Marginal returns are a theoretical economic concept that have important implications across most regions of economics. Even to the most common observer with a basic education it should be clear that nothing can grow forever.  No one man can own the entire world, or entire economy, otherwise there would be no economic activity at all.  Essentially that is what marginal returns expresses. An upper bound on the real returns that someone can obtain.

Marginal returns in mathematical form are just an expression of the return you get by adding one more unit of something. An additional unit of labor. An additional unit of capital. It can be anything, but the important point is that the return is greater than zero, for when it hits zero there is no incentive to keep adding additional units of something. If it drops below zero then it’s time to start subtracting units.

Marginal returns can be applied to just about anything.  Labor, capital stock, debt, you could even, theoretically, apply it to immigration with respect to tax revenues captured by the government.

 

Untitled

(The Solow Growth Model showing marginal returns in economic growth.)

It’s a shame that nobody in politics seems to get the concept of marginal returns. It seems that government is often just an ever expanding Leviathan that consumes everything at all costs.

While stability and the maintenance of property rights is indeed important to a functioning society, it should be quite clear that the public sector cannot expand indefinitely.  That’s just common sense.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s