INCREASING RETURNS 
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need of elaboration and modification on this score? Just as there 
are special conclusions for the industries in which cost increases as 
output enlarges, so we might expect other special conclusions for 
commodities in which cost declines with enlarged output. } 
Two things must here be noted : first, what exactly is meant by 
a law or tendency to increasing returns; and second, what is the 
effect of this sort of tendency in international trade. 
On the first topic some distinctions familiar in economic theory 
must be recalled. Any “law” of increasing returns means that all 
costs go down. The law is not at all the converse of that of 
diminishing returns in agriculture. In the latter, an increase of the 
output from a given plot or given area of land entails as a necessary 
corollary that, while the additional supplies are got at higher cost, 
the previous supplies continue to be got at cost unchanged. There- 
fore there are varying costs — some costs persistently higher than 
others. In the apparently opposite case of increasing returns, 
there are no persisting differences. True there is lower cost with 
enlargement of output; but it is the entire supply which is pro- 
duced at the lower cost. True, not all will be produced at lower 
cost immediately; but in the end it will. As has just been ex- 
plained, there will probably be a transition period of varying costs. 
An improvement which lessens costs is almost invariably intro- 
duced gradually, first in one establishment, then in another. For 
a while costs will be lower in the forward than in the lagging 
industry. The ultimate effect will be a decline all around. 
To come now to the main general conclusion which bears on the 
problems of international trade. Such a decline, when it has 
permeated the whole of an industry, may mean a change in its 
costs relatively to other industries. It may mean a new alignment 
of comparative costs, and accordingly may alter the conditions under 
which international trade is carried on. Such consequences, how- 
ever, are not of a novel kind, and call for no new analysis. With 
the irregular progress of the arts, the conditions of comparative 
advantage are subject to constant modification ; but these changes, 
while they lead to new conditions, involve merely the application of 
familiar reasoning to the changed situation.