For Students of Economics.

1. A critic on Stolper-Samuelson Theorem
The theorem states that under certain economic assumptions, a rise in the relative price of a good
will lead to a rise in that factor which is used intensively in the production of that good and a fall in
the other factor ( specially real wages).
First, in such a model (land and labour being the only factors of production) it is said that in a two -
good economy , for example, wheat and cloth. Wheat being a land intensive good and cloth
as labour intensive. If labour as the intensive factor of production for cloth is considered, then labor
wage must increase more than the increase in the prices of cloth and rent has to decrease as it is
not an intensive factor for cloth. What about Wheat now, land is an intensive factor of production for
wheat, here the rent has to increase as per the theory but rent has already decreased enough while
producing cloth. This may work only when two countries may only produce one of the above, in this
case there is another problem, factor price equalization theory states that regardless of international
factor mobility , price of factors will tend to equalize across countries that do not differ in technology.
So wage and rent may equalize in some time in both countries despite of one being intensive and
other not intensive in country A and vice versa.
Also, as per Law of Diminishing Wage share, when the national income goes up, the share of profit
and rent goes up. As a result, the laboring class becomes poorer as not only their wage share ha s
increased but also their purchasing power has gone down. It infers that in a capitalistic society Labor
is never paid according to the value he/she adds to the product or according to the profits earned.
Reshad Hakim