ABSTRACT
All production, as we shall understand it in this chapter, involves some dealing of man with nature. As John Stuart Mill put it, ‘man can only move matter, not create it’. The use of natural resources is indeed indispensable in production. When in certain theoretical conceptualizations this fact is not visible, then this does not mean that it is not there. It only means that the authors have for simplicity set aside the problem by assuming that natural resources are available in abundance. This amounts to assuming that their services are ‘free goods’. This is a bold assumption, not least with regard to advanced economies which are typically characterized by the scarcity of some of their lands and the depletion of some of their stocks of raw materials etc. As is well known, the treatment of exhaustible resources poses formidable problems for economic theorizing. In this chapter we shall set aside the problem of scarce natural resources. (See, however, Kurz and Salvadori, 1995; chapters 10 and 12, for treatments of the problems of land and renewable and exhaustible resources, respectively, and chapters 13 and 14 in the present book.) Hence, in the models we shall be dealing with there will be no decreasing returns. Further, since we shall not be concerned with economic growth and the effects on labour productivity of the increase in the division of labour associated with the accumulation of capital, effects stressed by authors from Adam Smith to Allyn Young, Nicholas Kaldor and modern growth theorists, we shall also set aside increasing returns. The assumption underlying the following discussion is therefore that throughout the economy there are constant returns to scale and no external effects.
