Reconstructing Allyn A. Young's Theory of Increasing Returns

Abstract

In this essay we are going to closely analyze the importance of Allyn A. Young's theory of increasing returns. In truth, we could also discuss his position on economies of scale, in that the analytical definitions suggested by the theory, as we shall shortly see, are not that helpful in understanding exactly what this writer meant by (the principle of) increasing returns: in fact, the latter are always linked to the more general, all-pervasive concept of economic progress, as is evident from the title of his most famous work. Young's contribution to the debate (one only has to think of the cost controversy of the 1920s) over returns and economies (and diseconomies) of scale, was in truth somewhat marginal. His only work that dealt with these questions, besides his 1928 celebrated paper (Young 1928), dates back to 1913, when in an important critical note (Young 1913), which we shall briefly analyze in section 2, he criticized a number of economic policy rules deriving from Arthur C. Pigou's (1912) famous work. To put it more precisely, Young did not have any substantial role to play in the construction and perfection of the neoclassical theoretical paradigm; in fact, as we argue in section 3, there is significant evidence to suggest that he was probably moving increasingly further away from such a position. The essence of Young's work, summarized in the article written in 1928, would seem to consist in the request for a theoretical redirection, in the analysis of the dynamics of capitalist economies, along the lines of some of the classical economists, thus carrying the various suggestions on this matter already present in Alfred Marshall's theoretical contribution to extremes. In sections 4 and 5, dedicated to the discussion of this article and of its appendix respectively, we maintain that the logic of Young's analysis is based on a multi-sectoral model subject to qualitative and quantitative transformations, i.e., to structural change. Such a view enables us to understand: (1) the author's emphasis on the proportionality among different productive branches needed in order to ensure balanced economic expansion; (2) the attempt (made by the author in the appendix to his 1928 article) to explain the dynamics of the economic system in the presence of different intersectoral growth rates. In the concluding section we maintain that it is the alternative nature of his position compared with the “standard theory”—the reference here is particularly to Pigou's transcription of Marshall's economics—that represents the main feature of Young's work.