Marshall's Evolutionary Economics (Routledge Studies in the History Ofeconomics, 59)

Marshall’s Evolutionary Economics

Alfred Marshall was one of the most important economists ever to have lived. This excellent new book, from an expert respected the world over, attempts to show that Marshall anticipated some of the views that are now associated with the cognitive sciences. Examining Marshall’s philosophy of the human mind, his overall approach to economics, his concern for socio-economic issues, and the fertility of his framework, this book breathes fresh life into the puzzling and fascinating world of Marshallian economics. The book traces the origins of Marshall’s philosophy and goes through such themes as: ● ● ● ●

Marshall’s move from psychology to economics; methodological issues; the collapse and revival of Marshall’s research programme; the Marshallian lineage of John Maynard Keynes’ thought.

Tiziano Raffaelli has provided a punchy, well-written and informative text that will intrigue and stimulate economic and philosophical thinkers worldwide. Anyone claiming to understand Alfred Marshall’s work will need to have read this excellent book. Tiziano Raffaelli is Associate Professor in the History of Economic Thought at the Department of Philosophy, University of Pisa (Italy). He published and introduced Marshall’s Early Philosophical Writings (1994) and co-edited Marshall’s Lectures to Women (1995). He is the Managing Editor of Marshall Studies Bulletin.

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Marshall’s Evolutionary Economics

Tiziano Raffaelli

First published 2003 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2003. © 2003 Tiziano Raffaelli All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Raffaelli, Tiziano, 1950Marshall’s evolutionary economics / Tiziano Raffaelli. p. cm. – (Routledge studies in the history of economics ; 59) Includes bibliographical references and index. 1. Marshall, Alfred, 1842–1924. 2. Evolutionary economics. 3. Neoclassical school of economics. 4. Keynes, John Maynard, 1883–1946. I. Title. II. Series. HB103.M3 R33 2003 330.15⬘7⬘092–dc21 ISBN 0-203-11728-X Master e-book ISBN

ISBN 0-203-16335-4 (Adobe eReader Format) ISBN 0-415-25989-4 (Print Edition)

2002028472

Contents

Preface PART I

ix 1

The origin 1

Marshall’s mental philosophy 1.1 1.2 1.3 1.4

2

The Millian connection 3 Hidden insular threads 6 The maiden speech 9 The Scottish stronghold 13

An amazing machine 2.1 2.2 2.3 2.4 2.5

3

17

The mechanism 17 Adding some extrapower 22 Character and education 26 Afterthoughts 29 Evolutionary epistemology 31

Concluding remarks PART II

34 37

The oeuvre 3

From evolutionary psychology to evolutionary economics 3.1 3.2 3.3 3.4 3.5 3.6

Shaken foundations 39 Deconstructing classical economics 42 Equilibrium and the ceteris paribus clause 45 The growth of knowledge 47 Individuals as organized systems 50 The striking similarities between brain and society 51

39

viii

Contents 3.7 Evolution by contrivance and standardization 54 3.8 From chance to choice 57

4

Patterns of evolution at work 4.1 4.2 4.3 4.4 4.5 4.6

5

Education 61 The division of labour 65 Business and industrial organization 67 Industrial districts 72 National leadership and stagnation 75 Political and social issues 78

Some methodological issues 5.1 5.2 5.3 5.4 5.5 5.6 5.7

61

83

Mathematics and models 83 ‘The Many in the One, the One in the Many’ 86 The principle of continuity in the historical context 89 Meaning and uses of the principle 91 Shifting metaphors 93 Economic measurement and beyond 96 The evolutionary ethical creed 100

Concluding remarks PART III

103 105

The aftermath 6

Death and resurrection of a research programme 6.1 6.2 6.3 6.4 6.5 6.6

7

107

Rocks ahead 107 The collapse 111 The resistance 114 The dynamics of capitalism 119 Underground developments 121 The Marshallian revival 125

Keynes’s Marshallian heritage

129

7.1 The Keynesians’s struggle to dispose of Marshall 129 7.2 The Marshallian imprint 132 7.3 Confidence, custom and convention: the short and the long view 135 Concluding remarks

139

Notes Bibliography Index

142 157 173

Preface

This book is not about the development of Marshall’s thought. By and large, it follows a chronological order: Part I presents Marshall’s early psychological and philosophical views, the second addresses some of the main issues of his major economic works and the third plunges into the aftermath, from the abandonment of Marshall’s research programme in the 1930s to its recent revival. But stress is laid on continuity rather than evolution in Marshall’s thought; only here and there, as when dealing with his views on India, are changes of opinion considered. Moreover, Part II, within which chronology would be essential, does not obey any such order. Without claiming to provide an exhaustive reconstruction of Marshall’s economics, the book aims to be something more than a contribution to well-defined aspects of his thought. Though readers may hopefully find useful hints on specific Marshallian opinions concerning methodology, economic analysis, industrial economics and social philosophy, the claim I wish to advance for this work is the more general and ambitious one of laying bare the evolutionary scheme hidden behind his system of thought. Enucleation of this core idea is the outcome of more than ten years of exploration of his writings, on which I embarked in 1988, when Becattini drew my attention to Marshall’s early philosophical papers, which I later edited (Raffaelli 1994a). Their interpretation – for the most important paper, ‘Ye machine’, the right word would be ‘decipherment’ – is here re-proposed in Part I with some relevant additions, much omission of historical detail and stronger emphasis on their conceptual framework and its relevance to Marshall’s economics. What emerges from these Marshallian papers is a powerful evolutionary device, formed of the complementary and conflicting relationship between innovation, change, creativity or contrivance on the one side, and repetition, automation, routine or instinct on the other. These two complementary and conflicting forces are seen at work in the growth of the mind, where the former leads and the latter follows, chasing the former out of the field it originally opened up, pushing and helping it to till new ground, while at the same time selecting the successful results achieved by innovative search and reproducing them on a large scale to build a hierarchically organized set of automatisms.

x

Preface

The nature and relevance of this evolutionary dance became better impressed in my mind when, following Becattini’s repeated advice, the general drift of which can now be guessed from Becattini (2000b), I decided to pursue traces of Marshall’s mental philosophy in his ideas on industrial economics and the industrial district (Raffaelli 1994c, 2001b). Loasby’s interest in the model of ‘Ye machine’, stemming from his views on the growth of knowledge and the role of organization (Loasby 1996, 1998a,b, 1999a,b), invited further investigations into these and related areas. In the same period, Dardi, both in writing (Dardi forthcoming) and in personal conversation, pointed out possible links between ‘Ye machine’ and partial equilibrium analysis, which likewise relies on the assumption of some ‘routine’ behavioural patterns. These promising suggestions increased my confidence in the project of widening the scope of the model which I had extracted from the early papers, with the hope of bringing to light its active and pervasive role throughout Marshall’s writings. In the last few years, when reading Marshall, I often realized that the model provided a peculiar, insightful perspective on his work and came to detect its imprint in unsuspected places. Character for instance, this most elusive concept of Victorian culture, is explainable by the dialectical mechanism which causes the growth of the mind. Its individual and social evolution accounts for the ‘pliability’ of human nature, against the classical economists’ view of its constancy, crystallized in the model of the ‘economic man’. Gradually, the concept of Marshall’s evolutionary economics, chosen as the title of the book, acquired a new meaning and was compared with the findings of recent critics of general equilibrium theory, such as Simon (1981 and 1983) and Nelson and Winter (1982). To my surprise, Marshall’s model of psychological and organizational evolution offered a valuable clue to issues of bounded rationality and skills selection, which in turn helped to raise new questions about the model’s similarity with the contemporary ‘capabilities’, or ‘competencies’ theory of the firm (Foss and Loasby 1998; Foss 1997; Dow and Earl 1999). Such connections between Marshall’s approach and modern theories of the firm are only hinted at, without pretension to a complete survey or analytical discussion of authors who are considered. I hope that these suggestions will invite wider and more competent reflection. The present attempt may be likened to studies which sought to relate the main work of other great economists to their previously neglected – sometimes even unknown – philosophical ideas: ‘Ye machine’ perhaps stands to Marshall’s evolutionary economics as Smith’s History of Astronomy stands to his scientific system, Keynes’s early works on ethics and probability to the place of uncertainty in the General Theory and Hayek’s Sensory Order to his theories of the limits of knowledge and the role of markets. While these authors’ philosophical ideas arouse much interest, and are rightly praised for their worth, Marshall’s are usually regarded with suspicion or treated as a period piece. His contributions to economic analysis are well assessed (Keynes in Pigou 1925; Stigler 1990), but his evolutionary economics seems to have fallen on barren ground. With a few exceptions (Foster 1993; Nelson 1995), the recent revival of methodological interest in evolutionary

Preface

xi

economics looks to other sources, thought to be more relevant, crediting Marshall at most with a generous but false start (Hodgson 1993a,b), which ended with a ‘stalemate’ (Pratten 1998). My aim is to prove that this appraisal is seriously mistaken, since, thanks to their depth and flexibility, his core ideas are still of concern to contemporary human and social sciences. My ambitious claim does not imply denying the achievements and outstanding quality of the Marshallian literature, which includes many classical articles. But even when I share their authors’ views – as is often the case – I feel that I have new reasons for doing so. Especially where they focus on Marshall’s evolutionary thought and his search for biological analogies, I cannot help thinking that some substantial notions, relevant to the arguments they put forward, are illuminated by evoking his early model of the human mind. Part II develops the new perspective opened up by the philological and philosophical findings of Part I. After a brief outline of Marshall’s move from psychology to economics, Chapter 3 goes on to present the gist of the way in which the model shaped his economics, probably even his approach to equilibrium analysis, and shows that his research programme was far more consistent than usually thought and that his apparently confusing detours were more than Victorian curiosities. Chapter 4 delineates how the model bears on issues of industrial economics and social policy, giving unity and coherence to many of Marshall’s apparently unrelated opinions. Against the background of his early thought-out model of mental growth, Chapter 5 throws light on hotly debated methodological issues, aiming to correct the widespread opinion that his evolutionary economics lacked strength and coherence, but also highlighting the problems it left unsolved. Taken together, these chapters do not pretend to exhaust the model’s possible applications, but simply to provide instances of its explanatory power. I suspect that much can still be said on its relevance to other issues, including Marshall’s theories of consumption and money. The aftermath of Marshall’s system, in the 1920s and 1930s, briefly sketched in Chapter 6, shows that his research programme exerted a strong influence on his pupils, whose achievements were embedded in the Marshallian tradition, but confirms that Marshall’s evolutionary ideas survived only in the neglected field of ‘industrial economics’, far from the main stage of ‘high theory’. The debates on rationalization, business size, coordination and organization, which form the background to Coase (1937), reveal more significant traces of Marshall’s thought than the better known debates on the representative firm, increasing returns and the equilibrium of the firm. This explains my peculiarly twisted perspective on the period, in the attempt to focus on the surviving trickle of Marshall’s undercurrent rather than the main stream that seemed to have partly destroyed and partly absorbed the core of his system. After the trickle almost dried up, Industry and Trade and book 4 of Principles, which were its source, have recently come to exercise their influence on evolutionary industrial economics, as witnessed by district studies and the capability approach. The last chapter is devoted to highlighting the Marshallian lineage of Keynes’s thought

xii

Preface

and the reasons why his unfaithful faithfulness to his master has long been overlooked. Throughout the book, references are usually made to the appropriate editions of works relevant to the understanding of Marshall’s sources and influences and of the 1930s debates. Marshall’s works, however, are referred to by their best known and more complete editions and historical details are supplied in the text when necessary. A former project, which I am glad to have dropped, was to collect my previous essays, scattered through journals different as to language and disciplinary belonging. On reflection, I decided to write a new, more systematic work, in which, even when it was natural to resort to already published material, this had to be reshaped. Part I, as already stated, relies on Raffaelli (1994a) and pursues hints that were already developed in other papers. In particular, the three figures of Chapter 2, first devised in Raffaelli (1991), were presented at various Conferences, always attracting attention and stimulating comments by the audience. The third figure is a slight variation on earlier versions and is more faithful to Marshall’s intentions as well as more finely tuned to Loasby’s and Dardi’s reading of ‘Ye machine’. For Parts II and III, indebtedness to previous publications is more specific and less thorough-going. Chapter 3, Sections 3 and 4, and Chapter 5, Sections 1 and 2 develop issues which were briefly dealt with in Raffaelli (2000a). Chapter 3, Sections 6 and 7, and Chapter 4, Sections 1–3 include arguments taken from Raffaelli (1994c and 2001b). Raffaelli (forthcoming) is the source of some of the subject-matter of Chapter 3, Section 8, and Chapter 4, Sections 3, 4 and 6. Sections 6 and 7 of Chapter 5 follow more closely the content of Raffaelli (1996b). The discussion of the representative firm in Chapter 6, Section 1 was originally presented in Raffaelli (2001a). Chapter 7 draws on chapter 3 of Barrotta and Raffaelli (1998) and – for the first part of Section 2 – on Raffaelli (2000b). I wish to acknowledge help from an exceptional set of careful readers of a previous version of the book: Giacomo Becattini, Marco Dardi, Peter Groenewegen, Brian Loasby and John Whitaker. Their comments invited revision on many points and gave rise to dialogues whose interest, at least to me, is far from exhausted. My debts to Giacomo Becattini go well beyond his reading of the earlier version. The book would not exist were it not for his generous advice and continuous encouragement. Marco Dardi was also involved in several conversations on issues that still remained to be settled. To me, it is as if the book were but the tip of an iceberg that lies deep in their minds and in their writings, most of which are in Italian. I feel fortunate and delighted to be able to bring the Marshall for some time acclimatized in the Arno valley back to the attention of the international community of historians of economics. Participants in various Conferences and E-mail correspondents – among whom I wish to mention Prof. Ed Constant, of Carnegie Mellon University – made useful comments on specific points.

Preface

xiii

Whether large or small, the help I received from these scholars does not involve any responsibility for the final text, which lies wholly with its author. Thanks are also due to Giulia Pietrangeli, for help in checking some references and quotations and the Librarian and staff of the Marshall Library for kind assistance with the Marshall Papers, now conveniently accessible thanks to the new detailed catalogue.

Part I

The origin

1

Marshall’s mental philosophy

1.1 The Millian connection Though it is not unusual for great philosopher–economists to leave their research project unfinished, the general framework of their thought is not necessarily shrouded in mistery. Smith never wrote the promised theory of justice, but the place it held in his system is clear, as his students’ lecture notes later revealed. By contrast, Mill’s incompleteness seems to be definitive, depending on his longing for something slippery, ill-defined, unattainable. He was unable to accomplish – or refer to the accomplishment of – anything like the ‘science of character’, or ‘ethology’, he aimed at. A similar feeling of incompleteness, bordering on failure, surrounds the work of Alfred Marshall, who dropped the idea of writing the second volume of Principles, though some hints of its planned contents can be gathered from Industry and Trade. This similarity is no surprise, since Marshall was brought up in the atmosphere set by Mill’s scientific and political endeavours (Becattini 1975; Dardi 1984) and shared his problem situation and attitudes towards social issues and social science. In the period when Marshall’s ideas and ideals were taking shape – the late 1860s and early 1870s – the British social scene was still dominated by the need to overcome the nightmare of unhealthy workshops, slums, lack of education and opportunities for betterment which characterized the previous decades and were of major concern to Mill. The study of ‘character’ was crucial for both; Mill, however, felt that economic science, once freed from Ricardo’s excessive determinism, had done almost everything it could and he therefore sought an external, though implausible, source to solve the riddle, whereas Marshall soon came to believe that the solution lay deeper within economics and persistently browsed into the subject. In the economics versus sociology debate of the nineteenth century, they appear to have held similar views. Both were loth to follow the Comtian thrust to dissolve the results of economic inquiries into a new, more comprehensive social science that was not yet available; at the same time, both rejected the idea that economics was wholly unrelated to wider social subjects. Mill’s judgment, expressed in his article on Comte, that ‘a person is not likely to be a good political economist who is nothing else’ was extremely congenial to Marshall, who repeatedly endorsed the dictum (Raffaelli et al. 1995: 189; Marshall and Marshall 1879: 5; Marshall 1920: 771).

