70 
POLITICAL ECONOMY 
first enunciate the abstract law and the 
corresponding abstract law of decreasing 
returns and briefly justify them, and after 
wards 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), pro 
vided—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 special 
ism 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 circum 
stances described. But we must not, of 
course, jump to the conclusion that, when-