Some Empty Theoretical Boxes

One of the most famous and fruitful—yet in one respect futile—controversies ever to appear in the economic journals was a dispute over the respective roles of theory and fact between two giants of the tradition of economics, A. C. Pigou and J. H. Clapham. ¹ The controversy began when the latter launched an attack on economic theory. He complained specifically about the contemporary version of diminishing return, constant return, and increasing return industries. He preferred to discard such concepts because, first, “the Laws of Returns have never been attached to specific industries … the boxes are, in fact, empty … we do not, for instance, at this moment know under what conditions of returns coal or boots are being produced.” ² Even if filled with facts, such terms are not translatable into useful directives for public policy. And finally, any hope one might entertain actually to fill the boxes and thereby to establish empirical conclusions is “not very encouraging.” 3 The empty boxes of economic theory are, in sum, both unfilled and useless if filled; these weaknesses, however, are unimportant in the end because the boxes are virtually unfillable.