4

The origin

However, Marshall’s refusal to separate what Pareto was about to distinguish as the rational and irrational sides of human action and to confine economics to the former, in open contrast with the main tendency of the age,1 marked a shift from Mill’s project: Mill kept economics within well-defined borders, Marshall did not. ‘Character’ was the main problem for both, preventing any premature closing of their social science, but while Mill claimed that the separate science of character could complement political economy and urged Bain to write a book on the subject (Bain 1861), Marshall held the view that the continuous change of human character interacted so heavily with economic phenomena that no rigid division of labour was possible (Becattini 1975; Whitaker 1977). Their diverging strategies are related to different theories of economic action. For Mill, each action follows necessary laws: those embodied in the univocal type of the ‘economic man’ – a powerful instance of the universal and empirically ascertained laws of psychology – and those dependent on specific and varied ‘characters’ – deductively derived from the same general laws, in conjunction with different sets of circumstances. The study of the former set of laws belongs to economics, that of the latter to ethology, which should provide the ‘axiomata media’ of economic action. In this scientific division of labour, economics borrows its laws from the ‘pure science of the mind’ and analyses human action from a partial, but epistemologically self-contained, perspective. Once customary, institutional and political elements are given, competition works smoothly towards its ultimate goal. Mill was therefore ready to accept – indeed to codify – what was later called ‘economic man’ as the subject of a separate science which considered individual action to be wholly determined and made its variability dependent on external factors. He relied on the existence of ‘laws of human nature’ (Mill 1974 [1843]: 913), which cross different ages and persist while the circumstances that mould human character vary. Social evolution depends on the different combinations of such circumstances, but the laws of human nature and of the relationship between character and environment – that is, the laws of economics and ethology – are always the same. While praising Mill’s leading idea that ‘the strength of economics’ lies in ‘the psychological law … that a greater gain is preferred to a smaller’ (Marshall 1961: 135–6),2 Marshall rejected the idea of combining economics – in Mill’s restricted version – with the ‘science of character’. In Marshall’s view, economics, being ‘on the one side a study of wealth; and on the other, and more important side, part of the study of man’ (Marshall 1920: 1; cf. also Marshall and Marshall 1879: 4), has a built-in imperialistic tendency to expand into general sociology (Parsons 1932: 346).3 The individual is the variable inner element of Marshall’s economics. In Principles, the expression ‘human nature’ is almost always qualified – ‘human nature being what it is’, ‘the variety of human nature’, ‘as human nature is constituted’ (Marshall 1920: 9, 14, 231, 305, 485 and 502) – and diminishing utility provides the only instance of a law whose validity is almost universal. Though his polemics against the economic historian William Cunningham drove Marshall to insist on some common features of human action through ages,4 he never conceived of ‘human nature’ as an absolute concept capable of thwarting the role of

Marshall’s mental philosophy

5

character formation: ‘although there is a kernel of man’s nature that has scarcely changed, yet, many elements of his character, that are most effective for economic uses, are of modern growth’ (Marshall 1961: 62–3). However, this acknowledgment contributed to raising rather than lowering the standing of economics among the social sciences, since for Marshall character itself mainly depended on economic conditions: man’s character has been moulded by his everyday work and the material resources which he thereby procures … the business by which a person earns his livelyhood generally fills his thoughts during by far the greater part of those hours in which his mind is at its best; during them his character is being formed by the way in which he uses his faculties in his work, by the thoughts and the feelings which it suggests, and by his relations to his associates in work. (Marshall 1920: 1–2)5 Thus, the prominent place Marshall attributes to economics, assigning it a unique and expanding place among the social sciences, stems from non-economic reasons. The challenge the economist faces is the co-evolutionary circle involving individuals and their economic environment, a process in which no endowments or results are absolutely fixed. In the Plea for the Economics Tripos, he wrote that the economists’ task was ‘to watch more carefully the reciprocal influences which character and earnings, methods of employment and habits of expenditure exert on one another’ (Marshall 1961: 167). This statement is clearly an instance of the evolutionary climate of the age in which Marshall’s ideas were nurtured. When he set out to clarify where classical economists had gone wrong, he simply wrote that ‘they regarded man as a constant quantity’ (Pigou 1925: 154; Marshall 1920: 762) and ‘argued as though man’s character and efficiency were to be regarded as a fixed quantity’ (Marshall 1920: 764); when he turned to assessing Mill’s greatest merit, he underlined the discovery that some economic laws – those of distribution – were modifiable (Pigou 1925: 124). Marshall realized that this pliability of human nature was better recognized in Mill’s later works than in his early methodological essay (Pigou 1925: 161; Marshall 1919: 674) and that Mill’s change of attitude ‘was part of the great changes that were going on in the world around him, though he was not fully aware of their influence on himself ’ (Marshall 1920: 765 n.). Mill – Marshall seems to maintain – was unconsciously though not unreservedly swayed by the new evolutionary way of thinking. Both the political element of distribution and the deliberate formation of individual character (according to ethological laws) made it possible to accommodate freedom in Mill’s view of the economy. Marshall took up again the hopes for human betterment raised by association psychology, feeling that Mill had been kept from giving these hopes free rein by two mistaken assumptions: his acceptance of the Ricardian theory of accumulation and his pre-evolutionary mental philosophy. On the former, Marshall is outspoken: Mill’s ‘treatment of the influence which the distribution of wealth exerts on the accumulation of capital

6

The origin

[and therefore on economic growth and the production of wealth] is one of the weakest portions of his system, even if account be taken’ of his ‘recantation’ on the wages-fund (Pigou 1925: 123 n.). On the latter, Marshall’s criticisms are less blunt, partly because Mill offered somewhat subtler arguments in the endeavour to overcome his difficulties: since each action had natural causes, in order to allow for individual responsibility, Mill placed the desire to change one’s character among the causes of human action and transformed such desire into the ‘pineal gland’ through which human will could be made effective (Mill 1974 [1843]: 839–42).6 Marshall also realized that human freedom did not preclude the scientific study of moral and social phenomena, since character is such that once it has been formed, individuals become more reliable and their behaviour more predictable. As we will see, Marshall’s evolutionary view of the human mind provides a wider framework for the Millian doubling of levels (necessary actions and voluntary formation of character) and a better explanation of the stability and predictability of human behaviour. To understand how Marshall’s answers to Millian issues gradually took form and to gain insight into their consequences on his economic and social research, we must examine how Marshall’s philosophical thoughts were shaped by the powerful impact of evolutionary ideas on the British tradition of mental science.

1.2 Hidden insular threads Marshall’s philosophical ideas long represented a puzzling subject. The hints in his writings were both evasive and suggestive, leaving his readers with two enigmatic mottoes – ‘Natura non facit saltum’ in Principles and ‘The Many in the One, the One in the Many’ in Industry and Trade – some general views about the method of economics – which betrayed sympathy with German historicism – and scattered references to Hegel, Spencer, Comte, Mill and a few other philosophers. Even taking into account his personal contacts with Oxford philosophers – mainly the Platonist scholar Benjamin Jowett – and his intimate, though difficult relationships with fellow Cambridge dons Henry Sidgwick – the leading utilitarian philosopher of the period – and John Neville Keynes – author of the standard English book on The Scope and Method of Political Economy – it was almost impossible to find the trail leading to Marshall’s more distant and deeper sources. There were traces, the best ones buried in unexpected places, but they could be of no avail without previous knowledge of their origin. The standard assessment of Marshall, which he would have cherished, was that of a high-cultured economist, with a broad, non-insular view of methodological and ethical issues, concerned with the social implications of economics while still capable of erecting fences against any radical criticism of its method. On Marshall’s death, this opinion was strengthened by the two best known obituaries. Guided by their own presuppositions, relying on the notes written by Mary Paley Marshall and lacking more relevant information, Keynes and Scott wrapped an unassailable, immaterial halo of philosophical respectability around the old sage’s head and passed it on to future generations. They stressed the role of Kant

Marshall’s mental philosophy

7

and Hegel in Marshall’s philosophical background, thereby attesting to its international high-quality lineage. Spencer was the only British author whose influence Scott (1924) emphasized, while Keynes hid this embarrassing and old-fashioned philosophical guide behind the evolutionary atmosphere of the years of Marshall’s youth, characterized by great religious controversies which ‘drove [Marshall] for a time to metaphysical studies’ under the initial thrust of Mansel’s Bampton Lectures (Pigou 1925: 10). Following Marshall’s own description – ‘from Metaphysics I went to Ethics’ – Keynes went on to sketch the hectic search for a vocation which had brought his master from metaphysics to economics through ethics. An alternative autobiographical account of Marshall’s itinerary, where the middle station was occupied by ‘the more [compared to metaphysics] progressive study of psychology’, with ‘its fascinating inquiries into the possibilities of the higher and more rapid development of human faculties’, faded into the background.7 Disparaging Marshall’s later regret over his abandonment of the study of psychology8 as a sign of ‘preaching imp’, Keynes missed the specificity of what Marshall could have meant (Pigou 1925: 37). In the early 1970s, while searching for Marshall’s early economic writings among the motley array of material in the Marshall Archive (Whitaker 1968), Whitaker came across some papers which invited revision of this picture. In particular, in the introduction to the economic writings, he noticed that ‘Marshall’s brief dalliance with the infant study of psychology’ was of some interest. Quoting from one of Marshall’s philosophical papers, ‘Ferrier’s proposition one’, which will be examined below, and taking note of the others, Whitaker was able to make sense of the 1900 letter to James Ward, already published in Memorials, where Marshall retrospectively speaks of 1871–2 as the time when he was faced with the decision of ‘whether to give [his] life to psychology or economics’. However, engaged in the detailed and perceptive analysis of Marshall’s early economic writings which now forms their introduction, Whitaker summed up the whole issue with the conclusion that Marshall’s choice of the economic profession, though ‘not an easy one’, yielded economics’s gain that far exceeded psychology’s loss (Whitaker 1975, vol. I: 8). In 1977, Whitaker published an essay on wider (and ‘neglected’) themes of Marshall’s social and economic thought. Maintaining that Marshall conceived of society as ‘a complex evolutionary process with manifold interaction between individual character and socioeconomic environment’ (Whitaker 1977: 179), he solved Parsons’s riddle concerning Marshall’s ‘two strands of thought which are logically separate … One of the strands is the “study of wealth” or what has been called “utility theory” … The other is the “study of man”, of the formation of his character through economic activities’ (Parsons 1931: 139). Given the pliability of human nature, the ‘standard of life’, as opposed to the ‘standard of comfort’, answered the criterion of character-building and introduced a discrimination between actions which ‘the study of wealth’ placed on the same footing. Whitaker also suggested that the apparent contrast between the two levels of human action could be explained away by thinking of a lexicographic ordering, with the evolution of character occupying the higher level (Whitaker 1977: 164 and 183–4).

8

The origin

However, these valuable and insightful clues were left unconnected with Marshall’s early research on mental science, as if this were cut off from the interests Marshall cultivated after switching to economics. A fleeting reference to Spencer who, together with Kant, Green and Bradley, was held to have prevented Marshall’s full acceptance of utilitarianism, was not enough for mental science to peep out into the picture of Marshall’s philosophical and social views. Whitaker concluded that, under such dissonant influences, Marshall’s philosophy became a ‘heady but turgid mixture of German idealism, Spencerian evolutionism and utilitarianism’ (Whitaker 1977: 194), which he was unable to merge into a coherent synthesis. Almost in the same period, Becattini was sifting through the Marshall Papers, striving for a better grasp of Marshall’s philosophical background. His results – problematic and open-ended – were published in 1975 in the introduction to the first Italian translation of Economics of Industry. Becattini recognized the significance of Marshall’s early philosophical studies, nurtured in the British tradition, with its conflicting currents of radical empiricism and Scottish idealism. He also realized that evolutionism could help to solve the conflict and emphasized the pivotal role of the concept of character, but focused on ethical and socio-political rather than psychological and mental issues.9 In Ethics and Society in England (1978), Soffer took a stance which could have brought her closer to a detailed analysis of Marshall’s early philosophical manuscripts. Her thesis was that social science underwent a revolution at the end of the nineteenth century when a new, evolutionary, active paradigm of the functioning of the human mind was accepted. She identified William James as the apical figure of this movement and Marshall as a precursor, since he held a ‘voluntaristic idea of progress’ which led him to substitute ‘a reasoning ethical man’ for the ‘calculating “economic man”’ (Soffer 1978: 76). However, she felt that Marshall’s psychology, though ‘appreciative of the subtlety, complexity and impredictability of human nature’, was faulty because he ‘spoke on behalf of free will’ (Soffer 1978: 83–4). Soffer gathered evidence that Marshall’s psychological theory was groundless from two of his early papers – almost certainly ‘The law of parcimony’ and ‘Ferrier’s proposition one’ – which she believed to be ‘Marshall’s only extant papers in psychology’, probably setting ‘Ye machine’ aside as if it belonged to a different field. Before moving on to James, she examined the ‘transitional psychology’ of Spencer and Clifford, unaware that Marshall, one of Clifford’s closest friends, was engaged in the same ‘transition’.10 Around 1990, the centenary year of Marshall’s Principles, his economic theories, his evolutionary ideas – in particular, the controversial issue of mechanical versus biological methods (Moss 1990; Niman 1991; Thomas 1991) – his attitudes towards utilitarianism and evolutionism (Black 1990; Jensen 1990a,b) and his ethics, politics and social thought (Coats 1990; Reisman 1987 and 1990) were widely discussed, with few references to Marshall’s interests in mental science. Among British influences, Spencer was almost always present, as usual, but more as the author of Principles of Biology and Sociology than Psychology.

Marshall’s mental philosophy

9

Marshall’s early philosophical papers became more widely known only at the end of this wave of Marshallian studies,11 but still in time to find room in the reconstruction of Marshall’s formative years which Groenewegen was then attempting. Chapter 5 of his admirable biography – ‘In search of a vocation. 1865–72’ – threw new light on these early philosophical interests and gave British mental philosophy such a key role that he found it ‘interesting to notice that Sidgwick was lecturing on mental science, not Marshall’ (Groenewegen 1995a: 127 n.), as might have been guessed given the latter’s main concern, attested by the quoted letter to Ward: ‘I always said till about 1871 that my home was in Mental Science’ (Whitaker 1996, vol. II: 285). As Groenewegen shows, Stewart, Hamilton, Ferrier, John Grote, Mansel, Bentham, Bain, Mill, Spencer, Darwin and Babbage all figure prominently in Marshall’s papers, notebooks and reading lists of the 1860s and early 1870s. Though convinced that these early studies ‘provided the philosophical foundations for the future work his new vocation implied’, Groenewegen’s endorsement of Whitaker’s conclusion about ‘psychology’s loss’ and ‘economics’s gain’ tended to split the two sections apart (Groenewegen 1995a: 130). The present inquiry is meant to bridge the gap by proving that Marshall’s economics also encompassed his psychology and that, as Loasby writes (1999a: 180), ‘what economics gained … included a distinctive application of cognitive psychology’, that is, an application of his early studies in mental philosophy.

1.3 The maiden speech According to Hamilton, the main exponent of nineteenth century Scottish idealism, philosophy proper coincides with the science of mind, ‘the queen of sciences’ (Hamilton 1870–4, vol. I: 19). ‘The study of mind – he wrote – is thus the philosophical study by pre-eminence. There is no branch of philosophy [logic, ethics, politics, aesthetics and theology] which does not suppose this as its preliminary, which does not borrow from this its light’ (Hamilton 1870–4, vol. I: 62). What marked out a contrast between the Scottish school and associationism was neither this characterization of philosophy nor the empirical approach, since both traditions were interested in deducing ‘the operations of the human mind’ – as Stewart put it – from a set of simple and uncompounded elements. This psychological turn of mind was such a common feature of British philosophy (Quinton 1958)12 that even Kant had to undergo a psychological twist in order to be assimilated into British culture (Raffaelli 1994a: 60). The split rather concerned the Scottish school’s assumption of consciousness as ‘the necessary condition’, ‘the essential element of the mental phenomena’ (Hamilton 1870–4, vol. I: 182), its insistence that mental philosophy meant ‘the philosophy of consciousness’ (Mansel 1860) against the empiricist claim that all mental phenomena could be reduced to mechanical processes of association of ideas. In Hamilton’s view, each mental phenomenon implies immediate knowledge of both the external world (objectconsciousness) and the Ego (self-consciousness) which, far from being the result of experience, are its preliminary conditions. By contrast, the idea that

10

The origin

consciousness is an independent, concomitant element in all mental phenomena was rejected by James Mill, who blamed inaccuracy of language for this unjustifiable duplication: ‘to feel an idea, and to be conscious of that feeling, are not two things; the feeling and the consciousness are but two names for the same thing. In the word feeling, all that is implied in the word consciousness is involved’ (quoted in Mill 1979 [1865]: 116). John Stuart Mill’s conclusion that the mind is ‘a series of feelings’, or better the ‘permanent possibility of feeling’ – as material objects are ‘series of sensations’, or better ‘the permanent possibilities of sensation’ (Mill 1979 [1865]: 189) – played havoc with the philosophical foundations laid by the Scottish school. In so doing, Mill relied on the authority of ‘the law of parcimony’,13 which Hamilton had set forward as the first and fundamental principle for ‘the deduction of the philosophy of mind from the data of consciousness’. The law, whose origin can be traced back to Ockham’s razor, ruled out unnecessary duplications of causes: if an effect could be assigned to known causes, there was no reason to think of new ones for the purpose. By successive applications of the law, Mill tried to prove that all mental phenomena are accountable for by repeated experience, thereby dispensing with the assumption that there are original facts of consciousness. Through this method, he explained away the a priori origin of belief in the existence of matter and mind, while Bain did the same with space, time, sympathy and other supposedly ‘innate’ ideas in The Senses and the Intellect and The Emotions and the Will. Uses of ‘the law of parcimony’ were therefore a clue to the controversy and this helps to understand why Marshall chose this subject for the first paper he read at the Grote Club in March 1867.14 The Club had been founded some years earlier in Cambridge by the reverend John Grote, Knightbridge Professor of Casuistry, Moral Theology and Moral Philosophy, who died in 1866. Grote was an idealist philosopher, sharing with his brother George, the famous historian of ancient Greece and follower of the utilitarian–associationist philosophy, the sceptical leanings which formed another widespread feature of British philosophy (Camporesi 1985). John Grote criticized Mill’s utilitarianism and associationism but was prepared to make much more room for human and social science than did Hamilton and the Scottish philosophers. His successor, Frederick Denison Maurice, one of the leaders of the Christian Socialists, championed a more traditional variety of objective idealism which did not accept the subjectivist positions of the Scottish school and their sceptical conclusions. This was reflected by his theology which, seeking to acquire a direct and positive knowledge of religious truths, contrasted sharply with the confession of our necessary ignorance of the Absolute averred by Hamilton and Mansel (Maurice 1859), a confession shared by Spencer and later taken to its extreme logical consequences by agnosticism.15 With the Chair, Maurice took on the leadership of the Club to which Marshall was admitted in 1867 when, as he later wrote, he ‘was quite a beginner’ in philosophy.16 The other members were Sidgwick, the logician John Venn, J. R. Mozley and Marshall’s fellow Johnians J. B. Pearson, and J. B. Mayor, John Grote’s literary executor.17 The former two were sympathetic with Mill’s philosophical ideas, the latter three were orthodox, traditional thinkers. Two of Marshall’s closest friends,

Marshall’s mental philosophy

11

W. K. Clifford and J. F. Moulton, slightly his juniors, and forming with him what came to be known as ‘the smart intellectual set’ (Whitaker 1996 vol. II: 197), were admitted one or two years later.18 Marshall, then aged 25, must have taken great care in preparing his maiden speech to the small but qualified audience of the Club, whose members, all his seniors, were better trained in philosophy and whose leader, Professor Maurice, was by then an institution (though controversial) in British cultural life. In one of Marshall’s few surviving notebooks of the period, under the heading ‘Meditanda’ (Marshall Papers: 4/1), he stockpiled references to Hamilton, Mill and Bain which he made use of while writing the paper. Marshall’s thesis is crystal clear from the very beginning, as revealed by the sentence chosen as the epigraph, or better the abstract of the paper: The Law of Parcimony is a monarch who has raised himself to his present prominence over Laws of thought by such notable and true service and against such great difficulties that the homage paid to him has the tendency to approach a blind worship and it has become difficult for him to remember that he is a constitutional king. (Raffaelli 1994a: 95) This political simile seems to imply that, by laying stress on the law of parcimony as the first and most important principle of mental philosophy, Hamilton involuntarily paved the way to its untrammelled rule dangerously suggesting complete dismissal of consciousness. This outcome, sought by the historical (associationist) school, was anticipated by the progressive reduction in the number of independent mental phenomena worked out by successive applications of the law. Marshall also noted that this tendency was greatly encouraged by the achievements of Darwin’s theory: extending the known effects of natural selection to evolutionary sequences for which empirical data were missing, the theory represented the most powerful but unguarded application of the law of parcimony. For Marshall, this reasoning by analogy is prone to dangerous consequences since Darwin, though confining himself to known phenomena, ‘yet extends his speculations to matters so far transcending observation that his fundamental axiom almost exceeds the authority which experience can give it, almost takes the form of a metaphysical principle’ (Raffaelli 1994a: 97).19 The danger becomes much stronger when the same kind of analogical reasoning is applied to mental phenomena. According to Marshall, Bain and Mill make a legitimate use of analytical tools when they show how a feeling can be explained in terms of other feelings and therefore expelled from the ultimate data of consciousness, but no achievement of theirs supports the view that they are justified, by analogy, to applying the same reasoning to as yet unexplained mental phenomena: The phenomena with which Darwin is concerned are very homogeneous. There is in general no cause for presuming reasoning which is applicable to one branch of his subject to be inapplicable to another branch. Observation

