How economic activities differ: international trade as a source of underdevelopment - ERIK REINERT
Around 1600, Italian economists wondered why all the gold that flooded into Spain from the Americas ended up in industrial cities like Amsterdam and Venice. Antonio Serra (1613) found the explanation in diminishing returns in agriculture (costs tended to increase when production was extended geographically) while in industry costs would fall, often drastically, with increased volume of production. In his 1890 textbook Alfred Marshall, the founder of neoclassical economics, fully supported this argument. However, once equilibrium had been established as the core metaphor in economics, the increasing/diminishing returns dichotomy - not being compatible with equilibrium - was thrown out of economics. This is only one of several factors that make economic activities very different in their ability to produce welfare.
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Honorary Professor at the University College London Institute for Innovation and Public Purpose (IIPP), PhD, MBA