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. Δ k <0 , th...