The law of variable proportions occupies an important place in modern economic theory. It influences every aspect of economic life. This law (especially its phase of diminishing returns) has universal application in the field of production, in any form.
A number of economic principles find their expression in the law of diminishing returns. Principle of Substitution, Marginal Utility Theory of Value, Marginal Productivity Theory of Distribution, Ricardian Theory of Rent and Malthusian Theory of Population are some illustrations.
Law of variable proportions has vast general applicability. This law applies as much to industries as to agriculture. However, in agriculture, where nature plays the major role, diminishing returns set in at an early stage than the industries, where man’s role is more important.
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Experiences of the under developed countries of the world justify the operation of this law in agriculture. Phenomenon of disguised unemployment revealing zero or near zero or negative marginal productivity of labour is one such example. Withdrawal of disguised unemployed people and employing it in industrial sector can increase the output of agriculture.
Agricultural production and productivity can be substantially increased by making advancement in agricultural technology through progress in science. Scientific rotation of crops, improved seeds, fertilisers, modern implements, better irrigation facilities, etc. are some ways in which this can be done.
This will also solve the problem of food crises and starvation. Most of developed countries of the world have been successful on this front. However, technology advancement shifts the total product curve upwards. It will just postpone the operation of this law and eventually diminishing returns will set in. Thus, the application of the law of variable proportions is inevitable, inexorable and all pervading.