12

The origin in one direction may be frequently dispensed with if, in another, satisfactory evidence can be obtained. But mental phenomena are not homogeneous. (Raffaelli 1994a: 99)

Marshall then goes on to discuss cases in which ‘the law of parcimony’ is illegitimately applied. No mention is made here of one of the most widely discussed applications of the law, Bain’s explanation of the origin of the notions of space and time through experience. In the notebook, on the other hand, Bain’s conception is stressed by a well-evidenced reference to p. 245 of Mill’s Examination of Sir William Hamilton’s Philosophy (first edition) where the author states that ‘Mr Bain’s doctrine being as consistent with the admitted facts of the case as Sir William Hamilton’s has a good claim, on his own Law of Parcimony, to be preferred to it’. This reference and the decision to leave this application aside in his critical paper suggest that Marshall was realizing its truth, though in its Spencerian version, as can be gathered from a quotation, repeated twice in the notebook without any critical comment: ‘the abstract of sequences is Time; the abstract of coexistences is Space’ (Spencer 1867: 162–3). Spencer’s evolutionary philosophy vindicates the hypothesis, known as the experience-hypothesis, of the empirical origin of all knowledge; its difference from associationism is only that it does this by a longer route, ascribing the genesis of notions to the experience accumulated throughout the whole history of mankind rather than in individual life. Thus, Bain’s (1864: 637) conclusion that ‘an a priori origin [of the concepts of time and space] is disproved by being superseded’ was by no means in contrast with Spencer’s. Marshall’s paper on geometry, examined below (Chapter 2, §2.5), appears to confirm his early acceptance of the race-empirical origin of the concepts of space and time. The first application of the law that Marshall selects for its inadequacy is sympathy, a mental state that Bain decomposed into the two tendencies characterisable as assuming another person’s bodily state and the corresponding ‘mental state of consciousness through the occurrence of the bodily accompaniment’. Marshall finds this analysis ‘valuable as far as it goes’, but defective in a way that cannot be remedied by ‘the law of parcimony’.20 The second inappropriate application of the law selected for criticism is self-consciousness, but while still ignoring the evolutionary explanation of sympathy, which he was soon to accept (see page 28), Marshall seems ready to consider that of self-consciousness itself. In chapter 12 of Mill (1979 [1865]), ‘The psychological theory of the belief in matter, how far applicable to mind’, in order to account for memories and expectations, the author supplemented the idea that consciousness is a series of feelings with the paradox that such a series ‘can be aware of itself as a series’. This addition betrays the difficulties which empiricism faces when trying to reduce consciousness to other feelings. In his paper, Marshall calls Mill’s theory ‘very candid’ and objectionable on grounds similar to those ‘which Herbert Spencer (in his Essay in the Fortnightly) urges with overwhelming force, as it seems to me, against Empiricism as a whole’ (Raffaelli 1994a: 100). Marshall’s reliance on Spencer (1865) to overcome Mill’s shortcomings is noticeable since the

Marshall’s mental philosophy

13

article is a milestone of Spencer’s striving for a third position in the conflict between radical empiricism and apriorism. Anticipating some of the themes to be discussed below, it may be said that for Spencer the empiricists’ faults lie in their failure to comprehend that empirical explanations are never built from scratch but must always rely on some given premises, so that individual feelings and beliefs cannot be reduced to individual experience. For such reduction would mean that ‘the presence of a definitely organized nervous system is a circumstance of no moment – a fact not needing to be taken into account’ (Spencer 1855: 580). The nervous system is a kind of organic, evolutionary, changing and relative a priori, embodying some predetermined patterns of action and knowledge. This view authorized Spencer to present his philosophy as ‘a solution of the controversy between the disciples of Locke and those of Kant’ (Spencer 1855: 578) which took from the former the experience-hypothesis and from the latter the transcendental elements of the mind.21 Marshall’s aim appears to be less straightforward than Spencer’s: he sought to found the science of the human mind on the two distinct pillars of selfconsciousness and evolutionary development, through a powerful combination of the main tenets of both the Scottish and the historical school. A similar view was by no way subversive and could have been acceptable to John Grote, who in a posthumous article – largely transcribed by Marshall (Marshall Papers: 4/1) – justaxposed the mechanical operations of the body to the ruling intervention of the soul: the body does not do one sort of work and the soul another, so as that if we find the body doing all that we previously supposed the soul did, we have lost all reason for supposing the soul to exist. If soul and body are the terms we like to use, then the body is the instrument of the soul … and if we suppose the soul to have nothing to do but to manage the body as its instrument, that very management seems to me to be enough, and to imply what makes the supposition of it not otiose. (Grote 1867: 374)22

1.4 The Scottish stronghold Thanks to Marshall’s own account of the Club meeting in March 1867 (Raffaelli 1996a), much is known about the first paper, while no independent evidence survives in relation to the others whose dating is unknown. Notebook material directly related to the second paper, ‘Ferrier’s proposition one’, looks almost contemporary to that referred to in the first: indeed, an uninterrupted thread runs through the two papers. But, since Marshall’s notes on the Grote Club meetings, which mention the first paper only, continue up to 5 November 1867, it seems reasonable to argue that the second was read later.23 From Marshall’s extant comment, prepared for the following meeting of the Club, a week after presentation of ‘Ferrier’s proposition one’, it can be argued that the paper had raised

14

The origin

strong objections, which he answered while declaring to be ready to proceed with the third and more interesting paper, ‘Ye machine’. Towards the end of ‘The law of parcimony’, Marshall applied Spencer’s critique of empiricism to Bain’s denial of self-consciousness, a denial testified by his rejection of ‘Ferrier’s first proposition’, stating that ‘along with whatever any intelligence knows, it must, as the ground or condition of its knowledge, have some cognizance of itself’ (Raffaelli 1994a: 105). The title to Marshall’s second paper makes it clear that it focuses on self-consciousness, one of the two requirements for ‘a general theory of psychology … capable of being developed into the true one’ (Raffaelli 1994a: 111). The second requirement, to which ‘Ye machine’ is devoted, is pure mechanism, ‘such as is the subject of the daily occupation of the practical engineer’ (Raffaelli 1994a: 104). Taking these two papers as supplementing each other, Marshall hopes ‘to obtain general assent to the doctrine that all the phenomena of the human mind, all the direct internal and external indications of what people call the human soul, can be accounted for by means of mechanical agencies plus self-consciousness’ (Raffaelli 1994a: 104). Of course, Marshall replied to his critics, ‘to develop this theory completely would require books, if not exactly equal in size to Bain’s two volumes [Bain 1864 and 1865], at least somewhat similar to them, both in internal and external form’. However, having cast the die, he had to go on and give the outlines of such a mechanism: ‘the question whether the broaching so general a theory was an act of prudence is one which I admit to be remarkably open. But it has been broached’ (Raffaelli 1994a: 111). The first half of the task that Marshall set himself was easy and the decision to rely on Ferrier made it even easier. James Frederick Ferrier made self-consciousness the fixed, unifying element in the multiplicity of human experiences, ‘the one feature which is identical, invariable, and essential in all the varieties of our knowledge’ (Ferrier 1856: 74). His philosophy, though ‘Scottish to the very core’ (Ferrier 1866, vol. I: 487) in the role it attributed to self-consciousness, did not accept the limitations to human knowledge that inhered in the ‘philosophy of the conditioned’ espoused by Hamilton and Mansel. For Ferrier, philosophy was a demonstrative science, leaving no room for suppositions and beliefs. He also rejected the idea that philosophy was an empirical science, ‘the science of the human mind’ (Ferrier 1866, vol. I: 85–6) and separated the philosophy of mind from psychology, whose scientific investigations, though useful, were of no concern for true philosophical research. One can easily understand why Grote, in his Exploratio Philosophica, described the main positions of British philosophers as forming ‘a sort of scale, spectrum, or gamut, of which Professor Ferrier represents the extreme philosophical end, and Professor Bain the extreme physiological or physical’ (Grote 1865: xxvi). Proclaiming self-consciousness to be the necessary feature of human knowledge, Ferrier’s first proposition became a sort of banner against the growing claims of associationism. It was a synthetic, symbolic statement of the idealists’ refusal to bow their heads to the empirical treatment of the mind. Mansel acknowledged that Ferrier’s first proposition was ‘true, and highly valuable’ and Grote defined it a ‘master-proposition’, antithetic to positivism, which mistook mental mechanism for feeling (Raffaelli 1994a: 64–5).

Marshall’s mental philosophy

15

In his paper, Marshall accepts Ferrier’s opinion that ‘in every cognition there is a certain reference to the subject which refuses to be solved by any analysis’ because it pre-exists to analysis itself. As Ferrier put it: ‘it is not, then, reason which gives rise to consciousness, but it is the prior existence of consciousness which makes reason human reason’. For Marshall, it is on the existence of this subjective, unexplainable side of the Ego that ‘the strength of the Scotch school depends’. Its faults lie in the denial of an objective side, capable of being developed through experience, in neglecting ‘to examine the stages by which the objective idea of self has grown into its present state of clearness and fulness’. The same charge can be levelled against Hamilton and especially Mansel, as already stated in ‘The law of parcimony’.24 By contrast, ‘the strength of Bain’s position seems that he can demonstrate that reason develops consciousness’ and that the developed idea of Self comes from experience, in both the individual and the race, though he does not deal with the latter. ‘As far as it goes’, Bain’s account of the development of the human mind ‘is very near the truth’. Where he and Mill are wrong, Marshall argues, is in their excessive reliance on the authority of the law of parcimony, whose limits are once again illustrated by his criticism of chapter 12 of Mill’s Examination and his endorsement of Spencer’s view on the shortcomings of empiricism (Raffaelli 1994a: 106–10). At the beginning of the paper, the idea that human mental phenomena can be accounted for by self-consciousness plus mechanical agencies is related by Marshall to the issue of whether all animal actions can be explained by mechanical agencies: ‘though the question seems to me to be an open one – Marshall writes – I incline strongly in the opposite direction’. He also writes that the existence of such an explanation, ‘in a latent form’, lies at the origin of ‘many of the characteristic features of the speculations on the human soul which are exhibited in the religious history of the world’ (Raffaelli 1994a: 104). To maintain, as Marshall does, that brutes are not machines and at the same time that their actions seem explicable on that assumption means that consciousness was growing ever thinner, so much so that it was difficult to spot where its presence began.25 No radical novelty is introduced in the second paper, but the relationship between the two elements of Marshall’s search for a true theory of psychology is appreciably different. In the psychology of Spencer and Bain, Marshall was beginning to find the operative tools for a more coherent and effective solution to his problems than he could derive from metaphysical debates. According to his own later recollection (Marshall Papers: 9/10), he preferred ‘the constructive and progressive studies’ of psychology to barren metaphysical quarrels, as proved by this comment: Varieties of knowledge. Coeteris paribus, that is most valuable to the world which is cumulative. From this point of view any branch of knowledge is to be prima facie condemned in which advanced students find it still profitable to read books written very long ago. E.g. Metaphysics as compared to Psychology. (Marshall Papers: 5/41)

16

The origin

It is clear that the main constructive work was to be done on the historical, genetic side which aimed to explain mental phenomena by the working and development of mental mechanisms. The existence of self-consciousness was recognized, but it appeared incapable of further development without assistance from the mechanical side. To understand the functioning of the human mind, Marshall was compelled to move into Bain’s territory and ascertain how different mental phenomena could be explained and reproduced. Ferrier, of course, would have disagreed with this move, since he denied any philosophical value to the objective science of the human mind which, assuming it were able to solve the insuperable difficulties it faced, would only yield ‘worthless and false’ results. It appears that the other members of the Club were equally unconvinced since, a week later, Marshall was obliged to admit that ‘the particular form in which the objections were urged on Friday leads me to think that in assuming self-consciousness I was not understood to assume as much as I intended to assume’ (Raffaelli 1994a: 111). But it also appears that what he was inclined to add to his assumption was precisely what Spencer (1855: 314–5) and Clifford (1886 [1868]: 65) regarded as the essence of consciousness, namely the perception of differences between mental states, which was not beyond the reach of evolutionary explanations. It is in this direction that Marshall’s further move opened up a new way of looking at mental activities and development.

2

An amazing machine

2.1 The mechanism While Marshall’s first two papers are rather scholastic, the third is really a remarkable performance. The equivalent of Bain’s two volumes condensed into 15 pages, describing hypothetical mechanisms responsible for the most complex psychological notions and outlining a whole process of ‘liberal education’ to show what a mechanical agent could learn from experience. Moreover, unlike the other two papers, the third is a solo, with few direct references to other authors. It is clearly influenced by Bain, and probably also by Spencer, since the correspondence between its concepts and those of associationist, evolutionary psychology is almost perfect. Nevertheless, this correspondence is neither shown nor discussed and Marshall’s interest is concentrated on the practical engineer’s aim of devising a mechanical apparatus by which complex psychological operations could be performed. Though by no way innovative in psychology, the paper is an original mix of Babbage’s pioneering studies of artificial intelligence and the evolutionary psychology of Bain and Spencer. The reliability of psychological explanations is tested by attempts to make them operational, to find the mechanical support of mental processes and development. The outcome is a hypothetical machine which simulates mental operations and mental evolution. The first half of the paper explains how the machine works, the second shows the results it can attain in various fields of human activity. Like Spencer’s Principles of Psychology, Marshall’s paper deals with both the theoretical and practical sides of the mind that Bain had split into his two main books. The paper is so abstract, with a notation of its own, no references, no sentence to pick up for some clue to the remainder, that it is really discouraging. But once its main threads begin to unfold in the reader’s mind, the effort is well repaid. It is only from the vantage point of this paper that Marshall’s psychological views appear coherently related to his economics. Since it is in itself a recapitulation of many issues, to summarize its contents is almost impossible. On the contrary, starting with a description of the machine’s operational system, it is necessary to flesh it out with all the hidden links and implications. To give a preliminary idea of what the paper is about, it describes a multiple-decker mechanism that, driven by pleasure and pain and acting on principles of trial and error, looks for pleasurable

18

The origin

answers to external stimuli. Innovative answers can be roundabout to any degree (contrivances). When they prove successful, they are selected for replication so as to form an ever-growing store of reliable automatisms (instincts). When instincts and first line contrivances fail, the system, again driven by pleasure and pain, resorts to higher operative structures, which, thanks to their ability to predict, give rise to new contrivances to be later turned into new automatisms. The machine is divided into two parts, the body*,1 which communicates with the external world through sensations* and actions*, and the brain*, which is the seat of ideas* and is in contact with the outer world only indirectly, through the body*. The body* interacts with the outer world in two ways: by receiving sensations* and performing actions*, as human beings do with their afferent (sensory) and efferent (motor) nerves. ‘The internal changes produced by the sensation* and producing the action* will afford the simplest form of what I call ideas*’, distinguished into ideas* of sensation* and ideas* of action*, ‘the circuit being as follows: sensations* produce ideas* of sensation*, these induce ideas* of action*, and these cause action*’ (Raffaelli 1994a: 116). Repetition of any idea* is called memory*, and it can be caused either by repetition of the same bodily* state or by an autonomous movement of the brain* due to association* of ideas* through contiguity* or similarity*, the two pillars of associationist psychology. The mechanical way in which association* works is represented, hypothetically, by a system of wheels (ideas*) connected through bands. When two wheels move together, ‘the Machine itself connects them by a light band, slightly fitting. Then, when one of them again revolved, the other would also revolve, unless there were a resisting and opposing force, in which case the band would slip’. Association psychology explains how connections are formed. Similar hypotheses for explaining mental connections are to be found in nineteenth century works of evolutionary psychology (Marshall himself suggests electromagnetic signals as an alternative modality of nervous transmission). To cite an example from Marshall’s circle of friends, we can appreciate how similar were Clifford’s views of the physical mechanism of memory: ‘it is as if every time two bells of a house were rung together, that of itself made a string to tie them together, so that when you rang one bell, it was necessary to ring the other bell in consequence’ (Clifford 1886 [1873]: 251). In the second edition of Spencer’s Principles of Psychology, the link was expressed by the metaphor of a channel created by the flow of water (Spencer 1870–2: 515-fls). The substance of these different formulations is the same, not too far from modern neurophysiological conceptions which explain how mental connections are reinforced by repetition (Hebb’s synapse). Marshall’s consideration of ‘opposing forces’, always capable of undermining expected outcomes, seems to foreshadow the uncertainty and variety of human action which characterizes his economics. Figure 1 shows how the brain* interacts with the body*, the seat where afferent and efferent nerves come into contact with the external world. The former bring bodily sensations* into the nervous system (the brain*), the latter, activated by the brain*, discharge bodily actions* into the external world. There is a biunique correspondence between bodily sensations* and actions* and their mental

An amazing machine

19

Ideas* of sensation* and ideas* of action* B1

A1

Brain* B2 B3

Sensations*

Actions* b1

a1 b3

Body*

b2

World t

World t + 1

Figure 2.1 Simple mental processes.

ideas* (here expressed by using the same letters – small and capital – for the corresponding items of the two sets). The simplest circuit a1–A1–B1–b1 corresponds to what was later called ‘reflex arc’, but the system can reach almost any degree of complexity. A process involving a long train of ideas* is called meditation*; deliberation* corresponds to a situation in which different trains of ideas* tend to produce conflicting actions (in Figure 2.1 the alternative mental links are A1–B1, A1–B2, A1–B3); the ensuing decision (in Figure 2.1 A1–B1), depending upon the strength of the connecting bands and the force of the revolving wheels, is called rudimentary volition*.2 As in Bain’s associationist–utilitarian and in Spencer’s evolutionary philosophy, the elementary movements of the machine are caused by the principle of pleasure and pain. Movements capable of overcoming obstacles to their continuation are called pleasurable*, those which tend to reinforce opposing connections, painful*. When pain is experienced, the bands responsible for the feeling are loosened (and ‘those which are pulling the opposite way are tightened’); when pleasure is felt, the movement is reinforced and the machine experiences an increase of power.3 Tightening and loosening form what is called memory*. Besides this, the mechanism can also account for expectation*: since ‘certain kinds of actions* produce certain changes in the environment which cause certain changes in sensation*[, t]he corresponding ideas* become associated, and thus after an action* a sensation* is expected as its consequence’ (Raffaelli 1994a: 117).

