IDEAS home Printed from
   My bibliography  Save this article

Increasing returns, new growth theory, and the classicals




Contemporary "new classical" endogenous growth models make imaginative use of the Smith-Marshall-Young-Kaldor division of labor-increasing returns principle. Yet new growth theorists seem to have forgotten (or misunderstood) the essential role of an expanding market as a companion to division of labor as the cause and consequence of economic growth; it is the force of aggregate demand operating through the scope of the market that makes the cost savings inherent in Smith's division of labor operational. While professing to build on the insights of Marshall, as well as those of Smith, Young, and Kaldor, new growth theorists perceive the growth process as a phenomenon of general equilibrium, and focus on the cost experiences of individual producing units as their starting point for identifying increasing returns in the macroeconomy. The mathematical conventions they adopt (about which the classical economists were oblivious) render growth an endogenous process that proceeds on a deterministic growth path into an infinite future without a feedback into aggregate demand, or a consideration of the requirements for market clearing. This approach suggests that when contemporary theorists make casual use of well-established historical principles (in this case, division of labor, externalities, and increasing returns), the theoretical outcome may have limited substantive value despite its appearance of technical elegance.

Suggested Citation

  • Ingrid H. Rima, 2004. "Increasing returns, new growth theory, and the classicals," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(1), pages 171-184.
  • Handle: RePEc:mes:postke:v:27:y:2004:i:1:p:171-184
    DOI: 10.1080/01603477.2004.11051431

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:spr:epolin:v:44:y:2017:i:4:d:10.1007_s40812-017-0077-6 is not listed on IDEAS
    2. repec:dau:papers:123456789/6516 is not listed on IDEAS
    3. Bruno Tinel, 2013. "Why and how do capitalists divide labor? From Marglin and back again through Babbage and Marx," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00763837, HAL.
    4. repec:wea:econth:v:1:y:2012:i:1:p:7 is not listed on IDEAS
    5. Sue Konzelmann & Frank Wilkinson, 2016. "Co-operation in Production, the Organization of Industry & Productive Systems: A Critical Survey of the 'District' Form of Industrial Organisation & Development," Working Papers wp481, Centre for Business Research, University of Cambridge.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:postke:v:27:y:2004:i:1:p:171-184. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.