F.— ECONOMIC SCIENCE AND STATISTICS. 123 



realise. Not only new or adventitious elements, coming in from the 

 outside, but elements which are permanent characteristics of the ways in 

 which goods are produced make continuously for change. Every important 

 advance in the organisation of production, regardless of whether it is based 

 upon anything which, in a narrow or technical sense, would be called a 

 new ' invention,' or involves a fresh application of the fruits of scientific 

 progress to industry, alters the conditions of industrial activity and 

 initiates responses elsewhere in the industrial structure which in turn have 

 a further unsettling effect. Thus change becomes progressive and 

 propagates itself in a cumulative way. 



The apparatus which economists have built up for the analysis of 

 supply and demand in their relations to prices does not seem to be par- 

 ticularly helpful for the purposes of an inquiry into these broader aspects 

 of increasing returns. In fact, as I have already suggested, reliance upon 

 it may divert attention to incidental or partial aspects of a process which 

 ought to be seen as a whole. If, nevertheless, one insists upon seeing just 

 how far one can get into the problem by using the formulas of supply and 

 demand, the simplest way, I suppose, is to begin by inquiring into the 

 operations of reciprocal demand when all of the commodities exchanged 

 are produced competitively under conditions of increasing returns and 

 when the demand for each commodity is elastic, in the special sense 

 that a small increase in the supply of any one commodity will be attended 

 by an increase in the amounts of other commodities which can be had 

 in exchange for it.' Under such conditions an increase in the supply of 

 one commodity is an increase in the demand for other commodities, and 

 it must be supposed that every increase in demand will evoke an increase 

 in supply. The rate at which any one industry grows is conditioned by 

 the rate at which other industries grow, but since the elasticities of 

 demand and of supply will differ for diff'erent products, some industries 

 will grow faster than others. Even with a stationary population and in 

 the absence of new discoveries^ in pure or applied science there are no 

 limits to the process of expansion except the limits beyond which demand 

 is not elastic and returns do not increase. 



If, under these hypothetical conditions, progress were unimpeded and 

 frictionless, if it were not dependent in part upon a process of trial and 

 error, if the organisation of industry were always such as, in relation to 

 the immediate situation, is most economical, the realising of increasing 

 returns might be progressive and continuous, although, for technical 

 reasons, it could not always proceed at an even rate. But it would remain 

 a process requiring time. An industrial dictator, with foresight and 

 knowledge, could hasten the pace somewhat, but he could not achieve an 

 Aladdin-like transformation of a country's industry, so as to reap the 



' This condition is merely that dyldx and dxidy are both positive, where x and y are 

 the amounts of any two commodities exchanged. If the circumstance that commodity 

 a is produced under conditions of increasing returns is taken into account as a, factor 

 in the elasticity of demand for 6 in terms of a, elasticity of demand and elasticity of 

 supply may be looked upon as difiEerent ways of expressing a single functional relation. 

 The condition as stated is more rigorous than need be. 



2 As contrasted with such new ways of organising production and such new 

 ' inventions ' as are merely adaptations of known ways of doijig things, made practicable 

 and economical by an enlarged scale of production. 



