Continuity and Individual Difference

When the marginal productivity theory is stated in the form which has been adopted in the preceding chapter, it seems to be free from most of the objections which have been brought against it by its critics. Taken as a condition of full equilibrium in the labour market, it is immune from the criticism so often made against it — that the existence of fixed plant makes the free variation of the proportions in which factors of production are employed impossible. Once we realise that fixed plant has to be replaced, and that if the relative prices of the factors have changed, it is likely to be replaced in a different form, this objection collapses; leaving behind it, however, the important conclusion that the full effects of a change in wages on the demand for labour must not be expected to reveal themselves at once.