4. Allyn Young on Increasing Returns

The use of capital-intensive methods (or roundabout methods) in Young does not depend on the rate of interest but on the size of the market. “[T]he actual industrialists (and bankers) deny that variations in the rate of interest influence the extent of their operations, providing their competitors pay the same. It is the ‘market’ on which they count” (Young 1990, p. 82). This point was also noted by Kaldor (1972, p. 1242) who wrote: “[Young] argued that the extent to which capital is used in relation to labour is predominantly a matter of the scale of operations – the capital/labour ratio in production is a function of the extent of the market rather than of relative factor prices”.

Young’s modesty has been noted by several students and colleagues in letters and obituaries written after his death. In a letter of condolence (dated 17 March 1929) to Mrs. Young after Young’s premature death, John M. Keynes wrote: “His was an outstanding personality in the economics world and the most lovable. His influence as a teacher and a critic and as one who would always share with others all his best ideas was far greater than anyone would suppose who only knew his printed words; for it was his own work – unfortunately perhaps – which always came last”. Schumpeter (1954, p. 876, f.n.) also wrote of his habit hiding rather than highlighting his best ideas.

The theme of equilibrium rate of growth also appears in his LSE Lectures (See Young 1990, p. 45). Demand curve is not constant, as in Marshall, but shifts as a result of the very forces shifting the supply curve. It was therefore more appropriate to have a theory or equilibrium or optimum rate of progress which would keep the supply curve close up to the demand curve. See also Chandra (2020, p. 165).

“Seeking equilibrium conditions under increasing returns is as good as looking for a mare’s nest” (Young 1990, p. 45).

Young (ibid., p. 26) felt that Marshall’s supply and demand curves hold ceteris paribus and cannot be integrated to give the whole economic structure or the social picture.

For a discussion of the role of pecuniary external economies vis-a-vis economies of scale in the theory of increasing returns, see Chandra and Sandilands (2006).

“If consolidation always meant economy, there would be no effective limit to consolidation. That means that competition would inevitably everywhere end in monopoly. But, as we all know, in most fields of economic life competition maintains its health and vigor. This proves that supposed benefits of consolidation are often illusory” (Young 1929d; Mehrling and Sandilands 1999, p. 222). At another place Young (1990, pp. 53–54) writes: “Most of the advantages of increasing returns can be had in an industry not consolidated – such, in fact, is the typical modern industry… The advantages of consolidation are not, generally speaking, those of increasing returns. Rather they are those of increased specialization, those of reorganization, not mere increase of size of operating units”.

See Machovec (1995, Chapter 10) who points out that both Knight and Chamberlin had a static view of competition while Young subscribed to a process view.

It is interesting to note that Young employed offer curves (or the principle of reciprocal demand) to analyse the growth process though he held money to be central to an economic system. As noted by Blitch (1995, pp. 173–74), perhaps the idea of reciprocal demand (or barter exchange) comes closest to explaining the cumulative process of growth. In offer curves demand and supply are interdependent; along such curves cost of production and marginal utility are released from the pound of ceteris paribus.

“Large production, not large-scale production, permits increasing returns” (Young 1990, p. 54).

Kaldor (1972, p. 1243) thought that Young’s 1928 paper was “so many years ahead of its time that the progress of economic thought passed it by”.

Schumpeter (1937, p. 154), for example, writing after his death, stated: “Rarely if ever has fame such as his been acquired on the basis of so little published work”.

Young (1928b), in fact, considered any distinction between theoretical and applied economics as largely artificial. He wrote: “Economic theory, divorced from its functional relations to economic problems, or with those relations obscured, is no better than an interesting intellectual game. It gives endless opportunities for dialectical ingenuity. But it cannot advance knowledge, for it leads up a blind alley” (also in Mehrling and Sandilands 1999, p. 20).

Young (1929e) related the concept of equilibrium with time, and was of the opinion that all economic equilibria are unstable. “Market price is the price which will be found in a given market at a given time. It may be regarded as the limiting form of the short-time or temporary equilibrium price” (also in Young 1990, p. 154).

Young (1990, pp. 41–43) noted that Marshall’s particular expenses curve should not be confused with the supply curve. It was not a true supply curve, but since not all the producers have the same costs, it was upward sloping. Everyone, including those producing at the lowest costs, sell at the equilibrium price, and the area under the curve gives the producers’ total expenses. See also Chandra (2020, p. 164).

For Kaldor’s interpretation of Smith and Young see Chandra (2019).

For Currie-Kaldor exchange on increasing returns see Sandilands (1990), and for Sandilands-Currie-Kaldor exchange see Chandra and Sandilands (2020, 2021).