Page 333 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes 20.2 Marxist Theory of Revenue Distribution

Marx was a rigid socialist in his time. The theory of distribution of income established by him is based
on theory of price-wages. Marx voted that the price of every product is based on quantity of labour.
One important characteristics of labour is that it produces more than of minimum standard and he has
given wages equal to minimum standard of life and difference between these two has been kept in the
form of profit by landlord.
The total cost of production has following factors—
(i) Constant Capital—Raw material and means of production.
(ii) Changeable Stock of Capital—Wages.
(iii) High Price—Maximum earning by labour.
Thus,
Total price of production = constant capital + changeable capital + Surplus
According to Marx, in capitalist economic system the exploitation of labour can be increased as
following—
(i) By increasing working hour of labour.
(ii) By maximum use of labour.
(iii) By technically development.
In a capitalist economic system, the parts of profit in national income have increased as technology
updates and the parts of wages decrease.

Criticism

(i) Maxist theory of revenue distribution is unsatisfactory and incomplete.
(ii) This theory is based on unreal assumptions.
(iii) In this theory, variable capital has given more value.
(iv) By law of internal structural, it cannot defect the law of rate of decreasing profit.

20.3 Summary

· Revenue distribution theory established by Ricardo is an important macro theory. In this theory,
whole economic system has been distributed in a group of agriculture and industry and income
received through is divided into a group revenue, wages and profit.

20.4 Keywords

· Marxist: Follower of Marx.
· Revenue: Tax.

20.5 Review Questions

1. What is Ricardo’s revenue distribution theory? Clarify it?
2. Define Marxist theory of revenue distribution.

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