20 The origin Where natural laws and regularity prevail, such expectation* may become strong to any degree. When the connections between a pleasurable idea* and other ideas* are tightened, the machine acquires a desire* for the pleasurable* combination conferring it strength and giving it power to win over the others. The machine’s desire* is a kind of anticipated pleasure*, whose force makes possible the continuation of movement even when the desired* action is impossible or, to put it in Bain’s words, when ‘there is no ability to act upon [the motive]’. This movement, being connected to many other ideas*, can lead to the performance of some other actions* which ‘are likely so to alter the environment as to make the [pleasurable*] actions … possible’. This roundabout method, called contrivance*, though at first uncertain, is reinforced by the simple fact of having been performed with success: ‘the contrivance, having been once hit upon, the foregoing principles would cause the connexion, by the particular route … to be firmly established. We thus have the germ of instinct*’ (Raffaelli 1994a: 118–19). This is a remarkable, embryonic description of the Marshallian mechanism which, replacing ‘instinct’ with the more general concept of ‘routine’, he almost ubiquitously employed in his economic and social science (see Chapter 3, §3.6 and 3.7). Figure 2.2 shows how these more complex connections may be formed. When the satisfactory action* (b1) is impossible (since the band A1–B1 which would

Ideas* of sensation* and ideas* of action* B1

A1

Brain* A2

B2

Sensations* a1

World t

a2

Actions* b2

World t + 1

b1

Body*

World t + 2

Figure 2.2 Contrivances* and the formation of instincts*.

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produce it ‘slips’) the movement of other wheels connected with (A1) goes on (driven by ‘desire*’) and produces other actions* (b2) which could alter the environment in such a manner that it becomes possible to perform the action* (b1), as for instance through the roundabout circuit a1–A1–B2–b2–a2–A2–B1–b1. The path can be even longer, composed of many steps, like those required of the hunter in order to reach the prey. This is a ‘contrivance*’ which, through repetition, establishes tighter connections between the corresponding wheels and becomes codified as ‘instinct*’. The process here described corresponds to the formation of ‘secondarily automatic’ habits, that is, habits which are acquired through experience, thanks to processes of ‘trial and error’ (Bain 1875: 324 and 347). Their existence, already stated by Hartley (1749), was discussed on similar grounds by Bain (1865: 437), Carpenter (1875) and other psychologists and physiologists.4 Another feature of the mechanism is that such automatisms, once acquired and reinforced by repetition, can be performed ‘unconsciously’. The existence of ‘unconscious mental modifications’ was widely discussed by philosophers, psychologists and physiologists (for instance, Carpenter 1868) and Marshall himself was attracted by the phenomenon (Groenewegen 1995a: 122–3). The same mechanism which brings about automatization of successful actions could be extended to the whole history of the ‘race’ of such machines if automatisms were transmitted to future generations by the machine’s power to generate others like itself and thereby to transform individual habits into ‘hereditary and accumulated instinct*’. For its descendants, as they may be called, may vary slightly, owing to accidental circumstances, from the parent. Those which were most suited to the environment would supply themselves most easily with fuel, etc. and have the greatest chance of prolonged activity. The principle of natural selection, which indeed involves only purely mechanical agencies, would thus be in full operation. (Raffaelli 1994a: 130) This view implies full acceptance of the Darwinian pair chance variation/natural selection, replicated by the pair accidental contrivance*/pleasure*–pain* selection leading to hereditary instinct*. Pleasure and pain winnow over attempted combinations in the same way as natural selection does on accidental variation; in both cases, successful results are preserved and replicated. The notebook reveals the same problem, applied to human behaviour, with a clearer Lamarckian bent, as the mechanism is applied to characters which are acquired through experience: ‘Do watchmakers acquire a habit of soft breathing so as not to disturb the steadiness of their fingers; particularly in cases in which many generations have been watchmakers?’ (Groenewegen 1995a: 122 n.). This corruption of the Darwinian pair chance variation/natural selection by Spencerian–Lamarckian mechanisms of hereditary transmission of acquired behaviour was a common feature of the period and does not require any specific explanation. Its side influence on Marshall’s social thought, against the commonly held assumption of its devastating impact, will be examined in Part II.

22 The origin

2.2 Adding some extra power Though endowed with these powerful mechanisms, the machine may still be unable to act when all its ideas* of action* are ‘inconsistent with the environment and consequently ineffective’. No mechanical means – either tightening or loosening of bands by desires*, contrivances*, etc. – can process the stimulus received through sensation* so as to forward it to any kind of action*. To overcome the difficulty, in order not to be ‘compelled to suppose all the motion to cease’, Marshall introduces a new level of the brain*. The external message keeps the corresponding wheel (idea*) rotating and the movement, ineffective at the lower level, is transmitted to the upper level, where it elicits the motion of the corresponding wheel (idea**) and triggers new trains of ideas**.5 The two levels are called respectively cerebellum* and cerebrum* and their connection is such that ‘the Cerebrum* bears a relation to the Cerebellum* somewhat similar to that which the Cerebellum* does to the body’ (Raffaelli 1994a: 120).6 Since the upper level is called into operation only when the inferior one is unable to produce effective responses, the system is normally working at the lowest admissible level of energy and switches to more expensive ways of dealing with the problem it faces only when this move cannot be avoided. This follows the empiricist–associationist view which resorts to higher functions of the brain only when lower ones fail. By contrast, the idealist tradition maintains that self-consciousness – or the will or some other higher function – is always present and that lower mental circuits always operate under the direction of the upper ones. For Hamilton, even automatisms are only relatively unconscious, being accompanied by consciousness of the whole process, though not of every single movement. In neurophysiology, a similar solution was proposed by Carpenter, a follower of Kantian philosophy. This view, later called ‘directionism’,7 is consistent with Grote’s idea of the body–soul relationship and can be instanced by Carpenter’s statement that ‘the human organism may be likened to a keyed instrument, from which any music it is capable of producing can be called forth at the will of the performer’ while a bee is like ‘a barrell-organ, which plays with the greatest exactness a certain number of tunes that are set upon it, but can do nothing else’ (Raffaelli 1994a: 67). More important than such differences, however, was the scientific consensus which emerged concerning the evolutionary interaction between automatisms and change. On the one hand, Carpenter shared Spencer’s recognition of the role of acquired mental automatisms, on the other, evolutionary physiology accepted the existence of innate instincts, though insisting on their plasticity and ability to change. This consensus went beyond sterile metaphysical quarrels and easily won Marshall’s approval. The standstill which the machine experiences before activating the upper level is reminiscent of another, related feature of the theories of Bain and Spencer: superior functions of the brain originate in a situation of ‘pause’, ‘hesitation’, ‘suspense’ in which external stimuli, incapable of descending the nervous lines and producing any outward effect, are sent up into the higher nervous system (Raffaelli 1994a: 71). How can this move help to solve the standstill? Duplication

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of levels would be a mere trick if the machine were now allowed to do what it could not do before, that is to cause the action* of the body* by activating the corresponding idea* of action* through the command coming from the corresponding idea** of action*. But Marshall rules out this possibility: ‘under the particular circumstances [which determined the standstill] their [of the ideas** of action*] operation in this direction will be ineffectual’ (Raffaelli 1994a: 120). What the message coming from below can do is to start a new process of connections in the cerebrum*, ‘to reverberate’ into it, according to Spencer’s terminology (Raffaelli 1994a: 71). The connections operating at the new level are similar to those in the cerebellum* and are produced by the same mechanisms of association psychology. Again, ‘by continuous repetition’, associations may acquire ‘any amount of accuracy’, but they may also be mistaken, giving wrong or incomplete results. The advantage gained by resorting to the new level lies in the power that ideas** of action* have of generating among ideas** of sensation* a change exactly corresponding to that which would have been produced if the action* had been carried out and the corresponding change in the environment had produced its effect on the sensations*, and thence on the ideas* of sensation, and thence on the ideas** of sensation. (Raffaelli 1994a: 120) These latter in their turn will produce the correlated ideas** of actions, these again the appropriate changes in the ideas** of sensation* (appropriate that is to the changes in the environment which would have been produced by the corresponding actions*), and so on through a series of similar circuits of any length. (Raffaelli 1994a: 121) This train of ideas – this chain of reasoning**, as Marshall calls it – prepares the way to volitions** and contrivances** of a higher order. If in the process a pleasurable* idea** of action* is struck, its force reacts on all the preceding ideas** of the chain, till the first option, which at the first level was ineffective, is performed in view of the desired* final action: ‘thus in consequence of a pleasure* seen far ahead an action*, not in itself desired*, will be performed. Thus, through deliberation** we have arrived at a volition** or determination**’. The former leads to immediate action, the latter to a kind of ‘lying-in-wait’ (Bain 1865: 611): when the action prescribed by reasoning** is inconsistent with present external conditions, but not with expected** future ones, the machine acquires ‘a deliberate determination** to act in a certain manner when an anticipated occasion shall have arisen’ (Raffaelli 1994a: 121).8 In Figure 2.3, the cerebellary idea* of sensation* (A1), unable to produce (b1), which is pleasurable*, or any other action which would make (b1) possible, activates the corresponding cerebrary idea** of sensation* (1). The connection

24

The origin

Ideas** of sensation* and ideas* of action*

World t + 1 =
2

2


1

1

Cerebrum*

Ideas* of sensation* and ideas* of action*

A1

B1 Cerebellum* A2

B2

Sensations* a1

World t

a2

Actions* b2

World t + 1

b1

Body*

World t + 2

Figure 2.3 Contrivances** caused by foresight.

1–1 slips no less than the connection A1–B1 does, but the machine can now foresee and, imagining what the world would be like after performance of action* (b2), realize that such action* would make action* (b1) possible. The pleasure* associated with elements of the line b1–B1–1 is transferred to elements of the line 2–B2–b2, and the link 1–2 becomes effective simply because its consequences are anticipated, while at the lower level there was no operating connection between (A1) and (B2). The route leading from the incoming sensation* to the outgoing action* is now a1–A1–1–2–B2–b2–a2–A2–2–1–B1–b1, but transition from (1) to (2) is made possible only by foresight.

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This mechanism goes a long way towards explaining voluntary actions by means of mechanical agencies. At the same time, it sets the difference between pure chance, which rules on attempts to establish first level, cerebellary connections, and foresight, which guides attempts to establish working connections at the second level. One of the main problems faced by Marshall is the extent of the machine’s powers of reasoning**, which calls to mind the calculating and predictive powers of the economic man. If we suppose that ‘the machine were compelled always to reason** out the consequences of every possible action in order, selecting at last the one which would ultimately conduce to its pleasure, the powers of contrivance** it would possess, though undoubtedly real, would be tardy and precarious’. The machine would find it difficult to compare different trains of reasoning** and if, like human beings, it were ‘reduced to the power of carrying on only one [calculation] at a time, the consequences to it would be grievous’. But if we suppose that all the trains of ideas** were simultaneously present, then ‘when any object was desired*, any means whatever that conduced to it would be adopted … provided only that it were not overruled by any other desire*’.9 This issue is illustrated by ‘the very simple case of a chess automaton’. The game situation it faces may present several possible pleasurable* outcomes, and the power of calculating them together should lead to choosing the one driven by the force of the greatest desire*. Another serious problem limiting the machine’s power is that calculations take time while the number of connections involved by some train of reasoning** might be almost infinite. Suppose that two alternative outcomes of a chess game are to gain a bishop or, by a longer process, to gain a castle. If tightening produced by desire* does not take time, the gaining of a castle would be chosen, but if it takes time, ‘although the pleasure due to taking the castle might be greater than that due to taking the bishop, the latter, by having the start, might be able to contend against it on equal or even on superior terms’. To analyse how this conflict is resolved, Marshall resorts to the concept of character* and quotes an example taken from Babbage: When a man is playing at chess, just as when he is doing anything else, his character is displayed in the way in which he grasps at immediate advantages or, on the other hand, tries to look further. But it will depend on his power whether he can do so or not. If the wheels etc. of the machine be sufficiently numerous, it must of course have infinite power. And if its character* is such that distance does not tell at all (i.e. if the tightenings alluded to take place in an indefinitely short space of time), its desire* to win the game would always prevail over every other desire*, and it always would win, if it were possible under the given circumstances. Such indeed would be the automaton player proposed by Babbage, though he does not give any indication of the way in which it could be made. (Raffaelli 1994a: 122) Babbage’s idea of a chess automaton was sketched in chapter 34 of his autobiography, where he maintained that its performances were in the range of the capabilities

26 The origin of his analytical engine which ‘could act on foresight’ (Babbage 1989 [1864]: 351). The decision to build the analytical engine, Babbage writes, came when ‘it occurred to me that it might be possible to teach mechanism to accomplish another process – namely to foresee’ (Babbage 1989 [1864]: 48; cf. Ashworth 1996: 649). Like the cerebrum* of Marshall’s machine, Babbage’s analytical machine was able to ‘decide’ under the guidance of internal events triggered by the operation itself on which it had to ‘decide’, a process which Babbage described as ‘the engine eating its own tail’, as reported by Marshall’s most influential teacher (Stokes 1855: 508), who might have kindled his interest in Babbage’s work. Marshall’s goal of perfect foresight for an unlimited number of moves is reminiscent of Babbage’s allowance of infinity of time for calculations (Babbage 1989 [1864]: 93–4).

2.3 Character and education Improvement of the machine’s character* coincides with quicker activation and better organization of mental circuits and acquired automatisms and with a stronger concentration of energy on the relevant decision to be taken. The invincible chess automaton marks the upper limit of the machine’s power and attainment of such perfection would make the machine very similar to another calculating machine, the economic man.10 Identification of character with power of anticipating the future appears to answer the need to give a precise, quasi-measurable meaning to this Victorian key but elusive concept, often associated with time perspective. The most famous Victorian writer on ‘character’, Samuel Smiles, exalted the power of abstaining from short-sighted satisfactions and preferring more distant but more durable aims (Smiles 1871). Savings-banks and benefit societies were his favourite test of working men’s moral standing and, in his view, the chief trainer of their character (Smiles 1860, 1864). Description of savages as living ‘hand to mouth’, in contrast with the provident ‘abstinence’ of civilized races, was almost a sociological and anthropological truism of the age. Marshall’s definition aims to bring all these examples to unity in a way that would be extensible to economics – where interest rates and the structure of wages are influenced by the ‘ability to anticipate the future’ (Raffaelli 1991: 49–51) – and ethics, which consists in one’s own identification with more lasting institutions (see page 101). Moreover, since power of anticipating the future is strengthened by tightening of the bands, character* is not wholly predetermined, a conclusion which is also suggested by the evolutionary aspects of what Marshall calls moral character* (Raffaelli 1994a: 130). This evolutionary view of character was also stated by Clifford, who defined character as ‘a history of the entire previous life of the individual; which is therefore continually being added to, continually growing, continually in a state of change’ (Clifford 1886 [1868]: 50). Individual actions are like the sudden and impulsive movements of a shuttlecock hit by the battledore, but when they are grouped to form the more complex concept of ‘character’ the discontinuous element vanishes: one can rapidly switch from a given action to another, but moulding one’s character is only possible by degrees and changing the character of a whole nation is an even slower process.11 Character, which is shaped by each action,

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controls further actions in a way that makes human behaviour less sudden and impulsive and more reliable and coherent, qualities which Clifford summarized by the word ‘plastic’. Plasticity (in contrast to crystallization and rigidity) and stability (opposed on the one hand to instability and on the other to fixedness) are features of human behaviour which the concept of character helps to explain. An acquired automatic behaviour is both rigid and fixed. Its only variability is the possibility of being broken, like a crystal. It is the complex pattern of various automatisms, connected through individual character, which stabilizes behaviour and makes it susceptible of gradual and progressive variations. For both Clifford and Marshall, character is a slowly changing second level property, which accounts for each individual act, as it was in Mill (1970 [1863]: 467). Evolutionism provided an explanation of the relationship: character is ‘the sum of all the marks’ left by any circumstance that affects the mind and provides ‘the law of the changes’ of the individual mind, so that ‘the character which will roughly represent the law of a man’s actions for some considerable time, will not accurately represent that law for two seconds altogether’ (Clifford 1886 [1868]: 50–2). This perspective implies that single actions have multiple meanings: they are both answers to external stimuli and, at the same time, moves in different games that help to shape the evolution of the answering system itself (both individual characters and – at a third level – the sum of individual characters or ‘the spirit of the age’). This explains the double task of economics, which should consider each action as leading to both a (usually perceptibly) different external world and a (usually imperceptibly) different performing system. The indissoluble connection between the study of wealth and the study of man is grounded in this co-evolutionary view.12 The contrast between reliance on routines and perfect calculating power has every appearance of being the most promising starting point for an economist’s apprenticeship. Jevons too was interested in the mechanical apparatus of the mind (White 1994). Under the influence of the logical views of Boole and De Morgan, and guided by the example of Babbage’s machines, he built his ‘logical abacus’ and ‘logical machine’ (Maas 1999). However, he believed that human mental activity consisted in performing mechanical operations, while for Marshall it consisted in creating and reorganizing routines which continuously shift the starting point of further evolution. Uncertainty and imperfect foresight – which would later characterize the Marshallian economic agent (Marshall 1920: 540) – help to understand the machine’s operations. Without uncertainty, there would be no need for trial and error nor for automatic routines built up through practice and experience. Like institutions, routines are necessary to cope with uncertain situations (Heiner 1983) and the power of the mind lies in its store of routines and ability to concentrate attention on key issues.13 While neoclassical economics focuses on optimization, this approach points out the need for rules of thumb, which allow agents to concentrate on the most relevant task (Heiner 1983; Nelson 1994). These features also explain the existence of idiosyncrasies, since each machine has its own store of routines and its own ‘character’, whereas chess automata would be perfectly interchangeable, like the economic agents of general equilibrium theory (Loasby 1998a: 78–9).

