The Neoclassical Theory of Capital Productivity: Profit determined by the Supply of and the Demand for Capital
The defining quality of this group of neoclassical theorists is the treatment of ‘capital’ as a factor of production formally equivalent to other factors like land and labour. It was believed that factor prices vary inversely with relative scarcities and are determined by supply and demand. Consequently, the rate of profit, conceived as the price of capital within this approach, is determined by the supply and demand for capital and declines as capital becomes less scarce.
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