Wicksell Effect. Marginal Productivity of Capital

Abstract

In general relative prices of commodities change as the rate of interest changes. This is only not the case in the standard production function model where there is basically only one commodity and therefore there exists no problem of relative prices of produced commodities. The fact that the value of a given physical capital stock depends on the rate of interest (via the prices of the capital goods) is known as the Wicksell effect. Wicksell was the first to study it systematically. It is this Wicksell effect which makes it difficult to treat “capital” as a factor of production like any other homogeneous factor of production.