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POLITICAL  ECONOMY

first  enunciate  the  abstract  law  and  the
corresponding  abstract  law  of  decreasing
returns  and  briefly  justify  them,  and  afterwards ­
  proceed  to  enunciate  and  explain  the
realistic  uniformities.
Abstractly  the  law  of  increasing  returns
affirms  that  when  an  industry  enlarges  there
must  be  increasing  returns  (that  is  to  say,  the
marginal  cost  of  production  must  fall),  provided—and ­
  this  is  a  significant  point—that
there  is  no  dearth  of  agents  in  production  at
least  equal  in  quality  to  those  engaged  at  the
old  margin.  The  truth  of  this  generalisation
will  be  immediately  apparent.  When  the
industry  enlarges  all  parts  of  its  working  will
tend  to  become  more  specialised,  and  specialism ­
  will  tend  more  thoroughly  to  interpenetrate
the  industries  subsidiary  to  it.  Specialising
is  economical,  so,  if  nothing  happens  to
counteract  its  effects,  the  marginal  cost  of
production  must  fall.  Now  the  only  thing
which  could  counteract  its  effects  would  be
a  limitation  of  suitable  agents  in  production
at  least  equal  in  economic  value  to  those  at
the  old  margin  ;  and  the  possibility  of  this
has  been  rejected.  Hence  the  inevitable
tendency  to  increasing  returns  in  the  circumstances ­
  described.  But  we  must  not,  of
course,  jump  to  the  conclusion  that,  when-