Importance of the Law of Diminishing Returns
We have already quoted Cairnes when he says that in the absence of the law of diminishing returns, “The science of political economy would be as completely revolutionized as if human nature itself were altered.” Such is the great importance of the law of diminishing returns. The law of diminishing returns has a very wide, almost universal application. Uptill Marshall, it was thought that the law of diminishing returns applied to agriculture wheareas the laws of increasing or constant returns applied to manufacture. But it is now held that the law of diminishing returns applies in all fields of production, whether agriculture, mining or manufacture. Whenever we find that sonic factors of production arc fixed and cannot be varied and other factors arc varied, then techniques of production remaining the same, diminishing returns are bound to follow, sooner or later, There is no escape. The validity of the law of diminishing returns is not merely based on theoretical reasoning but it has been supported by extensive empirical evidence. It has been remarked that if the diminishing retum did not occur we could grow sufficient foodgrains in a flower pot merely by increasing the dozes of labour and capital. It is obvious that if the s ccessive applications of dozes of labour and capital resulted in obtaining constant returns, the whole population of the world could be fed by growing crops on a tiny piece of land. As population increased, we could use more labour and capital on a piece of land to get proportionate increase in agricultural output and there would be no Icar of farninc and starvation. As Professor Lipsey remarks, “Indeed, where hypothesis of diminishing returns incorrect.there would be no fear that the present population explosion will bring with it a food crisis. If the marginal product of additional worker applied to a fixed quantity of land were constant, then world food production would be expanded in proportion to theincre se in population merely by keeping the same proportion of the population on furms. As it is. diminishing returns means an inexorable decline In thc marginal product of each additional labourer as an expanding population is applied. with static techniques, to ;1 fixed world supply of agricultural But let there be no ruisundcrxtandiug need not arr ivc at the dumal conclusion t at such law of dinunishing returns the and marginal returns must cvcu tully decline .