What Are Valedictory Thoughts On Factor Prices, Efficiency, And Distribution?
Answer:
The recent reversal of fortune of labour and capital with funds earnings rising over the last two decades as wages stagnated raises question about the fairness as well as the efficiency of the distribution of income within a market economy. Economists emphasize that a free marketplace in capital and land will promote big rates of saving and investment, rapid economic growth, and in shape productivity growth. We would offer three final thoughts on these debates:
1. Rents, interests and wages determine people's market incomes. We may or may not similar to the competitive distribution of income, but we must recognize that competitive pricing helps solve the question of how commodities are to be produced in an efficient manner.
2. The debate about profits tend to obscure the basic point almost the role of capital in a market cutback. Two fundamental forces drive the accumulation of capital and its return. On the one hand, the emergency for capital results from the fact that indirect or roundabout production processes are productivity, by abstaining from consumption today; society can raise consumption contained by the future. On the other hand people will be likely to abstain from consumption in order to accumulate financial assets, lend funds to firms that will make the productive investments in roundabout productive processes.
3. Finally we must remember that the factor prices wages, rents, interest, and profits are carved in granite. They are subject to command policies.
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