From Cambridge to Eternity: “The Law of Diminishing Returns 02”

 

In various regards on the supply side, we doubt that the law of diminishing returns has anything to do with the economy in general and the economic growth in particular. In this age of softness, moreover, the lion’s share of GDP is taken by services at least in Anglo-America; something like 75% to 80%.                     What’s service got to do with it, the law of diminishing returns? At any rate, some of us may recall the “network effect,” the polar opposite of the famous law, in most every service industries. 

 

Vice Versa. Suppose we are running on the job of cutting cookies. In general, the combination is one hand (h) with one cutter (c): For the sake of convenience, let us assume that “the capital to labor ratio,” often denoted as k= K/ L, initially to be the unity (k= 1c/ 1h= 1 in naked). The conventional wisdom tells us that when the ratio decreases, i.e. Δk <0, the productivity per hand  diminishes   (Δq/ Δh ↓), and vice versa. To be complete, the “diminishing returns” are "of" the production factor called “labor,” or vice versa.

The Problem of Taste. Merely with the supply side, we are not done yet. What if the demand for threads fades away? Would the law of fame still “control” the factory as before? Which of “the dual monarchs of tastes and technology” (Samuelson and Nordhaus Economics, 2010, p. 28, italics theirs) would be more whimsical in the Earthly economy? Would the law of diminishing returns secularly bind the “economic growth per capita,” or y= Y/L, as in a certain celebrated model?

The Heavenly Growth. As labor has an expiry, so does capital. Crossing the River of Expiration, the time stops. Nevertheless, the ratio of ex-capital to ex-labor is subject to variation.

             First, never take variation (T0 in the time dimension) in Eternity for change (T-1) in Here. Second, the diminishing returns applied to the ex-labor until the 1950s in secular calendar, but to the ex-capital instead ever since the 1960s in secular calendar. 

Depending on Who You are. Incidentally, the equation 1+ 1= 2 would be great news and subsequently earn global fame for the first proposer. Likewise is the saying, “The sun rises in the east if on Earth.”

             Suppose someone proposes: “The productivity of k stalls as the ratio of k stalls, if the economy is zeroed in on the particular factory Thread Maker and Sons & Co. frozen with Arkwright 1.0, and if the taste for threads of general public is invariable.”

             First, don’t mention “vice versa” because there is no way back to 1950s if in Here.  

             Second, what will the public response in Here be to such a proposition?

1)     "Yah, got that."

2)     Tautology

3)     Conventional wisdom

4)     A rule of thumb

5)     A great theory deserving geo-fame

6)    "Never mind." There exogenous to the factory is no such thing as “capital-labor ratio.” Nearly everyone but the Emperor is not naked. 

 

Alas, mathematics in general and statistics in particular are no science, empirical or otherwise. Confucius say, "You must in the first place get the names correct (正名, zhèngmíng)." 

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