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Generalized Increasing Returns, Euler's Theorem, and Competitive Equilibrium

Generalized Increasing Returns, Euler's Theorem, and Competitive Equilibrium defined by fixity in the size of the resource base and in technologyleft no room for direct linkage between policy action on the size of the economic nexus and the rate of growth. For any given market size, competitive organization of the economy serves to maximize value by assuring that all resources are directed to their most productive uses. But there is nothing in this idealized neoclassical model to suggest why or how market size, in itself, matters. Neoclassical economists may have shied away from follow-on inquiry into Smith’s proposition because they thought that acceptance of Smith’s relationship would have wreaked havoc on their newly discovered theory of distribution. The advantages of specialization suggest increasing rather than constant or decreasing returns, and the observation that industries did not seem everywhere to become more and more concentrated suggests that abandonment of Smith’s theorem was, empirically as well as analytically, less damaging than abandonment of the constant returns postulate so critical to their whole enterprise. Aside from the very brief excursus into external economies by Alfred Marshall ([ 18901 1961), Allyn Young’s oft-cited but little-understood 1928 paper, and Nicholas Kaldor’s (1972; 1985) insistent criticism of neoclassical orthodoxy, increasing returns, as http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png History of Political Economy Duke University Press

Generalized Increasing Returns, Euler's Theorem, and Competitive Equilibrium

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Publisher
Duke University Press
Copyright
Copyright 1999 by Duke University Press
ISSN
0018-2702
eISSN
1527-1919
DOI
10.1215/00182702-31-3-511
Publisher site
See Article on Publisher Site

Abstract

defined by fixity in the size of the resource base and in technologyleft no room for direct linkage between policy action on the size of the economic nexus and the rate of growth. For any given market size, competitive organization of the economy serves to maximize value by assuring that all resources are directed to their most productive uses. But there is nothing in this idealized neoclassical model to suggest why or how market size, in itself, matters. Neoclassical economists may have shied away from follow-on inquiry into Smith’s proposition because they thought that acceptance of Smith’s relationship would have wreaked havoc on their newly discovered theory of distribution. The advantages of specialization suggest increasing rather than constant or decreasing returns, and the observation that industries did not seem everywhere to become more and more concentrated suggests that abandonment of Smith’s theorem was, empirically as well as analytically, less damaging than abandonment of the constant returns postulate so critical to their whole enterprise. Aside from the very brief excursus into external economies by Alfred Marshall ([ 18901 1961), Allyn Young’s oft-cited but little-understood 1928 paper, and Nicholas Kaldor’s (1972; 1985) insistent criticism of neoclassical orthodoxy, increasing returns, as

Journal

History of Political EconomyDuke University Press

Published: Sep 1, 1999

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