SECTION F.— ECONOMIC SCIENCE AND STATISTICS. 



INCREASING RETURNS AND 

 ECONOMIC PROGRESS. 



ADDRESS BY 



PROF. ALLYN A. YOUNG, 



PRESIDENT OF THE SECTION. 



My subject, I fear, may appear alarmingly formidable, but I did not 

 intend it to be so. The words economic progress, taken by themselves, 

 would suggest the pursuit of some philosophy of history, of some way of 

 appraising the results of past and possible future changes in forms of 

 economic organisation and modes of economic activities. But as I have 

 used them, joined to the other half of my title, they are meant merely 

 to dispel apprehensions, by suggesting that I do not propose to discuss 

 any of those alluring but highly technical questions relating to the precise 

 way in which some sort of equilibrium of supply and demand is achieved 

 in the market for the products of industries which can increase their 

 output without increasing their costs proportionately, or to the possible 

 advantages of fostering the development of such industries while putting 

 a handicap upon industries whose output can be increased only at the 

 expense of a more than proportionate increase of costs. I suspect, indeed, 

 that the apparatus which economists have built up for dealing eiiectively 

 with the range of questions to which I have just referred may stand in 

 the way of a clear view of the more general or elementary aspects of the 

 phenomena of increasing returns, such as I wish to comment upon in this 

 paper. 



Consider, for example, Alfred Marshall's fruitful distinction between 

 the internal productive economies which a particular firm is able to secure 

 as the growth of the market permits it to enlarge the scale of its operations 

 and the economies external to the indi^^dual firm which show themselves 

 only in changes of the organisation of the industry as a whole. This 

 distinction has been useful in at least two different ways. In the first 

 place it is, or ought to be, a safeguard against the common error of assuming 

 that wherever increasing returns operate there is necessarily an effective 

 tendency towards monopoly. In the second place it simplifies the analysis 

 of the manner in which the prices of commodities produced under condi- 

 tions of increasing returns are determined. A representative firm within 

 the industry, maintaining its own identity and devoting itself to a given 

 range of activities, is made to be the vehicle or medium through which 

 the economies achieved by the industry as a whole are transmitted to the 

 market and have their effect upon the price of the product. 



The view of the nature of the processes of industrial progress which is 

 implied in the distinction between internal and external economies is 



