[murphy560]

Professor Herbener, I’ve been reading Man, Economy, and State (chapter 7) and thinking through the idea that in an evenly rotating economy a worker will earn his discounted revenue product. As a simple example say a worker takes $10 worth of materials (e.g. fabric to make a rug that costs his employer $10 to purchase on the factors market) and works on them for an hour and creates a product that can be sold immediately as a consumers’ good for $20. It sounds like Rothbard is claiming that he would earn $20/hr since that is the increment in revenue due to an additional hour of labor but common sense seems to be that he would earn $10/hr since that is how much value he is adding with an hour of labor. What am I missing?

[jmherbener]

To estimate the DMRP of a unit of an input, the entrepreneur must select an appropriately sized unit. He would not be able to do the calculation of DMRP if he selects a unit size for which withdrawal of a unit would result in no production of the output. Your example is like this. In a similar manner, the entrepreneur in your example could not estimate the DMRP of fabric he is buying by removing all of it necessary to make a unit of output with one hour of labor effort.

Even in your highly-unrealistic example, in which the entrepreneur has a production process with only one worker and a given amount of material, the entrepreneur can define an appropriately-sized unit, one that is small enough that removal of it would result in some output. From that result he can estimate what the MRP of a the appropriate unit of labor would be. For example, he could select 1/2 hour of labor effort as the unit of labor and then estimate what output would be lost and what its market value would be.

In the usual case, such divisibility problems do not occur. If we assume that the entrepreneur in your example is hiring several workers and owns equipment that they are working with and buys materials for them to work on, then he can more readily imagine what would happen to production if he withdrew one of his workers for a day or an hour.

[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

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[Author]

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