Criticism
The marginal productivity theory has been subjected to scathing criticism on the following grounds.
Theory is based on unrealistic assumptions: The theory is based on a very wrong assumption, that all the units of a factor of production are homogeneous. The fact is that neither all land, nor all labour, nor all capital, nor all organizations are alike. We know it very well that labour varies in efficiency; capital in form, land in fertility and entrepreneur in ability.
Factors .are not perfect substitutes: It is also wrong to assume that the factors of production are close substitutes for one another. Labour is not a perfect substitute or capital, and vice versa. So is also the case with land in relation to other factors of production.
Law of proportionate return: The theory rests on : a very wrong assumption that the law of diminishing returns applies to a business. Is this not a fact that when there is proportionate increase in the factors of s production, "the law' of diminishing return is held in, abeyance in all businesses.
Wage cuts does not determine demand: According to this theory, if employment is to be . ,increased, the wages should be lowered. J.M. Keynes vehemently disagrees with this view and says that this may be true in case of an individual firm or industry but it is wrong when it is applied to aggregate or effective demand.
Difficulty In the measurement of MP: The other criticism levied on the marginal productivity theory is that production is the outcome of joint efforts of different factors and so it is not possible to separate the contribution of each factor individually.
Effect of withdrawal of a factor: If a factor of production which works in co-operation with other factors is withdrawn, it will disorganize the whole business and it may result in the decrease of production which may be greater than the addition made by the factor withdrawn.
Factor units cannot be raised: Is that there are many cases in which the variations in the use of factors are not possible. The proportion in which factors of production are to be employed is already determined by the technical conditions prevailing in a business. For instance, there are many machines for the working of which only one labour is required. If we engage two labourers, it will not be of much use. A variation in proportions in such cases are not possible, therefore, the marginal productivity of such a factor cannot be ascertained.
One sided: The marginal productivity theory is also criticized on the ground that it assumes the supply of a factor or factors as fixed while in reality the remuneration paid to a factor does influence its supply. As the theory approaches the problem only from the side of demand and neglects the effect of supply, therefore, it cannot be accepted as true.
Static theory: Marginal productivity theory neglects the problem of technical change altogether. It is therefore, static theory.