price level, of the essential relation on the value level.This point of view put forward by the marginal productivity theory is thus a wrong description based on superficial economic phenomena.
Why does the marginal productivity theory describe these economic phenomena wrongly?The essential reason is that the purpose of this theory is to defend the capitalist system and the interests of the bourgeoisie.If theoretical works reveal the essential relation on the value level or the real relation on the price level, people will see clearly that the source of profit is the living labor expended by workers, as well as the surplus-value formed by the workers' surplus labor.In these circumstances, the exploitative essence of the capitalist economic system is clear at a glance.However, if superficial phenomena are moved to the forefront and are described wrongly-that is, if both wages and profit are presented as costs borne by capitalists; if the product price and the (full) cost are viewed as made up of the average wage and average normal profit; and if the revenues and cost of a firm are seen as composed of the wages paid plus the normal profit-then the profit that capitalists receive is simply compensation for their costs, and there is no exploitation.This is why the marginal productivity theory describes economic phenomena in false and misleading fashion.

Conclusion
The three propositions of the marginal productivity theory all suffer from internal logical defects, from external theoretical difficulties, and, accordingly, from wrong theoretical perceptions.These propositions can neither correct nor justify

Figure 1 .
Figure 1.The Essential Relation on the Value Level

Figure 2 .
Figure 2. The Expression on the Price Level

Figure 4 .
Figure 4.The Cost of the Products in the Infinite Time Series

Figure 5 .
Figure 5.The Theory of Production Expense