A Simple Course in Capital Theory: A Misunderstood Debate

Abstract

This short paper is a demonstration of the difficulty with the textbook production function which uses the notion of capital as a factor of production. Because, this notion is logically incompatible with the other notion of the money value of capital needed for distribution theory. Theories of production and distribution become incompatible. Outside a one commodity world, this leads to insurmountable circular reasoning. The value of capital cannot be measured without first knowing its distributional parameters (e.g. real wage or the profit rate) and if they are known the marginal productivity theory based on the notion of the relative scarcity of capital as a factor of production is not only superfluous but meaningless. The scarcity of something which cannot be measured even in theory cannot be defined.