Imputation (economics)
Encyclopedia
In economics
, the theory of imputation, first expounded by Carl Menger
, maintains that factor price
s are determined by output prices.
This is the opposite of the labor theory of value
maintained by classical economist
s such as Adam Smith
and David Ricardo
.
The imputation theory was important because it addressed the question of economic value. Marginalist economists such as Carl Menger
and Frank Fetter
of the Austrian School
maintained that value was not made up of the factors that made up a good; instead, it was made up of the most valuable use that the last unit of the good could be put to—the marginal utility
of the finished good.
While it was easy to maintain that this was the value of goods consumed by the end user (lower-order goods), it was harder to make this case for higher-order goods which had no end user and merely went into the making of lower-order goods. In effect, higher-order goods do have end users, the manufacturers of lower-order goods. It was these people whose marginal utility decided the factor prices, and their products were valued on their marginal utility to the end users. Thus the factors of production were as sensitive to marginal utility as consumer goods themselves.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, the theory of imputation, first expounded by Carl Menger
Carl Menger
Carl Menger was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.- Biography :Menger...
, maintains that factor price
Factor price
In economic theory, the price of a finished item affects the factors of production, the various costs and incentives of producing it, so as to 'attract' it toward a theoretical Factor price. In other words it is the concept that the price of an item tends to approach the cost of producing it.There...
s are determined by output prices.
This is the opposite of the labor theory of value
Labor theory of value
The labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
maintained by classical economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
s such as Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
and David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
.
The imputation theory was important because it addressed the question of economic value. Marginalist economists such as Carl Menger
Carl Menger
Carl Menger was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.- Biography :Menger...
and Frank Fetter
Frank Fetter
Frank Albert Fetter was an American economist of the Austrian School. Fetter's treatise, The Principles of Economics, contributed to an increased American interest in the Austrian School, including the theories of Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises and Friedrich...
of the Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
maintained that value was not made up of the factors that made up a good; instead, it was made up of the most valuable use that the last unit of the good could be put to—the marginal utility
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
of the finished good.
While it was easy to maintain that this was the value of goods consumed by the end user (lower-order goods), it was harder to make this case for higher-order goods which had no end user and merely went into the making of lower-order goods. In effect, higher-order goods do have end users, the manufacturers of lower-order goods. It was these people whose marginal utility decided the factor prices, and their products were valued on their marginal utility to the end users. Thus the factors of production were as sensitive to marginal utility as consumer goods themselves.