28

The origin

As we will see in the following chapters, a similar mix of automatisms and creativity characterizes Marshall’s theory of social organizations and bears on many practical issues. ‘Ye machine’ brings to the forefront two complementary truths that come apart in most social thinkers, namely the usefulness of growing automatisms as building blocks of social evolution and the need to exercise variation and freedom to improve the set of existing routines. This endless process builds on itself and cumulates abilities to perform, making words like ‘perfection’ and ‘optimality’ lose their absolute meaning in a way which is strikingly similar to that adopted by Nelson and Winter (1982). Indeed, parting company with Spencer precisely where he stated the ideal of ‘perfect adaptation’ between the individual and society, Marshall rejected this most debatable view, defining it ‘inconceivable’ ‘perhaps even undesirable’ – ‘for perfectly stable businesses would be likely to produce men who were little better than machines’ (Marshall 1919: 195) – and always thought of ‘variety’ as the main resource through which individuals and societies manage to deal with new problems. The idea that ‘the tendency to variation is a chief cause of progress’ (Marshall 1920: 355),14 reminiscent of Clifford’s idea of practising ‘variations of set purpose … to increase the chances of a really valuable one occurring and being selected for preservation’ (Clifford 1886 [1879]: 25), is clearly Darwinian and has its roots in the soil prepared by Marshall’s early papers. The final part of the paper is devoted to the machine’s education (Raffaelli 1994a: 127–30). Language introduces social interplay between machines and the possibility of intellectual interchange and friendly offices, once again worked out mechanically and submitted to natural selection. Mathematical education is acquired from experience, through reinforcement of successful associations. Though lacking the abstract idea of equality, the machine is capable of building a substitute, called by Marshall ‘the equality-association*’ which is ‘nothing more than a special case of an association* of similarity’, particularly needed for any progress in geometrical knowledge. In arithmetic, ‘calculations of almost any complexity might be performed’ by the machine, helped by the use of linguistic symbols for numbers, but, since its power does not extend to ‘abstract symbols such as a where a may be any number’, its algebraic training is much more difficult. In natural sciences, its education can be thorough, and in some areas, like geology, ‘a Machine of very great power … might … discover laws that we have not yet attained to, and might set to work to dig for its own coal where coal was never heard of’. In music and the arts, by association of elementary ideas, ‘it might attain to excellences of which man has not dreamed’, but ‘of the secret springs of action it could say nothing’.15 Thanks to sympathy* – here explained by the same mechanical processes which were criticized in the ‘Law of parcimony’ – the machine might receive a moral education and its moral character* might be measured by the pleasure* it derives from the idea** of another’s pleasure* ‘as compared with the direct pleasure* derived from any advantage to the Machine itself’. Natural selection could exercise its influence on moral development by ‘preserving those races in which the principle of sympathy was most powerful’, according to an evolutionary explanation of altruistic behaviour which can be found in Spencer and was later developed by Bain in the third edition of The Emotions and the Will. With the

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Spencerian concept of ‘struggle for survival’ taking the place of ‘natural selection’, an identification which Darwin himself had authorized, traces of this explanation can also be glimpsed in Principles of Economics: We find that among so-called social animals, such as bees and ants, those races survive in which the individual is most energetic in performing varied services for the society without the prompting of direct gain to himself … The struggle for existence causes, in the long run, those races of men to survive in which the individual is most willing to sacrifice himself for the benefit of those around him. (Marshall 1920: 243) Endowed with sympathy*, systematized experience* and unlimited powers of association*, the machine will ‘acquire a body of moral habits, practice of which most men might envy’.16

2.4 Afterthoughts Though a complement to ‘Ferrier’s proposition one’, ‘Ye machine’ lies wholly in the field of evolutionary psychology. Distinction and classification of mental phenomena by the length of their routes, acquisition and functions of automatisms, failure of the lower circuits and standstill as conditions for the higher functions to be called in, time required for mental performances and consequent loss of the machine’s powers, foresight as a measure of character and development of moral habits through experience are issues that fall under the explanatory power of evolutionary psychology. It is almost inevitable to think of the influence of Clifford, who, by March 1868, had already developed a full explanation of mental phenomena according to the ‘evolution-hypothesis’. But ‘Ye machine’ also appears to be directly related to Spencer’s psychology, whether before or soon after the paper was written is difficult to tell. The meaning of some psychological concepts, as already suggested, is close to Spencer’s, but Bain might just do for the purpose and the paper could have been an attempt at ‘dynamizing Bain’, adding the power of hereditary transmission and the influence of natural selection to the mechanisms of association psychology – as Bain himself proceeded to do in subsequent editions of his main works, under the thrust of Spencer’s psychology. In either case, Spencer’s Principles of Psychology loom large in the young Marshall’s reflections. A quotation in his notebook under the heading ‘Terse sayings’ (Marshall Papers: 4/1), certainly written later than ‘Meditanda’, where the law of parcimony was discussed, is closely related to the problem of the machine’s loss of power due to any increase in the number of connections it must go through: As every additional part of a mechanical apparatus entails a loss of force, so does every syllogism entail a loss of certainty. As no machine can produce an equivalent of the moving power, so no argument can establish a conclusion equally certain with that primary knowledge on which all argument is based. (Raffaelli 1994a: 92, n. 114)

30

The origin

The quote is taken from Spencer (1855: 61), but with the warning that it is the old edition, which implies that it was written after the second had been published, that is, after 1868 or 1870.17 A more telling comment is to be found in Marshall’s copy of the second edition of the book (therefore, datable from 1870 onwards). It relates the problems faced by Marshall’s hypothetical machine to those of evolutionary psychology. In the margin of a paragraph where Spencer pointed out that a welldeveloped intelligence, such as only civilized men possess, was needed to perform mental operations of great complexity and abstraction (Spencer 1870–2: 348–9), Marshall writes: ‘ “Ye Machine” could make general propositions with regard to classes, but with difficulty’. The comment suggests that the paper was already written, but that its contents were still present to Marshall, who, while reading Spencer, kept an eye on his own conception of the mechanical apparatus of the mind. To summarize our analysis of Marshall’s hypothetical machine, it appears that trial and error and foresight, whose functioning can be explained mechanically, enhance its possibilities of action and make its behaviour less rigidly determined. While each action reacts on the system, whose power depends upon previous stored experience, character – itself dependent on such experience – controls individual actions, conferring on them organized and flexible stability. More automatisms mean more power and set the upper level free to concentrate on selected issues, while they continue to tackle routine problems. The two main assets of the machine, automatisms and ability to solve new problems, go hand in hand and reinforce each other: it is thanks to the former that the latter can be effectively and economically exercised, in its turn helping – when repeatedly successful – to build up new automatic answers. For many aspects, the overall structure of the machine’s model of action is an underdeveloped version of the one later described by Clifford in ‘Body and mind’ (1874), an article which Marshall kept in one of the many bound volumes of his library (Caldari 2000). What about consciousness? It could hardly remain in the position of a yesor-no property it held in the first two papers; like free will, it was to become an emerging property of complex organizations, something whose presence could be difficult to spot, as already stated in the case of beasts. Keynes describes Marshall’s later conclusion on the existence of an immortal soul: his greatest difficulty, he said, about believing in a future life was that he did not know at what stage of existence it could begin. One could hardly believe that apes had a future life or even the early stage of tree-dwelling human beings. Then at what stage could such an immense change as a future life begin? (Pigou 1925: 64)18 Similar doubts were undoubtedly suggested by the machine and had been drawn quite early by Clifford. Looking at minds as organized systems, with potential ‘loops’ of different length, similar to the circuits of the machine, he anticipated Marshall’s late reasoning: We have to consider not only ourselves, but also those animals that are next below us in the scale of organisation, and we cannot help ascribing to them

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a consciousness which is analogous to our own. We find, when we attempt to enter into that, and to judge by their actions what sort of consciousness they possess, that it differs from our own in precisely the same way that their brains differ from our brains. There is less of the co-ordination which is implied by a message going round the loop-line. A much larger number of the messages which go in at a cat’s eyes and come out at her paws go straight through without any loop-line at all than do so in the case of man; but still there is a little loop-line left. And the lower we go down in the scale of organisation the less of this loop-line there is; yet we cannot suppose that so enormous a jump from one creature to another should have occurred at any point in the process of evolution as the introduction of a fact entirely different and absolutely separate from the physical fact. It is impossible for anybody to point out the particular place in the line of descent where that event can be supposed to have taken place. (Clifford 1886 [1874]: 265–6)

2.5 Evolutionary epistemology Marshall’s fourth paper, ‘The duty of the logician’, probably the last to be written, confirms his early leaning towards an evolutionary explanation of the acquisition of knowledge. The paper deals with geometrical knowledge, whose origin involved deep philosophical problems. The radical empiricists maintained that, like any other knowledge, it derived from experience; by contrast, Mansel, Whewell and Todhunter (Marshall’s Professor of Geometry), followed Kant’s explanation that the fundamental truths about spatial relations were a priori forms of thought. As already stated, doubts about the a priori, non-empirical origin of the notions of space and time must have come early into Marshall’s mind. In the fourth paper, without taking up any definite position, Marshall notices that Spencer’s Principles of Psychology has changed the whole features of the debate: with Kant ‘a priori’ means ‘of which the origin is unknown’; with H. Spencer it means ‘of which the origin probably dates from a long time back’. I often wonder what Kant would have said if he had had H. Spencer’s interpretation of the words shewn to him. (Raffaelli 1994a: 135) Marshall’s above mentioned acceptance of Spencer’s critique of Mill’s empiricism is here supplemented and balanced by lack of objections to Spencer’s opposite criticism of transcendental idealism. For Spencer, the empiricists are wrong when they deny the existence of ideas of space and time which are independent from individual experience; but the idealists are also wrong when they deny that our abstract concepts of space and time ‘are generated as other abstracts are generated from other concretes: the only difference being that the organization of experiences has, in these cases, been going on throughout the entire evolution of intelligence’. In Spencer’s view, the pre-established internal relations which are ‘a priori’ in any individual ‘are

32

The origin

not independent of experience in general; … they have been established by the accumulated experience of preceding organisms’ (Raffaelli 1994a: 74). Though Marshall’s paper builds Euclidean geometry on axioms which can be interpreted either way – the Kantian (absolutely a priori truths) or the Spencerian (truths derived from the experience of the race) – the drift of Marshall’s thought will be revealed shortly afterwards when, under the influence of Clifford, he realized the revolutionary impact of non-Euclidean geometries on Kantian philosophy. For Clifford, Kant had wrongly taken Euclidean space as coincident with our possibility of perception, transforming the result of adaptive experience into a priori knowledge, and ignoring that our neurological structure was compatible with other geometries and subject to further evolution, which was likely to alter the content of ‘necessary’ and ‘a priori’ truths. In June 1875, conversing with Emerson, Marshall mentioned ‘Helmholtz’s case of beings living on the surface of a sphere’ and went on to point out the bearing of this argument on ‘fundamental questions of theology and morality’: Kant says the mind may know certain moral and theological propositions certainly and a priori, for it does so know certain physical propositions. I searched his work to find what instances he gave of this: when I found that all these were deprived of value, I changed my attitude to some extent with regard to the other propositions. (Whitaker, 1996 I: 62–3)19 This sweeping comment shows that the young Marshall’s idealistic reservations were vanishing, conquered by evolutionary explanations which, unlike Mill’s empiricism, did not require subverting Kant’s active, creative view of the human mind. According to Spencer, Clifford and other evolutionary thinkers, the mind is not a passive element but a complex structure, formed through the ages, capable of reacting on external phenomena and imposing its own changing pattern of knowledge. In Spencer’s view, the mind is not a blank but has ‘the power of organizing experiences’ (Spencer 1855: 580); a power that has to be cultivated and strengthened since, as Clifford wrote, ‘the first condition of mental development is that the attitude of the mind should be creative rather than acquisitive’ (Clifford 1886 [1868]: 71). A synthetic statement of this view, showing its closeness to Kantian philosophy, is to be found in another author known to Marshall, the physician Henry Maudsley: the mind is not like a sheet of white paper which receives just what is written upon it, nor like a mirror which simply reflects more or less faithfully every object, but it implies a plastic power ministering to a complex process of organization, in which what is suitable to development is assimilated, what is unsuitable is rejected … our mental life is not a copy but an idealization of nature. (Maudsley 1867: 92 and 187) Marshall’s admiration for Kant’s Critique of Pure Reason, which drove him to Dresden to study German (Collard 1972),20 was related to the revival of modified

An amazing machine

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Kantian themes that was brought about by Spencer and other evolutionary philosophers. Kant reversed the empiricists’ causal link between object and subject, making the innate, a priori framework of the human mind responsible for the structure of our knowledge of the outer world. Spencer’s philosophy was truly a breakthrough in ‘the controversy between the disciples of Locke and those of Kant’ since it replaced their one-sided views with the idea of reciprocal causality between object and subject through emergence of new properties capable of exercising backward control. With the empiricists, he believed that the subject receives from the environment those inputs which produce its cognitive structure (sensation precedes cognition), but at the same time, he shared Kant’s view that in every single moment the subject is endowed with a peculiar way of organizing reality (cognition rules over sensation). While Kantian philosophy stressed the universality of mental categories, evolutionary neurophysiology had room for both universality (characters required for survival) and idiosyncratic variation (without which there would be no further evolution). Following Spencer, but without fully endorsing his views on linear progress and final ‘perfect adaptation’, Marshall upheld an evolutionary view of the growth of knowledge very similar to modern evolutionary epistemology. Trial as a means to solve new problems and elimination of errors by natural selection were revived by Popper (1963) and Marshall went as far as to envisage Popper’s (1972) ‘third world’ of ideas, ruling over the physical and psychological worlds.21

Concluding remarks

After poring over the available remnants of Marshall’s earliest studies, the reader should recognize the vigorous sprout of a philosophical system on which further interests were to be grafted. By any standard, the impact of this finding is far from negligible. Marshall’s later readings in philosophy, after he had turned his mind to other subjects, may have enhanced the power of this system and made it more conscious, even added new dimensions, but there is no indication that they swept it away. Admiration for Kant – ‘my guide, the only man I ever worshipped’ (Marshall Papers: 9/9) – does not imply, or even suggest, later acceptance of the synthetic a priori truths ruled out by Marshall in his conversation with Emerson, in the wake of the collapse of Euclidean geometry, the stronghold of such truths. Rather, it may have been due to his enthusiasm for Kant’s ‘Copernican revolution’, the discovery that scientific knowledge depends on the mind’s ability to force its inner order onto unorganized matter. Since ‘facts are treacherous’ and ‘lie unless cross-examined’, ‘a priori reasons must nearly always have a large part of the responsibility for any interpretation of facts’ (Marshall Papers: 5/8), a conclusion by no means in contrast with the findings of evolutionary psychology, but one that nobody had expressed more forcefully than Kant. Hegel’s philosophy of history provided a key to Marshall’s ideas on social evolution, first of all, because it stressed the relations between people and their environment and the interconnections between subject and object, often neglected by other philosophers, though not by Spencer, whom Marshall usually associates with the German philosopher. Hegel’s interpretation of ancient Greece1 and his historical dialectics between objective and subjective freedom also left a lasting impression on Marshall (Groenewegen 1990a), while Hegelian dialectics was absorbed as one of the ways – not the only one – in which change and evolution were brought about.2 Traces of other influences – Green, Carlyle, Comte, Goethe – may be pursued, but without knowledge of the above sketched background, it is difficult to grasp the extent of that influence.3 Undoubtedly, Whitaker’s image of a ‘mixture of German idealism, Spencerian evolutionism and utilitarianism’ appears to fit Marshall, but it fails to focus on the stable kernel around which such various material was organized, instead of simply being piled up. The relevance of Marshall’s early psychological work does not imply that it was original. By contrast, historical contextualization proves that it was in line with

Concluding remarks

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widespread opinion – advanced opinion, it may be added. What is remarkable is Marshall’s operational approach to the body–mind relationship, his quest to update Babbage’s programme in the light of contemporary evolutionary psychology. For both learning abilities and performances, Marshall’s machine calls to mind modern expert-systems, like Edelman’s (1992) automata, named after Darwin, capable of learning from experience. Babbage’s engines faced so many problems that his work remained that of a pioneer and considerable time was to pass before further progress in that direction could be made. A few years after ‘Ye machine’ was written, when Huxley’s (1874) investigation into the scope of automatism in living organisms triggered controversy, cybernetics was not ready to enter the field; nor would it have been had Marshall pursued his psychological studies. Nevertheless, his in-depth attempt to understand how the evolution of mental life could be reproduced by means of an artificial mechanical apparatus reveals a personal, original approach. Even if this reconstruction is accepted, it would still be hard to prove that knowledge of Marshall’s embryonic philosophical system throws light on his comprehensive economic research. To reject such a conclusion, it is not necessary to assume that the young Marshall had no philosophical system, or that it was later dismantled. Simple disuse would suffice and this cannot be ruled out, since nothing suggests that Marshall updated his views on mental science after he entered a new field of study, with its own set of problems and theories. The certainty of patient philological inquiry, which supports our findings so far, must here give way to a conjectural attempt to point out plausible connections between these findings and Marshall’s research programme in economics. Three main points which our reconstruction places at the centre of Marshall’s early view of human action are worth noticing for further consideration: 1

2

3

The idea that the mind is an evolving self-organization, a system of subsystems, growing with experience but always characterized by its unique asset of routines. This view, and its contrast with that embodied in the economic man, has already been stressed in the previous pages. It implies that the mind changes while acting and that the acquisition of knowledge is a never-ending process, accompanied by the evolution of the knowing system. The relationship between standardization, associated with the customary routines of instincts and other automatic or semi-automatic connections, on the one hand and variation or contrivance on the other. Natural selection marks out successful routines for repetition, chance variation and foresight explore new pathways when routines fail. Successful trials, if repeatedly called forth, become routine. Together, these two elements account for the evolution of complex systems, which react to external stimuli according to their own internal structure. The idea that freedom is a modality of human action, increasing with the complexity of the organized structure of the mind, a powerful way of creating mental connections and constructing individual character. A comment on Grote (1870: 298–9) shows Marshall’s evolutionary explanation

36

The origin of freedom and his opinion that the mental mechanisms of association psychology, once they are rightly considered in an evolutionary framework, are acceptable: we are not concerned with freedom further than that its presence (or rather the presence of what is meant by it) is one of the causes of the complexity of the correspondences in the working out of which consists moral evolution which (in an altered language) is exactly what the Utilitarians say. (Raffaelli 1994a: 81, n. 90)

From this point of view, Soffer’s dismissal of Marshall’s psychology because he ‘spoke on behalf of free will’ is clearly misleading since Marshallian free will is no mysterious entity but a modality of action dependent on the number of possible mental connections. Part II aims to show that these three elements form the basis of Marshall’s view of industrial and social evolution as a mix of custom and chance variation, supported by the intervention of human design. They help to highlight the role played by organization and knowledge in his thought, especially in industrial and business economics where similarities with his early psychological studies are more clearly recognizable. Besides these three leading, thought-provoking ideas, a fourth more problematic theme must be addressed, which also accompanied Marshall when he moved into economics. The difficult coexistence of mechanical and biological analogies in his economics is foreshadowed in the span still distancing the machine from living organisms, human beings in particular. Abandoning mental science, Marshall still brought with him an open question, how far is it possible to reproduce evolution by mechanical means?

