Wicksteed Case Study

1. (Semi-short essay) Wicksteed made a significant contribution to value theory during the marginal utility revolution. This contribution was the “Exhaustion of the product” which we derived in class. Explain the importance of this contribution. Explain the significance of the Euler theorem and the assumption of constant returns to scale in deriving the solution. In what ways is this contribution similar to Marx's Transformation Problem, in what ways is it different?

1. According to what Wicksteed have suggested : The “adding up problem which has been the total product will be the sum of the total of the factor inputs which is multiplied by the marginal product” . This theory of Wicksteed has been derived from the theorem of Leonard Euler. This theorem showed that the exhaustion of the product will require a linear and a homogenous production function which will be the homogenous function of the first degree. When explained the distributive shares will be adding up to the product, with the assumptions that the production function will be such that the increase in the all the inputs by a constant will lead to raise the product in the same ratio (Formaini, 2001). The exhaustion of the product will then require a certain constant returns to scale in the absence of economies of scale.
Wicksteed also suggested that economies will start administration the resources in such a way that it will help the securisation of the maximum purpose. The purposeful selection between the various alternative applications of the resources has been in line with the theory of Karl Transformation problem (Blaug, 1997). The transformation problem has been known as the profit rate and the value problem. But the problem has been that the industries differ i...

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...d thus the firms can compete on the basis of the technology advancement(Schumpeter, 2006). The eroding of profits and the losing market share can only be saved by innovation and technology. The process of industrial transformation from a competitive to monopolistic market and back can be due to creative destruction. Thus forms will target appealing new markets and leave the saturated, low yielding markets. This will make the firms sustainable but ultimately lead to the failure of the liaises faire system.
When explained in normative terms, the technology obsolescence will create a negative externality from the innovations and thus there will be a tendency for laissez-faire economies to develop too many innovations which is too much growth. Thus the "business-stealing" effect which is partly compensated as the innovations will be too small under laissez-faire.