Young’s increasing returns, the factory system and Kaldor’s admonition

Abstract

Nicholas Georgescu‐Roegen’s analysis of the factory system is used to show how an expanded market makes possible increasing returns in manufacturing, which can in turn lead to the kind of cumulative growth process envisioned by Allyn Young. The analysis is then extended to take into account Nicholas Kaldor’s admonition to pay attention to the fact that manufacturing is a process that uses inputs that are the products of nature. It is found that the inability to use the factory system in agriculture limits the extent of increasing returns in manufacturing. Increasing returns in manufacturing and an accompanying pattern of cumulative growth require a continuing infusion of exogenous technological innovation in agriculture.