Variable Proportions Law

Variable Proportions <em><strong>Law</strong></em>

Variable Proportions, Law of, the principle that describes the relationship between 'inputs' of productive resources (factors) and the resulting 'output' of product. Whenever increased output requires the combined services of different factors of production, one of which is limited in supply, any attempt to overcome its relative scarcity by combining it with larger amounts of other factors will eventually slow down the rate of increase of total output. More precisely, the law states that, as equal increases of a variable factor are added to a constant quantity of other ('fixed') factors, the successive increases in output will after a point decrease. The law applies to all forms of productive organization, provided one (or more) of the productive factors is fixed in supply, successive units of the variable factor added are all of equal efficiency, and the state of technological knowledge remains constant. The law rests on the common observation that factors are imperfect technological substitutes for one another. Diminishing returns are the physical effects of continuing the substitution of available for less available or unavailable (or fixed) factors,

It follows that up to a point the addition of equal increases of a variable factor to a fixed factor may result in increasing additions of product. One of the earliest formulations of the law, by the French economist Turgot, drew attention to this feature, but it was largely neglected in the development of the law by some of the English classical economists, notably David Ricardo, Sir Edward West and T. R. Malthus. They were concerned mainly with the application of the concept to the growth of population relative to agricultural land and the implications for the labour cost of producing additional food and therefore living standards. Their gloomy prophecies, based on the view that technological progress in agriculture would be insufficient to offset the effects of the law, were falsified by subsequent events, (This falsification has not prevented the emergence of similar prophecies about present-day world population growth and food supplies.) Later formulations of the law have tended to move away from this historical or prophetic treatment and have followed the earlier example of Turgot in emphasizing the analytical aspects of non-proportional (i.e. first increasing, then decreasing) returns of output when the proportions in which factors are combined are progressively varied under conditions of a constant state of technical knowledge. Hence the more general title (The Law of Variable Proportions) under which diminishing returns were often analysed in later writings.


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