Modern Economic Theory
of both developed technology may be able to keep the law of diminishing returns in abeyance. We see from the Indian experience that improved technology has has ushered in what is known as the ‘green revolution’ and, in a short span of time, we have not only been able to ban hunger and starvation from the land, but we have also now a comfortable surplus. The ghost of law of diminishing returns seems to have been laid. I At the same time, we must point out that this happy experience is no contradiction of the law of diminishing returns. The law clearly states that if there is no charge in technical knowledge, capital equipment, and other aids to production, the law of diminishing returns is kept in check for the time being. But who can say that the improvement in technology and additional to capital equipment will keep pace with galloping population. We have only suspended the
operation of the law of diminish hing returns by improving techniques of production through the application of science and technology, but if we fail to keep up the technical progress in a sufficient measure, the law of diminishing returns may assert itself. As Lipsey observes, “Unless there is a continual and rapidly accelerating improvement in techniques of production, the population explosion must bring with it decline in living standard over much of the world and eventual wide-spread famine. The Law of Diminishing Returns has formed the basis of a number of economic doctrines propounded by the English classical economists, especially Malthus and Ricardo. It was represented as an inexorable la of nature. It accounted for a lot of pessimistic thinking in Economics and earned for it the title of a ‘dismal science’ .
Malthusian Theory of Population. The sin theory of population, which says that po I . increases faster than the food supply, is obviously on the fact that the production of food is subject 0 the law of diminishing returns.Pericardia Theory of Rent. The Pericardia theory of rent explains the determination of rent on the assumption that inferior lands have to be cultivated on account of the operation of the law of diminishing returns. The margins of cultivation descend. and rent rises.The optimum size of business is explained again by the working of this law. Theory of Distribution. The marginal productivity theory, which determines the share of a factor of production in the national dividend, I also based on the operation of this important law.