Parametric external economies and the Cambridge controversy on returns

Abstract

The paper focuses on the theoretical modifications of the concept of external economies built by Marshall. The history of external economies was at its crossroads in the thirties, when the Symposium on Increasing Returns took place in Cambridge. Sraffa formulated the main criticism against external economies by pointing to its lack of compatibility with perfect competition, statics and partial equilibrium. I shall try to show that the construction of parametric external economies by John Chipman (1970) is the logical outcome of the controversy on returns, opposing Sraffa to Marshall, Pigou, Shove and Robertson (1930).