>>11274355>I understand this. But in reality, capital is not homogenous. Far from it, it's constantly changing. This abstraction would be a minor issue if it didn't affected the "diminishing marginal returns" thesis, as you seem to accept. If capital goods are heterogeneous and one is qualitatively better than anoter, diminishing returns might not be a thing, like in the example I provided. You can only accept them if you suppose capital goods are homogenous as the theory does. The diminishing marginal returns of the Cobb-Douglas seems good to capture the situation of a factory in a given moment, when obviously adding more machines with the same amount of workers has diminishing returns. But not so much to describe growth and a dynamic situation.No, even if we consider capital as not being homogenous, the situation still stands.
Instead of thinking about capital in terms of "amounts", think of them in terms of costs.
So for a given production, it's only natural that he'll first buy the capital which will bring him most profit, and gradually descend the ladder of capital quality.
>But not so much to describe growth and a dynamic situation.Yes, we're fixing technological development.
>Even going as far as of 1776, Smith talked about increasing returns to scale as an argument for the expansion of commerce.There's actually a historical argument about this.
You see, if most factories had increasing returns to scale, most fields would form natural monopolies. Economists of the time analysed the concrete situation of the time, and concluded that this wasn't the case.
Hardly applies today, naturally.
>But they still use it in almost every growth model.If you have a better, more cost efficient approximation, feel free to write a paper about it and publish.
Just do remember that it needs to be based on data we can concretely accumulate.
