Back to the Classics. Labour Productivity, Technical Progress and Economic Development

The paper assesses Paolo Sylos Labini's recent volume 'Torniamo ai classici' (2004) by highlighting that the approach followed by the author is rooted in a distinctive interpretation of classical economic theory. In particular, it is argued that Sylos Labini's contribution reflects his view that the analytical core of classical economic theory is to be found in the analysis of production structures, long-run regularities in relative prices, and long-run movements of gross product, per capita income, and labour productivity. The paper calls attention to Sylos Labini's view that the long-run dynamics of a capitalist economy is to be explained by the interplay of two fundamental dynamic laws: the law of increasing returns associated with increasing division of labour, and the law of diminishing returns associated with the utilization of limited non producible resources. The interplay of increasing and diminishing returns is analyzed in terms of a circular model economy, and the result is obtained that the level of employment is primarily affected by the demand for pure consumer goods, whereas the level of prices is primarily affected by the reduction of production costs in the sectors producing machines and raw commodities. The paper analyses the possibility of a virtuous circle leading to productivity increases and effective demand increases, the institutional and organizational changes associated with the long-run evolution of market economies, and the role of co-ordination agencies in allowing full performance of economic systems.