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Theory of Production - Book Report/Review Example

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Theory of Production

He served as a go-between for Roosevelt and Stalin in 1944 (post Second World War) and as the Polish ambassador to the US from 1945-1946. In 1946, Lange served as the Polish delegate to the United Nations Security Council. A major part of his contribution to economics came during his stint in the US (1933-1945).
Although a socialist to the core, he was not a great supporter of Marxian labor theory of value, and instead believed in the neoclassical theory of price (http://cepa.newschool.edu/het/profiles/lange.htm).
In this paper, I will actually make an attempt to highlight various things that will make the topic of the place of interest in production theory a bit clearer to the readers. There are a number of things that can be learnt from the production theory. Among these things, some of the important ones are the basics that surround the production theory. These are the basics that will put the discussion of the topic into a definite perspective.
In his paper, Lange has tried to give an explanation of the foundation of the existing Theory of Interest . He has actually tried to restate some fundamental propositions of the existing Theory of Interest by making special reference to the General Theory of Production. ...
In Lange's paper, he has tried to explain in a very structured way, the place of interest in the general production theory. For doing that, he has made some assumptions to bring some considerable simplification in his study. He has assumed that in the economy, only one commodity is produced using only one original factor of production, i.e. Labour, and only one real capital good. He thinks that this kind of simplification is also capable of allowing a generalization later, by taking into account the case of multiple final goods, multiple original factors of production, and multiple real capital goods without imposing any kind of logical difficulty.
After making the above-mentioned simplified assumptions, he has first made an attempt to find out the conditions of maximum net output. For doing that, he has considered the case of the production of a final commodity : wood, which requires labour as original factor and some equipment (say axe) as the real capital. The equipment is called by Lange as the circulation of the replacement of the last equipment used in a period of time. Lange also seems critical of mainstream neoclassical theory, as time is not included in the model. Lange has done this by dividing labour input into direct and indirect labour. The labour used in the production of the final commodity has been assumed to be as direct labour, and the labour used in the production of equipment was considered to be as indirect labour. By carrying out a maximization exercise applying Lagrange method, Lange has obtained two conditions for the maximization of net output - (1) the marginal net productivity of the circular factor would ...Show more

Summary

Oskar Lange was a pioneer of the neoclassical pricing theory and used market tools in economic planning of socialism and communism. One of his popular works "The Place of Interest in The Theory of Production" will be discussed in the following pages. Before embarking on examining what Lange has tried to promote in his paper, it would be nice to say a few words about Oscar Lange, the author of the paper I have chosen for the purpose of discussion.
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