Living Reference Work Entry

The New Palgrave Dictionary of Economics

pp 1-3

Date: Latest Version

Adding-Up Problem

  • Ian SteedmanAffiliated with

Abstract

In any theory of income distribution in which one type of return is determined residually, it will be tautologically true that the various different incomes, as determined by the theory, will add up so as to exhaust the total product. By contrast, any theory which provides a ‘positive’ explanation for every category or return, treating none as a residual, must show that the various returns so explained do indeed exhaust the product. In practice, it has been with reference to the marginal productivity theory that this consistency requirement has received considerable attention. By the early 1890s a number of authors had sought to extend the ‘principle of rent’ into a completely general theory of distribution but it was P.H. Wicksteed, in his Co-ordination of the Laws of Distribution (1894) who first clearly stated, and attempted to resolve, the resulting adding-up problem.