Part II

The oeuvre

3

From evolutionary psychology to evolutionary economics

3.1 Shaken foundations Marshall’s move from psychology to economics can be described as a slow shift rather than a sudden switch: Psychology seemed to hold out good promise of constructive and progressive studies of human nature and its possibilities; and I thought it might best meet my wants. (Marshall Papers: 9/10) Its [psychology’s] fascinating inquiries into the possibilities of the higher and more rapid developments of human faculties brought me into touch with the question: how far do the conditions of life of the British (and other) working classes generally suffice for fullness of life? Old and wiser men told me that the resources of production do not suffice for affording to the great body of the people the leisure and the opportunity for study; and they told me that I needed to study Political Economy. (Pigou 1925: 10) Both subject-matters were pursued together at least for about two years as forming part of the same mission and psychology did not give way without resistance, as Marshall himself later recollected: ‘about 1871–2, I told myself the time had come at which I must decide whether to give my life to psychology or economics. I spent a year in doubt: always preferring psychology for the pleasure of the chase, but economics grew and grew in practical urgency’ (Whitaker 1996, vol. II: 285). The task of doing away with the residuum and the story of his ‘patron-saint’ – the painting of a suffering man which Marshall set up above the chimney-piece of his college room (Groenewegen 1995a: 130) – attest to the ‘practical urgency’ of economics for Marshall, who always considered wealth ‘a prior condition of the exercise of man’s higher faculties’ (Pigou 1925: 9). No wonder he thought that his farewell to mental science was provisional, a necessary detour to clear the ground for the subject which still attracted his greatest interest, as he repeatedly stated: ‘I followed their advice and regarded myself as a wanderer in the land of

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dry facts; looking forward to a speedy return to the luxuriance of pure thought’ (Pigou 1925: 10); ‘I taught economics … but repelled with indignation the suggestion that I was an economist: “I am a philosopher, straying into a foreign land. I will go home soon” ’ (Whitaker 1975, vol. I: 7). However, crossing the new land proved far more difficult than expected: ‘the more I studied economic science, the smaller appeared the knowledge I had of it’ (Pigou 1925: 10). As is well known, the late 1860s and early 1870s marked a turning point in British political economy, which began to face a serious crisis and entered a new phase of uncertainty and loss of public reputation. A few years later, Mill’s updating of the classical system was falling to pieces: the basic foundations of classical economics – value theory, the deductive method and the deterministic link between distribution, accumulation and economic growth – were shaken by the joint attacks of general methodological dissent and specific critiques of the theory of wages.1 The Comtian Frederick Harrison, while rejecting homo oeconomicus – ‘an unwarranted abstraction about human character and society’ (Harrison 1865: 368) –, maintained that the price of labour was not determined by inexorable laws and that wages could be different if there were ‘a powerful and universal moral [or political] stimulus’. ‘Therefore – he concluded – the laws of distribution are purely hypothetical’ (Harrison 1865: 368). Thornton (1869) took on many of these criticisms, and provoked Mill’s recantation which opened the way to the view that market forces could cause unpredictable outcomes by their influence on human decisions and actions (Dardi 1984). The theory of ‘noncompeting industrial groups’, already present in Mill’s Principles and later emphasized by Leslie and Cairnes – the latter coined the term in 1874 –, contributed to the loss of confidence in the existence of a basic rate of wages on which profits and accumulation rigidly depended, a conclusion, anticipated by Leslie, which Marshall took very seriously while trying to elaborate a new theory of wages. His favourite expression was always ‘the working classes’, in the plural, and even his later remark that ‘there is no such thing in modern civilization as a general rate of wages’ (Marshall 1920: 533), though attributable to the classical explanation of wage differentials, seems to hint at deeper divides. The deductive method had already come under fire in 1859, when Whewell’s edition of Richard Jones’s works, with their ‘systematically inductive habit’, put forward ideas that were ‘wanted at the time’. After that date, as Marshall wrote, Jones’s ‘influence … dominated the minds of those Englishmen who came to the serious study of economics’ (Pigou 1925: 296). In the 1870s, severe criticisms of Ricardo’s hypothetico-deductive method were raised by Leslie, Ingram and ‘the new German school of history’. Thus, while Comtists and trade-unionists attacked classical political economy for its class bias and acceptance of greed as the moving force behind human actions, historically minded economists joined up with them in criticizing its assumptions about human nature.2 The result was widespread dissent from the hypothesis of the economic man. These critical developments had a strong impact on Marshall, whose earliest economic interests concerned precisely the fields of industrial relations and social evolution. His mathematical training,3 which spurred him, as he later recollected,

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to set about ‘translating [Mill’s] doctrines into differential equations, as far as they would go; and, as a rule, rejecting those which would not go’ (Whitaker 1996, vol. II: 282), soon made him realize where Mill’s reasoning was faulty. For the young Marshall, this must have been an exciting experience: invited to read political economy in order to curb his reformist enthusiasm, fresh from a mathematical training which made him ‘think in mathematics more easily than in English’ (Whitaker 1996, vol. II: 220), he discovered that he could easily go beyond the results of the most authoritative of his contemporary economists. His early manuscript on Mill’s theory of rent (Whitaker 1975, vol. II: 269–72) is probably the first of a series of exercises which brought about his revision of classical theory.4 The most difficult task was to decide along what lines economics should be reorganized. Was it possible to produce a new general synthesis, less-objectionable than that of the classics? Marshall’s oscillations on this point persisted for some time. Detailed and perceptive studies of this crucial period of Marshall’s life have been performed by Whitaker (1972, 1975 and 1977), Becattini (1975) and Dardi (1984). While Whitaker’s interpretation is well-known, the latter two are unfortunately veiled by linguistic barriers, and it is for this reason that greater coverage is devoted to them in the following pages.5 The evidence made available by The Early Economic Writings is so comprehensive and telling that it leaves no room for any sharply discordant views on the progress of Marshall’s analytical achievements. Some disagreement emerges because of different perspectives on the outcome. Broadly speaking, it can be said that Whitaker placed Marshall’s final product not too far from orthodox marginal theory, distinguishable from Walras’s because of Marshall’s empirical, inductive inclination to ‘real-ising’ abstract theory and his unfulfilled aspiration to bring evolutionary forces which mould character into the ‘positive theory of socio-economic change’ (Whitaker 1975, vol. I: 112). Since he acknowledges that this aspiration grew with ageing, it may be added that for Whitaker the product was rather intermediate than final. In Dardi’s view, the provisional stage was different: preference for partial equilibrium analysis was not a tribute to economic realism, which kept Marshall half-way along the road to general equilibrium theory, but formed the core of a different research programme which, conceiving of statics as ‘a branch of dynamics’ (Marshall 1920: 366 n.), always aimed at ‘socio-economic change’. According to Dardi, the Principles’ loose definition of ‘normal’,6 which Whitaker (1975, vol. I: 73) calls ‘relativistic’ and unfavourably compares with the identification between normal and competitive in Economics of Industry,7 was Marshall’s felicitous escape from the straitjacket of classical concepts and models towards a pluralistic approach to economic analysis, where equilibrium always required specification. Less concerned about different readings of book V of Principles, Becattini plays down its analytical contents and emphasizes the merits of book IV and Industry and Trade, where Marshall put forth an evolutionary view of industrial economics. Thus, Marshall’s answer to his own query about the possibility of a new general economic synthesis was unambiguously negative for Dardi, shyly positive, but tending to turn negative, for Whitaker and positive, but within a different research programme, for Becattini.

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The oeuvre

3.2 Deconstructing classical economics Though open to contrasting interpretations, some of which stress long-term historical influences on the wage rate (Hicks and Hollander 1977; Casarosa 1978), the gist of Ricardian economics was a model of growth driven by the force of capital accumulation. Given some external factors – production techniques and the law of population – each element of the economic system was determined, in the long run, by capital. For Marshall, the model had no analytical faults, as can be gathered by his praise of book IV of Mill’s Principles – ‘the most advanced and modern part’ of his work (Pigou 1925: 316) ‘in which he seemed to be true to the best tradition of Ricardo’s method’ (Whitaker 1996, vol. II: 283) – but it was at variance with the dynamic, evolutionary view of human action that he had inherited from his psychological studies. Classical economics relied on a simple, poor and constant model of human action: three classes, each playing its predetermined role in the market, produce outcomes which, in the long run, are certain. For Marx, from this point of view, the most classical of the classics, the capitalist, to all appearance the most active and dynamic member of society, is ‘capital personified and endowed with consciousness and a will’ (Marx 1967 [1867]: 152). His/her behaviour is absolutely predictable and market exchanges simply enforce the orders given by exogenous factors: ‘circulation … is the phenomenon of a process taking place behind it’ (Marx 1973: 255). For Marshall, the classical view was not wrong in itself, but corresponded fairly well to a primitive stage of capitalist society8 which was being superseded by social evolution: if rising wages increase labour productivity and the workers’ savings, the predetermined link between capital accumulation, production, profits, wages and prices is broken (Whitaker 1975, vol. I: 192; Dardi 1984: 129–31). This opens up a plurality of possible outcomes and long-term equilibrium comes to depend on different sets of social and ethical influences, neglected by Ricardian economics. The idea that human nature changes is an indictment of purely mechanical reasoning, which, by contrast, is sufficient both for Ricardo’s laws of production and distribution and for marginalist explanations of exchange and equilibrium. Marshall’s criticism of the classical view and his focus on market transactions stemmed from the need to inquire into the way in which market forces change and shape the conditions of economic progress, which Ricardian economics aimed to isolate once and for all. Though both Marshall and Jevons concentrated their attention on the market, their scientific strategies were poles apart. The aim of the latter was to build a new theory of value, no less absolute than Ricardo’s, while the former was decomposing value theory into an analytical framework where equilibrium ceased to be univocal and became relative to different time-perspectives. The ‘pure theory of value’ was transformed into an ‘inventory’ of possible partial analyses that later grew into his famous ‘box of tools’ (Dardi 1984: 101).9 Dardi (1984) convincingly argues that Marshall’s early reflections were triggered by his interest in the economics of industrial relations. Even ‘The pure theory of foreign trade’, which apparently had nothing to do with such relations, was introduced by a ‘philosophical’ chapter (Whitaker 1996, vol. III: 79) which later

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Marshall qualified as ‘devoted … to describing the scope of its indirect applications to the relations in which various industrial groups of capitalists and labourers stand to one another and to the rest of society’ (Whitaker 1975, vol. II: 117).10 Leslie’s (1868) attention to the forces preventing free movement of labour and capital was developed by Marshall into the view that the concept of ‘economic nation’ could apply to industrial sectors and geographic areas as well as national states (Becattini 1994 and 2000b). The plurality of social ties was revealing the inadequacy of the classical representation of the economy. The structure of Mill’s Principles, with its hierarchy between production, distribution and exchange and the pivotal role of capital accumulation (the ‘fundamental propositions respecting capital’), proved to be misleading since the consequences of exchange phenomena reverberated on the preceding parts of his system. Crevices were already visible in the classical system of Mill’s Principles – non-competing industrial groups, non-uniformity of investment decisions, autonomy of the mechanics of exchange – but the breakdown was due to Thornton’s attack on the wages fund. The labour market, with its peculiarity and fragmentation, became the focus of a discussion in which Mill, while easily reassessing the solidity of value analysis based on the laws of supply and demand, was obliged to make room, within the classical representation of economic reality, for a ‘degree of freedom in the relationship between accumulation and distribution … which is not to be found in Principles’ (Dardi 1984: 61). Time-period analysis is an attempt to devise new piecemeal analytical mechanisms, with their various, partial applications, without abandoning the classical system. Taking into account the sellers’ expectations due to their different timehorizons, Marshall ‘conveniently’ groups the conditions on which selling prices depend into four classes of cases, corresponding to four time-perspectives.11 Each class is characterized by specific objective conditions leading to the satisfaction of the sellers’ initial expectations, that is, leading to a new level of equilibrium. Timeperiod analysis, in both ‘On value’ and ‘On wages’, reflects ‘the ability of the productive structure to adapt itself to distributive modifications triggered by the market’ (Dardi 1984: 92), but the longest period (class D) seems to vindicate the assumptions of classical economics (Dardi 1984: 123–33). In Economics of Industry, the two conflicting tendencies are dealt with in different places: book II answers Marshall’s desire for a powerful theory, updating the classical system, while book III provides the link between the novelty of his early analytical tools and ‘the style of analysis’ of Marshall’s Principles (Dardi 1984: 153). Many of the early manuscripts bear traces of the tension between the new style of doing economics and the old requirements of determining the secular equilibrium of the economic system along classical lines. This gives rise to different interpretations. For instance, the plurality of outcomes of the models of ‘Notes on the theory of economic growth’ (Whitaker 1975, vol. II: 309–16), which Whitaker (1975, vol. II: 309) takes as a sign of inconclusiveness and source of discouragement, in Dardi’s opinion reveals Marshall’s effort to find an escape from the classical deterministic view of economic development and bears witness to his doubts about the possibility of bringing all the relevant elements into the model.

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The oeuvre

Dardi conceives of the development leading from ‘On value’ to book V of Principles as the breakthrough which allowed Marshall to formalize his analytical apparatus with full consciousness of its limitations. Becattini sees this trend of thought as lateral and to a certain extent misleading. The right approach would have been to persevere with the investigation of customary forces which withstand competition and form indissoluble clusters, like economic nations and industrial districts, which Marshall had discovered quite soon, as shown by the unpublished chapter, but, to Becattini’s great regret, did not pursue for decades. Dardi believes the watershed in the evolution of Marshall’s thought is marked by his abandonment of those early theoretical models which promised too much in favour of the partial equilibrium analysis of book V of Principles. Becattini places both the early models and book V on the same side of his watershed and conceives of a more persistent tension between two strands of Marshall’s thought, respectively exemplified by the abstract, mechanical equilibrium analysis of book V of Principles and the realistic, evolutionary industrial economics of book IV. Only with Industry and Trade was the contrast solved in favour of the latter.12 Where Dardi perceives a continuous deepening of early doubts about all-powerful economic theories, based on the action of mechanical forces, Becattini notices two clear turning points. The first turn, Becattini regrets, dropped early attempts to draw a new picture of capitalist society for the pursuit of sterile intellectual puzzles; the second one brought Marshall back onto the right track. Whitaker’s opinion is that of a trajectory which leaves behind the initial target of mechanical equilibrium, slowly replaced by that of the evolution of the industrial and social system. Dardi and Becattini spot the germs of Marshall’s later heterodoxy in his early analytical writings, Whitaker confines them to his ‘sociological’ papers, as ‘neglected themes’. Whitaker and Becattini feel that a turn away from analytical reasoning was necessary for such heterodoxy to emerge, Dardi thinks that Marshall’s style of analysis was specifically framed to subserve his search for evolutionary patterns, though, as we shall see, it proved ineffective (Dardi forthcoming). Understanding ‘Ye machine’ does not provide a key to solve these interpretive problems. It can support both Becattini’s thesis of a double turn, giving more prominence to the first, and Whitaker’s opinion that evolutionary ideas lingered in Marshall’s mind, confined in the psychology and sociology departments before their late take-over of the economics department, which had remained independent for long. Since my aim is to show that the early model of the mind helps to grasp Marshall’s evolutionary economics, I shall focus on key aspects of the latter without paying attention to the timing of their occurrence. However, it seems implausible that Marshall, approaching economics with a well-structured view of the human mind, could wholly turn his back on it and embrace the standard view of equilibrium analysis. There are indications that he did not, as when, in ‘The pure theory of foreign trade,’ he warns that ‘every movement that takes place in the moral world alters the magnitude if not the character of the forces that govern succeeding movements’ and that, since ‘economic forces belong to the moral world’, any increase in the demand for certain wares ‘leaves behind a permanent effect in an increased familiarity’ on the part of consumers, occasioning ‘permanent

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alterations in the circumstances of demand’ (Whitaker 1975, vol. II: 163). Though most of his analytical reasoning was confined to cases in which these permanent effects could be neglected, he was conscious of their omnipervasive presence and disturbing effects.

