“Our understanding of how markets and businesses operate was passed down to us more than a century ago by a handful of European economists — Alfred Marshall in England and a few of his contemporaries on the continent. It is an understanding based squarely upon the assumption of diminishing returns: products or companies that get ahead in a market eventually run into limitations, so that a predictable equilibrium of prices and market shares is reached. The theory was roughly valid for the bulk-processing, smokestack economy of Marshall’s day. And it still thrives in today’s economics textbooks. But steadily and continuously in this century, Western economies have undergone a transformation from bulk - material manufacturing to design and use of technology — from processing of resources to processing of information, from application of raw energy to application of ideas. As this shift has occurred, the underlying mechanisms that determine economic behavior have shifted from ones of diminishing to ones of increasing returns.”

— W. Brian Arthur

Arthur, W. Brian. "Increasing Returns and the New World of Business." Harvard business review 74.4 (1996): p. 100

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W. Brian Arthur 16

American economist 1946

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“Conventional economic theory is built is built on the assumption of diminishing returns. Economic actions engender a negative feedback that leads to a predictable equilibrium for prices and market shares. Such feedback tends to stabilize the economy because any major changes will be offset by the very reactions they generate. The high oil prices of the 1970s encouraged energy conservation and increased oil exploration, precipitating a predictable drop in prices by the early 1980s. According to conventional theory, the equilibrium marks the “best” outcome possible under the circumstances: the most efﬁcient use and allocation of resources.”

W. Brian Arthur (1946) American economist

Source: Increasing Returns and Path Dependence in the Economy, (1994), p. 1: Chapter 1. Positive feedback in economics

“Market share was the grand old metric, the guiding light, the compass of the product-centric age. Companies focused on improving their product and building economies of scale. This product-centric thinking led to the battle cry: "Get more market share and the profit will follow."”

Adrian Slywotzky (1951) American economist

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“Keynes did not challenge the efficacy of price adjustment mechanisms in clearing particular markets in the Marshallian partial equilibrium theory on which he had been reared. He did challenge the mindless application of those mechanisms to economy-wide markets. Founding what came to be known as macroeconomics, he was modeling a whole economy as a closed system. He knew he could not use the Marshallian assumption that the clearing of one market could be safely described on the assumption that the rest of the economy was unaffected.”

James Tobin (1918–2002) American economist

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“Market economy implies a self-regulating system of markets; in slightly more technical terms, it is an economy directed by market prices and nothing but market prices.”

Karl Polanyi book The Great Transformation

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“At the center of market fundamentalism lies the general acceptance of the Walrasian general equilibrium model, or the neo-classical paradigm. Although many economists came to doubt the universal validity of such models in view of economies of scope, bounded rationality, asymmetric information, and other types of market imperfections and ventured into institutional analysis, the orthodoxy still remains the one which postulate some type of rationality of atomized individuals and the market which mediate among these atomized individuals and firms to reach some stable equilibrium.”

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“We need to recognise that the entire information sector—from music to newspapers to telecoms to internet to semiconductors and anything in-between—has become subject to a gigantic market failure in slow motion. A market failure exists when market prices cannot reach a self-sustaining equilibrium. The market failure of the entire information sector is one of the fundamental trends of our time, with far-reaching long-term effects, and it is happening right in front of our eyes.”

Eli Noam (1946) professor of Finance and Economics at the Columbia Business School

Eli Noam in: " Eli Noam: Market failure in the media sector http://www.citi.columbia.edu/elinoam/FT/2-16-04/MarketFailure.htm" at news.ft.com, February 16 2004
The context of this quote was a digression on the media, telecommunication, information technology, and internet industries.

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“Perfect competition must hold in product and factor markets, and also (and importantly) in capital markets. The assumption has two essential features: economic agents must be price takers; and they must have equal power.”

Nicholas Barr (1943) British economist

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“Markets are useful instruments for organizing productive activity. But unless we want to let the market rewrite the norms that govern social institutions, we need a public debate about the moral limits of markets.”

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