What is the marginal productivity theory of income distribution proposed by Henry George?

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farouk23 eNotes educator| Certified Educator

The marginal productivity theory of income proposes that the factors of production (like labour inputs) that are used to produce goods are in equilibrium to the value of the output of the production (the finished product). The theory primarily deals with how workers are compensated for their labour and presumes that their labour is compensated on the basis of the marginal value of the products they make. Parts of the theory also propose that:

  1. There should be a tax on land because it is the collective property of the community and rent seeking is generally unproductive to the economy.
  2. There should be minimal restrictions on free trade.