ELASTICITY OF SUPPLY AS A DETERMINANT OF
DISTRIBUTION *
Paul H. Douglas
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The Positwe Contributions of the Marginal Theory of
Distribution
THE marginal theory of distribution as developed by Professor
Clark has made a great contribution to economic theory by
extending to labor and capital the classical doctrine of diminish-
ing returns on land. As applied by Ricardo and James Mill,*
a combined “dose” of fixed proportions of labor and capital was
applied to land with the result that while the total output
increased, it did not increase in proportion with the rate of
increase of “doses.” The return specifically attributable to
the combined dose was in consequence less than before and the
difference between (1) the yield of the combined dose multiplied
by the number of doses, and (2) the total product, became rent.
But the quantity of capital was not varied independenfly in
relation to either land or labor, nor was the quantity of labor.
The relationship between capital and labor was one of fixed
technical coefficients and the only variation consisted of the
quantity of labor and capital on one side and the quantity of
land on the other. Yet out of this simple relationship, the classi-
cal law of rent was deduced.
Von Thiinen * made an approach to a more malleable theory
by breaking up the fixed “dose” of James Mill and by varying
the quantity of labor which was applied to land. He hinted that
the quantity of labor as compared with capital could also be
varied but did not work out his own suggestion. This failure to
* This paper was received by the Publication Committee on March 23,
1927 —EDITOR.
The author wishes to acknowledge the invaluable assistance which has
been given him by his colleague, Mr. S. W. Wilcox.
* Cf. James Mill, Elements of Political Economy (1824), p. 24; pp. 30-34.
3 Der lsolierte Staat.