The introduction continues with the author talking about how in the late 1970s and early 1980s how the perception of economics began to change. It all started with young economists trying to answer this phenomena of increasing returns. Diminishing returns was a fair classical concept and easy to comprehend but they were after what was not so easily defined. The new ideas of novelty, variety and market power eventually spread through out all of economic thought and shuck the ideas and theories that had stood for over 200 years. Instead of just thinking in terms of the basics being Land, Labor and Capital; we are now forced to also look at people, ideas, and things as key factors in our economic growth. We now look at the endogenous or the internal aspect of growth and how it plays a large role.
Tim
A for Tim (next time you'd get a B for writing something like "shuck" or for capitalizing land, labor and capital).
ReplyDeleteTim used the word "diminishing" for returns. Diminishing and decreasing mean different things: the former is staying positive but going towards zero, while the latter is going down (and possibly into the negatives). We use decreasing for returns to scale.
I would add is that an economic system of land, labor and capital seems inclined to display decreasing returns to scale, while a system of people, ideas and things seems inclined to display increasing returns to scale.