3.3 Equilibrium and the ceteris paribus clause Dardi’s recent reconsideration of partial equilibrium analysis in the light of the theoretical implications of the model envisaged in ‘Ye machine’ (Dardi forthcoming) endeavours to weld Marshall’s mature economic thought into a coherent whole, in which partial equilibrium analysis is part and parcel of a wider evolutionary perspective. According to this interpretation, Marshallian equilibrium is always the consequence of a movement from one state to another, the result of change which neither starts from scratch nor ends in a perfect, unassailable outcome. Like ‘Ye machine’, economic agents act unreflectingly, according to predetermined patterns, till something new defies their behavioural routines. In this critical situation, the agents’ tendency to ‘adapt’ to new circumstances works its way towards a new equilibrium, which forms the basis for the establishment of new routines. Partial equilibrium analysis, as Dardi (forthcoming) perceptively synthesizes, is ‘dynamics in disguise’. Properly speaking, there is no economic statics, but only analysis of partial change, relative to initial conditions and dependent on the range of actions which are allowed (and which are a function of time). Marshall was always at pains to explain that economic statics is no autonomous subject of research: my statical state – he wrote to Clark – … is a mere phase in my dynamical state. I could no more write one book about my Statical state, and another about my Dynamical state than I could write one book about a yacht moving three miles an hour through the water which was running against it at three miles an hour, and another about a yacht moving through the still water at 5 miles an hour. (Whitaker 1996, vol. II: 419)13 Though barely the first volume, or ‘an introductory volume’ as it was called in successive editions, the Principles’ ‘key-note’ ‘is that of dynamics, rather than statics’ (Marshall 1920: xiv).14 In equilibrium, forces balance each other and prevent any change; therefore, business goes on as usual and pursues ‘its even tenor’ (Marshall 1961: 382). In such a situation, agents react predictably to outer signals, thanks to their stored routines, without calling for new patterns of behaviour. When expected, external signals have no relevant impact and can be dealt with by existing routines, as happens with seasonal variations in the demand for fish, which, like seasonal variations in the normal level of the Rhine (Marshall 1920: 34), are included in the notion of stationary state and provide an instance of the reasons why such a state is full of movement (Pigou 1925: 315; Marshall 1920: 367). Only when routines prove ineffective is change required, whereupon it leaves its imprint on the system by altering its future performances, as it does in

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The oeuvre

‘Ye machine’. This opens the way to the notion of path-dependency, which fits Marshall’s concept of equilibrium, unlike Walras’s: the set of previously-stored routines bears on the way in which adaptive change occurs. Even when fully at work – as in the stationary state – equilibrium always implies both custom and competition: the former is codified in available ways of doing things and forms the routine element of ‘normal’ economic activities, the latter is at work to keep routines alive and prevent stagnation in their working. When something unexpected breaks the system’s equilibrium, it does not upset all the available patterns of action and the ceteris paribus clause, which Marshall took over from Mill, helps to isolate the relevant changes and analyse the sequence of steps leading to a new equilibrium. Competition becomes less predictable and is allowed to act more freely in uncharted territories. In the end, new routines and new customs will tend to reaffirm their rule and make competition more predictable. The evolution of the economic system, like that of any other system, is a continuous succession of unexpected impulses and adaptive reactions. This is also the way in which ‘Ye machine’ builds its growing set of automatisms, all of which are steps towards new equilibria. Thanks to the ceteris paribus device, treated in detail in book V of Principles, cognitive efforts can be concentrated on those sections of the system whose change is selected for scientific investigation. Developing Whitaker’s (1987) analysis, Cerina (2000) distinguishes the ‘slow’ and the ‘fast’ uses of the clause. The former, easier to conceive, corresponds to the device of ignoring the slow movements whose effectiveness requires more time than that allowed by the period under consideration. In the double level system of ‘Ye machine’, this would amount to ignoring the building-up of new routines and inquiring how the system moves towards equilibrium by temporarily reshuffling what already exists. However, since each action tends either to make old routines stronger or to establish new ones, each single movement towards equilibrium has a feedback effect on the mechanism itself. In principle, the effect can never be ignored, but in practice it becomes relevant only when its impact on the system is strong or continuous and steady. In many cases it can be neglected, like when dealing with ‘the day to day oscillations of the price of fish resulting from uncertainties of the weather’ which are not affected by the much slower changes in the fishing industry (Marshall 1920: 369). By contrast, the ‘fast’ ceteris paribus, applied for instance when the task is to assess the effects of a cattle-plague on the price of fish, neglects those hectic changes which disappear in the long run, like price oscillations due to the weather, which are ‘so quick that they speedily obliterate one another’ (Marshall 1920: 370).15 In these cases, attention focuses on a deeper level of change and ignores those movements which act at the surface and do not significantly affect the structure of the system. The reliability of these two types of ceteris paribus is markedly different: ‘fast’ applications of the clause are less trustworthy since, while it may be easy to tell what tends to happen, ceteris paribus, when certain, definite mechanisms are at work, it is much more difficult, by the same method, to guess what will happen when the acting forces themselves are changing in a changing environment. Such applications of

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the clause imply a certain ‘violence’ to reality and are really ‘dangerous’ (Marshall 1920: 379 n.); as Marshall warned the young mathematical economist Henry Ludwell Moore, in dynamical problems ‘the ceteris paribus clause – though formally adequate – seems to me impracticable’ (Whitaker 1996, vol. III: 296). Successive adaptations can be analysed from the point of view of the different levels of reality they belong to. Immediate and direct processes take less time and are akin to mechanical answers, whereas indirect and complex ones take more time and produce deeper evolutionary adaptation. Time-period analysis follows this gradation: increase in the demand for fish is first met by increase in fish supply (short period), then by production of new boats which elicits new methods of ship-building (long period), then by new general adaptations of the whole industrial system (secular period). The first move can be fast, but those which tend to change the whole structure of production are gradual and slow. However, even the long period biological balancing of forces may in principle be worked out through mechanical steps. It is the different context – the fact that their reaction on a higher level of the economic structure is taken into account – which gives these elementary units a different meaning. First level reactions change the system’s performance (daily produce) but barely affect its ability to perform; upper level reactions exercise their effects on the fishing machine rather than the daily produce. The first level balancing of forces likewise produces a biological impact, but its action on the fishing machine is negligible. When the frequency, intensity and duration of such actions gain strength, their biological effects set in: ‘the gradual transition from the mechanical view of the composition of forces … to the biological notion of composite organic growth’ implies transition from one level of reality to the next, a transition which Marshall saw exemplified by long period normal supply price and the ‘representative firm’ (Marshall 1961: 69–70). Clifford’s succession of actions–character–spirit of the age (see pages 26–7) provides a socio-psychological analogy while a physiological analogy can be found in the process of adaptation to altitude: the first reaction is to increase heartbeats (somatic adaptation), the second – when exposure to altitude lasts for years – is to adjust the rhythm of heartbeat (acclimatization), the third – when exposure lasts for generations – is genetic variation (Bateson 1979: chapter 6). Insisting on continuity, Marshall had no theoretical method to mark the boundaries between these changes and, when dealing with biological issues, was prone to deny the existence of Weismann’s barrier between somatic and genetic adaptation, but this marks no major fault of his theoretical perspective and its applicability to the economy and society.

3.4 The growth of knowledge Dardi’s interpretation can be considered a development of Loasby’s (1978) idea that Marshall’s concept of equilibrium is radically different from the static concept of general equilibrium theory. This runs counter to the prevailing opinion that Marshall attached ‘considerable significance’ to the statical method (Pratten 1998: 139). From our perspective, it is notable that this dynamic interpretation confers new meaning to the analytical core of Marshall’s economics, which is

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usually dissociated from his evolutionary thought. It suggests that the tension which readers perceive between these two parts of his system might be a sign of the difficulty of forging appropriate analytical tools, but does not imply outright opposition between two research programmes. What follows, centred on issues which unquestionably belong to the evolutionary side of Marshall’s thought, is largely independent from the previous section, though easily accessible in a way that calls to mind the connection with the analytical side of his system.16 The ceteris paribus clause, usually seen as the milestone of the statical method, is better represented as the evolutionary device by which organisms focus on the change required for their adaptation, while at the same time sticking to many other routines which embody effective standardized ways of dealing with reality. By resorting to its help, science mimics evolution. Like all other agents, scientists advance by building and selecting new routines: each case is different, however slightly, and it is only thanks to the isolation of repetitive patterns that reality can be submitted to scientific analysis. There is no other way to further knowledge than the method of ‘successive approximations’ (Whitaker 1975, vol. II: 116), or ‘steps’ (Marshall 1920: 510). The provisional treatment of variables as constants ‘is the only method by which science has ever made any great progress in dealing with complex and changeful matter, whether in the physical or moral world’ (Marshall 1920: 380 n.), ‘the method by which, consciously or unconsciously, sensible men have dealt from time immemorial with every difficult problem of ordinary life’ (Marshall 1920: xiv).17 Being a product of the human mind, which is an evolutionary system, science is compelled to follow its rules and patterns. As with Marshall’s machine’s cumulative growth of automatic abilities, the growth of economic knowledge derives from the cumulative provision of specialized answers to standardized problems: [political economists] have seen that those portions of the problems of life to which political economy devotes herself are at once so complex that they cannot be treated well without the aid of a special machinery, and so nearly homogeneous that they can well be treated by such machinery. Such men have set themselves to work to make and to perfect such machinery. (Raffaelli et al. 1995: 189) The part which systematic scientific reasoning plays in the production of knowledge resembles that which machinery plays in the production of goods. When the same operation has to be performed over and over again in the same way, it generally pays to make a machine to do the work … Similarly in knowledge, when there are many processes of investigation or reasoning in which the same kind of work has to be done over and over again in the same kind of way; then it is worth while to reduce the process to system, to organize methods of reasoning and to formulate general propositions to be used as machinery for working on the facts and as vices for holding them firmly in position for the work. (Marshall 1920: 779)

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‘Organized knowledge and especially science’ are ‘machinery of thought’, which is like ‘material machinery’ (Raffaelli 1994b: 19). These statements make it clear that for Marshall the growth of knowledge is an adaptive process modelled on the patterns of mental evolution. Argyrous (1990) criticizes Marshall’s theory of the growth of knowledge from the point of view of contemporary philosophy of science, which lays stress on the discontinuous, non-cumulative character of the process. But Marshall’s cumulative growth refers to routines, mechanisms and standardization rather than general frameworks and is consistent with biological evolution. For instance, though mammals are radically different from amphibians, they did not start solving their problems from scratch, but rearranged many tested solutions. Problem-solving – be it in the evolution of life, language, science, work, societies or organizations – is always a kind of ‘bricolage’ which avails itself of existing material. Science evolves in the same way: imagination – which Marshall (1920: 43), clearly at odds with any linear view of scientific progress, considers the most necessary faculty of an economist – opens up new routes but has to rely on the existence of codified, registered mechanisms and embody new ideas in solid constructions (Marshall 1920: 719), avoiding the danger of running wild either in politics, society, business or science.18 It is the complexity of the problems to be solved which makes scientific routines indispensable: ‘nature is not simple, but complex’ (Marshall 1919: 84), ‘economics can never become a simple science’ (Marshall 1920: 404) and simple explanations, for the very fact of being simple, are certainly wrong: every plain and simple doctrine as to the relations between cost of production, demand and value is necessarily false … A man is likely to be a better economist if he trusts to his common sense, and practical instincts, than if he professes to study the theory of value and is resolved to find it easy. (Marshall 1920: 368) The gap between man’s powers – which are limited – and almost every one of nature’s riddles – which is complex – (Pigou 1925: 314; cf. also Marshall 1920: 510) is continuously filled up by the only method at hand: complex problems must be broken up into elementary parts in order to make room for applying systematic reasoning (Marshall 1919: 676–7): the complexity and intricacy of social phenomena afford no reason for dispensing with the aid of the economic organon in its proper place: on the contrary they increase the necessity for it … the fact which Comte seems to have ignored is that the human mind has no other method of inquiry than this; that a complex problem is broken up into its component parts, less methodically indeed but no less completely by common sense than by formal analysis. (Marshall, 1925:163– 4) The growth of knowledge is a never-ending process requiring creativity and standardization. Imagination performs the same function as contrivance** does in

50 The oeuvre ‘Ye machine’ while the economic organon and previously tested experience provide ready-made ways of dealing with routine elements of reality, as instinct does in ‘Ye machine’, once it gets established. Since science relies on the ceteris paribus pound, in which disturbing phenomena are provisionally sunk, its achievements are always provisional and ‘care and forethought and self-restraint are needed at every step’ (Marshall 1920: 379 n.). This humble attitude towards the evolution of science bars any search for completeness and perfection.19

3.5 Individuals as organized systems Marshall’s rejection of economic man, in favour of ‘a man of flesh and blood’, with his normal share of human qualities, of egoistic and altruistic motives prevailing in a given society (Marshall 1920: vi and 26–7), is related to his theory of the human mind. His outspoken criticism of economic man is usually taken as evidence of uneasiness with abstract models and an instance of his repeated attempts to overcome the distinction between economics and ethics. Excessive concern with being realistic is held responsible for the confusion which drove him to search for compromise between conflicting economic schools.20 What our interpretation suggests is that behind some of his apparent anti-theoretical commonplaces lies his model of how the human mind – like any evolving system – works, a model which is far from that embodied in the economic man. It explains why a certain system of mental routines is always present, and why, if the set of available routines were destroyed, the powers of performance would be impoverished and it would be impossible to solve even the most elementary problems of ordinary life. In any single moment, this organized, resistant and slow-changing asset consists in the relatively stable set of features, provisionally tested by evolution, which characterize men of flesh and blood, with their individual endowments of instincts, motives and passions of which the economic man is deprived. More than a question of realism and values, Marshall’s criticisms are a question of different ideas about the human mind. This conception, supported by advanced studies in psychology and cognitive science (Cosmides and Tooby 1994), is spreading into contemporary social and economic research with devastating consequences for general equilibrium theory. It suggests considering human beings as evolving, organized systems whose behaviour depends on previous clusters of nervous connections which change over time. In economic and social science, this view deprives strong versions of methodological individualism of their meaning since fascination with the promise of ultimate explanations depends on the mistaken assumption that individuals are atomistic units, indecomposable substances.21 Once their minds are conceived as organized systems of connections, born from the relations between their inner structure and the external world, it becomes difficult to share the enthusiasm of dogmatic supporters of this view: science can never reach definitive explanations and the complexity of the social world cannot be reduced to a single level of causality. Marshall’s conception is similar to that of the American institutionalists, who also rejected the idea that man is ‘a mechanism of commutation’, ‘a lightning

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calculator of pleasures and pain’, and saw him as a ‘coherent structure of propensities and habits’ (Veblen 1919 [1899–900]: 133 and [1898]: 73–4). Veblen’s discussion of desires, with all its implications for consumption theory, shows how his model of human action resembles Marshall’s: [desires] are ultimate and definitive for the individual who acts under them, so far as regards his attitude as agent in the particular action in which he is engaged. But in the view of the science, they are elements of the existing frame of mind of the agent, and are the outcome of his antecedents and his life up to the point at which he stands. They are the products of his hereditary traits and his past experience, cumulatively wrought out under a given body of traditions, conventionalities, and material circumstances; and they afford the point of departure for the next step in the process. (Veblen 1919 [1898]: 74) The main difference is that Veblen hoped to discover the building blocks of the human mind and enumerated the instincts of which it is made up and which direct its evolution, while Marshall gave no list of instincts and stuck to the formal, abstract idea of the evolutionary mechanism, with its succession of routinization and innovation, without making it dependent on any particular set of blocks.22 Moreover, while Veblen stressed the historical relativity of economic reasoning, Marshall came to conceive of economic analysis as the best explanatory device of the leading forces of change acting through different ages and promoting of social evolution. Thus, in his polemics with Cunningham he insisted on the need to search for ‘subterranean channels of change’ which modify custom (Marshall 1961: 741). The task of economics is to look into customary clusters, tracing them back to the ‘slow equilibration of measurable motives’: ‘to say that any arrangement is due to custom, is really little more than to say that we do not know its cause’ (Pigou 1925: 169–70).23 Marshall’s position combines acceptance of the general value of economic analysis, against the relativistic approach of the historical school, with consciousness that its exercise is always conditional, against the pretensions of ‘pure economics’. The ‘solvent’ produced by economic science is always piecemeal, partial; it can explain how particular customs were born and how new ones take their place but the explanation is relative and cannot go beyond the statement ‘that a certain course of action may be expected under certain conditions from the members of a social group’ (Marshall 1961: 736–7).

3.6 The striking similarities between brain and society The kernel of Marshall’s evolutionary economics, as perceptively noticed by Becattini (1987), is to be found at the beginning of chapter 9 of Principles, where analysis of industrial organization begins. Here he sets the general framework for an overview of mechanization, division of labour at various levels and concentration and localization of industry which befits an introductory volume (‘something has to be said’), though full examination must be postponed to ‘a much later stage

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of inquiry’, where Industry and Trade belongs. The pivotal idea that ‘practice makes perfect’ relies on neurophysiological processes: ‘what little we do know of the growth of brain structure seems to indicate that practice in any kind of thinking develops new connections between different parts of the brain’ (Marshall 1920: 251–2). Improvement of performances ‘is due to the gradual growth of new habits of more or less “reflex” or automatic action’ (Marshall 1920: 250). The mechanism involved in the sequence is that of ‘Ye machine’; the main difference is that the double circuit between cerebellum and cerebrum is now replaced by a more complex system, where the cerebrum still acts as the supreme authority, while the lower level is split into ‘something like an organized bureaucracy of the local nerve centres’. This hierarchical organization is composed of ‘provincial authorities’, represented by ‘the medulla, the spinal axis and the larger ganglia’, and ‘district and village authorities’, consisting of the more peripheral parts of the nervous system. Learning a new action, like skating, requires the intervention of the cerebrum, but once the nervous connections presiding over its performance are established, the action becomes semi-automatic, the local nerve centres take charge of its performance and the cerebrum ‘is set free’ to follow ‘an independent train of thought’.24 As happened with ‘Ye machine’, messages from lower to upper levels are registered only when a new action has to be performed that exceeds the powers of existing mental routines. In similar cases, new nervous combinations are tried in the cerebrum and, once found effective, automatized. The growing complexity of this neurophysiological organization is produced by the progressive upwards shift of mental energy which leaves behind a growing set of automatisms of different types and complexity. Description of this neurophysiological mechanism was also inserted, in a similar position, in Marshall and Marshall (1879: 49–50 n.), without details on the succession of nervous circuits.25 The idea that the growth of knowledge is a mix of innovation and routines reveals the main features of any industrial and social organization, of which the brain is the prototype. This connection was anticipated by Babbage, whose interests in the mechanical operations of the mind and in industrial and business organization were closely related, as he himself recognized: the arrangements which ought to regulate the interior economy of a manufacture are founded in principles of deeper root than may have been supposed, and are capable of being usefully employed in preparing the road to some of the sublimest investigations of the human mind. (Babbage 1989 [1832]: 135) It was not by accident that the precursor of modern computers was also a pioneer in the study of manufactures. The path had been opened up by Smith, whose intuitions on the division of labour were followed by the French mathematician Prony. The latter, appointed by the Government to supervise the compilation of a series of mathematical tables, ‘conçut l’expédient de mettre ses logarithmes en manufacture comme les épingles’ and divided his team into groups operating at different levels, thus helping to mechanize repetitive computations. Babbage

