Are There Laws of Production?

Abstract

The article Are There Laws of Production? published in the American Economic Review in 1949 roused a great deal of interest among specialists, it has often been quoted and reprinted on several occasions. In the article Paul H. Douglas presented the results of his many years of studies. Having processed a great deal of statistical data, using the production function suggested by him together with C.W. Cobb, Douglas attempted to determine the share of labour and capital in the final product of the manufacturing industry in a number of countries and regions. The results were as follows: there was a surprising constancy in the share of labour and capital within individual countries throughout the research period and the returns from additional inputs of labour and capital were practically constant. For the US, Australia and South Africa the share of labour was close to 2/3 and the share of capital was 1/3. For New Zealand and Canada the share of labour was lower and capital higher, but the shares remained stable throughout the entire period of observation. The author suggested that results such as these could not be random and there was clearly a law of production, which may explain the current shares of labour and capital in a manufactured product. If we take into consideration the well-known fact that the share of consumption in the GDP is very close to 2/3, the conclusions drawn by Paul H. Douglas seem entirely reasonable and require a certain kind of explanation. Let us try to analyze the results obtained and respond to the question, which is as of yet unanswered: Are there laws of production?