Increasing Returns and Stability

Abstract

Increasing returns are an incontrovertible fact since Adam Smith hailed them as the very originators of wealth, yet they play havoc with general equilibrium. They fit, in marked contrast, nicely into the structural axiomatic framework. This indicates that it is worthwhile to replace the behavioral axioms of standard economics by objective structural axioms. These are in the present paper applied to the question of how increasing returns affect the systemic interrelations in the pure consumption economy. To invite a reality check the logical implications of the structural employment equation are set in relation to three well-known statistical relationships.