By F. A. Hayek, Lawrence H. White
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Extra resources for Capital and Interest
In actuality, however, in a not inconsiderable number of cases, variability in the proportions of the production factors— a prerequisite for the applicability of the method of marginal productivity— is lacking. Whenever a change in the combination of factors is excluded by the nature of the production process or where for other reasons (such as the transitory character of the current situation) no adaptation of the proportion in which the factors are combined is undertaken, only the direct imputation method of the marginal utility school can be applied.
As long as no adequate explanation for the expression of economic outcome, that is, value, had been found, all attempts to determine the participation of the factors of production in this outcome were bound to fail. Explanations had to be shifted to the field of technology until the relationship between the usefulness and the scarcity of goods became the point of departure for explaining all economic actions. It is true that Ricardo, as well as his predecessors and his successors, in the specific case of land rent correctly described one element in the relationship between the value of products and the value of one factor of production in their theory of differential rent.
We can appropriately close this introduction to the volume by quoting Hayek’s concluding remarks on the role of the academic economist in public policy discussions when popular opinion fails to share the economist’s appreciation for the benefits of free markets: I do consider it the task of academic economists, however, to represent the claims of reason, no matter what their short-run effectiveness. Public opinion, which today may in truth hamper a reasonable policy, is not set in stone, and I am afraid that our predecessors, the previous generation of economists, bear some blame for the current state of affairs.