Increasing Returns To Scale And The State Of Economics

My father started working at a small town grocery store twenty-five years ago. He managed a produce department that sold around twenty in-season fruits and vegetables. He struggled to feed my mother, sister and I.

The town grew and became a de facto suburb of Charlottesville (and Washington and New York). At first $20,000 was a good week for the store. Today $20,000 is a mediocre day. My father now sells over a hundred products. Very few are seasonal. He also owns a video store, four vehicles, and has put two children through private colleges.

The causes of his success are numerous. My grandfather taught him a tireless work ethic. He was lucky. He was on the right side of pecuniary externalities. But some of his success has to do with increasing returns to scale. Some of it has to do with specialization and the expansion of the market. I asked him if he could have imagined his today twenty five years ago. He answered "no."

I asked a colleague who I respect if we could "model" my father's progression. She said, "Of course we can." I do not know if this arrogance is encouraging or discouraging.

To her the model was important. My father's story was not. His success had no economic interpretation without calculus. Economists should tell mathematical stories not anecdotal ones.

I see her as making the same mistake the Soviet Union did. I see her ambition standing in the way of an important insight. She will never fully understand the importance of increasing returns to scale, specialization, and human achievement without appreciating my father's story.

Models are an abstract teaching tool. They are not economics. They are not life.