Now that I have actually read Warsh on KNOWLEDGE
AND THE WEALTH OF NATIONS, and have Helpman on the
MYSTERY OF ECONOMIC GROWTH, and Lipsey and Co. on
ECONOMIC TRANSFORMATIONS at least on my desk, I have a
number of questions that bother me -- only one of which I attempt
to put in this particular query.
The Second Principle of Economics, the principle of
diminishing returns, is a short run phenomenon. There has to be at
least one fixed input. Decreasing returns to scale, a long run
phenomenon (all inputs variable), occurs on no principled basis. It
is noted as an empirical fact in some cases, if it occurs in those
cases. Further, decreasing or increasing returns to scale cannot
be explained by technological or organizational change, which are
a very long run phenomena - phenomena other than simple
changes in input proportions or equi-proportional changes in all
inputs. And all of this is taught in introductory economics, that is,
to people who are at the lowest level of sophistication in
Economics.
Is it possible then, that the "brightest and the best"
(Warsh, passim.) in the Economics profession, in their debates
about decreasing and increasing returns in the context of Growth
Theory, have confused the short, the long, and the very long runs?
Is it possible that their debates have been a consequence of a
failure on the part of whoever taught them introductory economics?
Robin Neill
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