The debates on the representative firm and increasing returns: Then and now

The paper reviews the debates on the representative firm and increasing returns which were initiated by Claphamís ìEmpty economic boxesî in 1922 and completed in the March 1930 symposium edited by Keynes in the Economic Journal with contributions by D.H. Robertson, G.F. Shove and P. Sraffa. The debates centred around the link between theory and reality and the compatibility of competitive price theory with increasing returns. These particular issues have surfaced again in the development of neoclassical endogenous growth theory from the 1980s on. We argue that the criticisms raised by Young and Sraffa in the 1920s are especially relevant for the new developments.