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(1989 [1832]: 136–7) extended Prony’s intuition, realizing that Smith’s principles depended on the way in which the mind works. His research on computing machines and industrial organization was fuelled by the prospect of saving work thanks to routinization and mechanization. In a similar way, Marshall’s model of the human mind provided the basic tenets of his thoughts on organization: automation, innovation and progress follow parallel lines in mental and social phenomena and in both cases depend on the dialectical relationship between repetitive order and creativity that is at the core of Marshall’s conception of mental and social evolution.26 This parallel between mind and society confers coherence and weight to Marshall’s statements on industrial and business organization. Moreover, his general views of organized systems composed of hierarchically ordered and interactive levels foreshadow, embryonically, current topics of research in the inter-related areas of psychology, artificial intelligence and organization theory. Marvin Minsky, a leading contemporary scientist of artificial intelligence, thinks of the mind as a complex organization whose progressive growth corresponds to the dual process of routine specialization and innovative combinations. In his view, as in that of Marshall, the brain is a multi-level structure whose growing stock of automatisms makes conscious action unnecessary, except when critical situations occur (Minsky 1985: 6.4 and 6.14). He draws the picture of a multilevel system where ‘whenever a layer acquires some useful and substantial skill, it tends to stop learning and changing – and then yet another new layer can begin to learn and to exploit the capabilities of the last’ (Minsky 1985: 8.11). This view extends to societies, enabling upper ‘agencies’ to take no interest in ‘all the minute details’: ‘unless most of its work were done by other agencies, no part of a society could do anything significant’ (Minsky 1985: 16.7). As is clear from the title of his book – The Society of Mind – analogies also run the other way round and the mind itself, like society, builds ‘huge organizations of submachines’ (Minsky 1985: 6.11), ‘mountains of bureaucracy’ that make it possible ‘to use the knowledge in our low-level agencies’ (Minsky 1985: 10.5). This view is familiar in economics thanks to the pioneering work of Herbert Simon. He shares Minsky’s idea that the mental energies of society must concentrate on the most urgent tasks and considers bureaucracies and markets as two different ways to reach the same result. Far from being antithetic, they can be ranked along a hypothetical scale that measures the autonomy of the system sub-units. Markets and decentralized bureaucratic organizations are the two social artifacts whereby much mental energy is spared the performance of subordinate tasks (Simon 1981: 30–5). An analogous view of the way in which the mind and society evolve was held by von Hayek. Like Marshall, the Austrian economist began with the analysis of psychological problems, stressing the active role of the mind which confers order and meaning to sensory stimuli and holding that human knowledge and action imply both repetition and innovation (Hayek 1952). His explanation of mental phenomena through the different possible combinations of nervous connections, which denies any ‘representational’ view of knowledge and introduces problems of path-dependency and uncertainty, has recently become

54 The oeuvre very popular in opposition to the standard views of general equilibrium economics (Rizzello 1999; Smith 1997).27 Nelson and Winter (1982), a work which started a new wave of research in evolutionary economics, is more specifically ‘Marshallian’, since it describes an evolutionary mechanism whose organizational routines and individual skills are the elementary genes of selective processes. Innovation, which modifies and recombines existing ‘genes’, takes place when routines and skills are inadequate and agents are entitled to behave differently, without being labelled ‘irrational’ (with the exception of the maximizer). (For further development of this theme, see Chapter 6, §6.6). If our interpretation is correct, Marshall’s philosophical views deserve great consideration, though they are not stated as a general theory but directly applied to the study of economic and industrial phenomena. The young Marshall’s description of mental processes was elementary, but the insights his social research gained from mental science proved to be basically sound and fertile. What he shares with contemporary scientific knowledge about mental operations sheds much light on many social issues. In order to work effectively, social organizations must rely, as far as possible, on automatic mechanisms, on ‘the automatic working of general rules, unaided by the use of brains on the part of the authorities’ (Pigou 1925: 336). Contemporary research, dealing with the principles and problems of organization and the management and development of human resources, supports this conclusion. The social equivalent of mental processes is the building up of tested automatisms which enable human societies to concentrate their mental energy, through attention-focusing, on the most difficult and urgent tasks. The main role of automatisms, either mental or social, is to make room for innovation which in its turn gives rise to further automation.

3.7 Evolution by contrivance and standardization Anticipating the general purport of the evolutionary paradigm of contemporary economics (Nelson 1995), Marshall’s mechanism helps to explain the performance of economic systems and the tendencies of technological progress. Automation is possible only when processes are simplified, standardized. Marshall did not fail to notice that the industrial revolution took off where nature had already standardized: the ‘homogeneity’ of cotton and wool allowed them to be spun into yarn which, being itself ‘perfectly standardized’, was ‘ready to be at once worked up into standardized cloth by standardized machinery’. Thus, ‘mechanical standardization spread from one process to another in the same industry, and from one industry to another … So progress went on cumulatively’ (Marshall 1919: 58). Widening of the market favoured further standardization by enabling an ‘expensive plant … to be kept constantly running on an even routine’ (Marshall 1919: 281). The process is built up on the same principles by which repetition of a task promotes the creation of mental devices delegated to its performance and gives rise to a ‘capital of nerve force’ (Marshall 1920: 251 n.). The pattern towards generalization spreads through imitation. The particular standardization of a firm is like a personal mode of operating whose potential for

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generalization still has to be tested: ‘when the athlete strikes out a particularly successful way of taking hurdles, his Particular standardization is not at all sure to become General, until experience has shown to what extent his success with it is due to his idiosyncrasy’ (Marshall 1919: 202). The governing principles of evolving organizations will be always the same (Marshall 1919: 309) and progress is defined by the cumulative process which reduces more and more performances to routine. Mechanization is the outcome of eso-somatic evolution and transfers to the world of material objects the results of mental procedures which simplify the handling of incoming stimuli, by subduing their individual differences to some common standard: ‘when the action has thus been reduced to routine it has nearly arrived at the stage at which it can be taken over by machinery’ (Marshall 1920: 251–4). Machines dispense with the repetitive and degrading aspects of human labour (cf. also Marshall 1920: book IV, ix, §3), in the same way in which specialized mental sub-units help the upper level of the mind by dispensing it from repetitive work. Where routine prevails, ‘little contrivance’ is required and works goes on ‘without any great tax on forethought or contrivance’ (Marshall 1919: 281). The term ‘contrivance’, often employed by Marshall as synonymous with invention, creativity, innovation (for instance, in Pigou 1925: 332), has the same technical meaning it had in the mental model of ‘Ye machine’: it denotes a performance which defies existing routines and at the same time, when successful in solving problems which have to be repeatedly faced, becomes the foundation of a new routine (instinct). This cognitive approach views machines as ready-made clusters of packaged abilities and tends to bridge the gap between the industrial and the cybernetic revolution. Cybernetics and robotics are extensions, more than subversions, of those very principles that caused the first industrial revolution. Industrial machines are ‘automatic’ by definition, because they automatize some phases of production and save physical and mental toil by embodying and conveying information. The leap to a real ‘thinking machine’ comes about when the machine acquires self-correcting powers that are similar to those of the human mind (Marshall 1919: 207). Nelson and Winter (1982: 70) adopts a similar approach and concludes that it blurs the distinction between technologies and choices, since the latter too can be subjected to routine procedures. Though fascinated by cumulative routinization, Marshall feared that it could crowd out deliberate choice and freedom. The cumulative process of routinization reduces the energy required for any performance but its piling up creates new problems. Whereas previously individual initiative could easily find unexplored routes, once industry and science need the assistance of a huge amount of machinery (either mental or objective) they become ‘capitalistic’ and nobody can push them forward without the support of costly capitalized routines: men’s faculties may be somewhat burdened by carrying a great bulk of merely useful scientific knowledge, and turning it to account in business routine. … [M]any who might have been fascinated by opportunities of relatively easy creation fifty years ago, now find that very little of the

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The ‘decline in the place held … by the high faculties of initiative’ is a dangerous consequence of the growth of scientific and industrial capital which fosters ‘the more commonplace faculties of orderly administration’ and ‘the narrow mental vision’ that is only suitable for ‘team’ work in science (Marshall 1919: 205 n.). To counteract such dangers, room has to be made for the free exercise of imagination and creativity which characterize innovative practical men and scientists alike, economists included. Instead of allowing capital to gain control of human initiative, society must help human faculties to gain control of the capital needed for their exercise. The concept of ‘business ability in command of capital’ (Marshall 1920: 313) calls to mind the idea that accumulated knowledge is only worthwhile as a tool for the exercise of human creativity. The purport of this view is clear in the notes for a lecture on ‘Machinery and life’ which Marshall gave at the Cambridge Non-conformists’ Union in 1901 (Raffaelli 1994b). The central idea of the lecture notes is that ‘machinery of thought’ (organized knowledge and especially science) and ‘material machinery’ are both instances of the ‘mechanical methods’ on which progress depends, but that they also hinder liberty and ‘deaden at life’. Machinery of either type ‘is economical, efficient, saves labour’ and cumulatively increases ‘world-wealth’, since ‘all progress is the development of order’ and ‘a uniform method is the highest order’. At the same time, its growth runs the danger of hindering human activities, as excessive training encumbers the mind and becomes ‘an evil to the individual who has it’. ‘The ‘kernel of truth’ which Marshall submitted to his audience was that ‘order is an evil’ supplemented by consciousness that it is ‘a necessary evil in its place’ and that the most difficult task is ‘[to] find its place’.28 Routines dangerously tend to come out of their proper place and kill life. A similar mix of order and creativity is highlighted in book II, Chapter 2, §2.1 of Industry and Trade, where we find the two main ingredients of the general model, disguised as custom and novelty. ‘If custom had been absolutely rigid – Marshall writes – it would have been an unmixed evil’, but fortunately it did not ‘crush out of everyone the desire to humour his own fancy, or his love of novelty, or his inclination to save trouble by a rather better adjustment of implements to the work done’ (Marshall 1919: 197). Luckily, custom is not perfectly rigid, but, no less luckily, neither is it armless since its resistance is necessary for the exercise of the ‘love of novelty’, for new ideas to be registered without passing unnoticed: the solidity of custom has rendered the supreme service of perpetuating any such change as found general approval. Had each put his individual fancies

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into practice without restraint, few would have followed his erratic movements: there would have been no corpus, or body of general thought, in which they could have been merged … But custom supplied a permanent body of general design, on which each fresh mind might try to make some variation for the sake of economy of effort, of increased utility, or more pleasing effect. (Marshall 1919: 197–8) This Darwinian mix of hereditary selection and variation calls attention to their complementarity: if successful innovations were not preserved by custom, they would be lost. In modern conditions, greater foresight and readiness to change are present, but they also need to leave their traces on some existing corpus, some substance capable of codifying and transmitting those which are effective. This dialectical interplay of innovation and routine, variation and selective standardization describes the working of societies and individual minds as well. While making room for innovation, evolving systems must always work with given sets of flexible routines; they need both novelty and stability. This mix, together with the idea of different, interconnected levels of reality, forms the core of the contemporary idea of complexity, which Potts (1999: 298) synthesizes as ‘a balance between order and change’ and Nelson (1995: 55) as a mix of ‘random and systematic elements’, the latter being the outcome of a process of winnowing on the former, like natural selection does on chance variations and, in ‘Ye machine’, pleasure does on contrivances. In Marshall’s thought, this mechanism plays a ubiquitous role, from the evolution of the mind to that of knowledge, production appliances, industrial and social organization and political institutions. The depth of this insight is shown by Marshall’s two diverging concerns: automatisms increase the power of mental and social systems, so much so that without them it would be impossible to perform any complex operation, but when they become numberless and too rigid, they dangerously encumber those systems and disturb their power of creation. In general terms, social progress, which is bound to follow the guidelines of mental progress, always implies a right mix of orderly behaviour and freedom.

3.8 From chance to choice Chapter 8 of book IV of Principles is an introduction to the analysis of industrial organization and performs a role analogous to that of the last chapter of book I of Industry and Trade, which repeats similar concepts leading to the study of the ‘dominant tendencies of business organization’ in book II. In both cases, discussion of some issues of biological evolution and the claim that it makes clear the scope of purposeful action are preliminary to the investigation of industrial organization, the fourth agent of production which Marshall placed alongside the classical triad of land, capital and labour. These three factors are analysed in the first seven chapters of book IV of Principles in which, if issues of knowledge and organization were excluded, economics could be reduced to mechanical

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calculus; it is the evolution of organization, the growth of systematic and applied knowledge, which defies such representation and directly falls within the scope of ‘economic biology’. The crucial position of chapter 8 explains why it attracts the attention of historians in search of a ‘blueprint’ of Marshall’s ‘economic biology’ (Thomas 1991: 8–9; Hodgson 1993b: 410–12). Unfortunately, it is not the best place for detecting Marshall’s key evolutionary ideas. The stress it lays on ‘the struggle for existence’ and ‘differentiation and integration’ reveal openly acknowledged Spencerian influences, one of the preferred targets of modern censure. It is also the chapter where doubts about the meaning of Mendelism for social science were raised and where, in order to exemplify the way ‘in which organs are strengthened by being used’ (Marshall 1920: 247), the giraffe’s neck, this typical caricature of Lamarckism, made its short-lived appearance (Marshall 1961: 326). These pages are such a mixture of nineteenth century commonplaces on evolution and progress – eugenetics included – that they do not look very promising as the starting point of a new research programme in economics, centred on the biological analogy, while the subsequent chapter provides a better key to evolutionary economics. The main drift of chapter 8 consists in the eulogy of purposeful action, the exercise of man’s higher faculties of ‘reason and speech’ to hasten progress ‘by thought and work’ and remove ‘the evil intertwined with the good’. This and subsequent chapters analyse the spontaneous tendencies of modern industrial organizations – whose survival itself provides a prima facie seal of intrinsic worth – and their long period effects on individuals and society, which hint at the need to curb their action and repair some of the possible damage. This reasoning reveals the meaning of Marshall’s preference, stated in the introduction to the book, for ‘economic freedom’ instead of ‘competition’ to describe modern market economies, a phrase which, at a first glance, appears pure rhetoric. Competition, he writes, elicits negative feelings, those dependent upon its ‘dyslogistic’ meaning, while its ‘constructive’ side is often neglected;29 it is therefore better to use a term such as ‘economic freedom’, ‘that does not imply any moral qualities, whether good or evil, but which indicates the undisputed fact that modern business and industry are characterized by more self-reliant habits, more forethought, more deliberate and free choice’ (Marshall 1920: 9–10). The idea that lies behind the rhetoric is that in modern economies ‘alertness’ prevails and foresight is continuously exercised by entrepreneurs, managers, educators, parents, cooperators, civil servants, politicians and other people beyond the dictates not only of custom but also of competition, which is inadequate to describe the main features of modern industry and business. The main opposition shifts from the Millian contrast between custom and competition to that between custom-cum-automatic-competition and freedom. The action of competition itself becomes twofold: on the one hand it causes the automatic evolution of the economic system, without implying foresight or conscious intervention, on the other, it fosters those features of modern industry which call for deliberate choice; while the former action is blind, the latter relies on the human faculties of creativity and invention. Marshall refused to endorse social Darwinism and Spencerism with their dogmatic exaltation of the

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outcomes of natural selection and its social equivalent, untrammelled competition. He was primarily engaged to show that natural evolution does not necessarily foster social and industrial progress and must be supplemented by human foresight and freedom: The law [that those organisms multiply which are best fitted to derive benefit from their environment] requires to be interpreted carefully; for the fact that a thing is beneficial to its environment will not by itself secure its survival either in the physical or the moral world. The law of ‘survival of the fittest’ states that those organisms tend to survive which are best fitted to utilize the environment for their own purposes. Those that utilize the environment most, often turn out to be those that benefit the environment most; but sometimes they are injurious. (Marshall 1920: 242)30 Hindrances caused by natural selection to further progress are far from negligible. Darwin (1872 [1859]: 202, 206, 12 and 184–6; 1981 [1871]: 279) had already realized that evolutionary success might be accompanied by harmful side-effects. Marshall followed suit and argued, under three main headings, that the struggle for existence sometimes selects arrangements which are detrimental. Such arrangements may 1

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reward qualities which do not play any positive role – or even play a negative one – in determining evolutionary success. They can stand the test of natural selection simply because they are indissolubly bound to features which are effective for success, like the negative ‘scorn for patient industry’, associated with the positive virtues of warlike peoples (Marshall 1920: 245); damage other subjects, as in cases of parasitism (Marshall 1920: 244). ‘Economic parasitism’ – that is the ability that some groups have to thrive in the interstices and at the expenses of a given society – bewildered Marshall no less than biological parasitism disconcerted nineteenth century natural scientists (Gould 1983); hinder the development of human qualities and organizations which would prove more effective in the long run but are less rewarding than others at the beginning (Pigou 1925: 249; Marshall 1920: 249 and 596–7). This case, which calls for generalization of the arguments in favour of protection of infant industries, is particularly relevant when it concerns the most dangerous consequences of the selective mechanism of competition: the sacrifice of the individual to the exigencies of production, as in the caste system or the rigid organization of divided labour.

The third and most dangerous outcome proves that the contrasting exigencies of wealth production and human development may cause the loss of latent mental faculties which, in the long run, represent the most important fountainhead of progress. The more so since some of these faculties – ‘the religious, the moral,

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the intellectual and the artistic faculties on which the progress of industry depends’ – are unconnected with their direct economic efficiency, ‘are developed by the exercise for the pleasure and the happiness which they themselves bring’ and ‘are not acquired solely for the sake of the things that may be got by them’ (Marshall 1920: 246–7). A society, like a biological species, may find itself trapped in a cul-de-sac by the immediate and visible advantages of an evolutionary path which could preclude access to other paths, less promising at the start, but leading to better results in the end. In Marshall’s view, social evolution is ‘short-sighted’ and works by ‘sporadic’ or ‘local’ adaptation, with no guarantee as to its final results.31 The conclusion is that to increase the productivity of human beings is not an aim in itself, unless it also leads to developing their faculties. This view, relying on spontaneous forces of change and selection but conscious of their possible negative effects, is significant for Marshall’s analysis of individual and social evolution, which forms the subject of the following chapter.

4

Patterns of evolution at work

4.1 Education Marshall’s interest in education policies, probably related to his own experience as a student (see Groenewegen 1995a: chapter 3), was profound and continuous, from the ‘truly liberal education’ of ‘Ye machine’ to the remarks in Industry and Trade. Letters to the Cambridge University Gazette and Reporter (Whitaker 1996, vol. I: 1–13), evidence before the Committee on High Education in Wales and Monmouthshire (Groenewegen 1996: 14–61), speeches in the University Senate (Whitaker 1996, vol. I: 362–6, vol. II: 421–3 and vol. III: 398–405), flysheets, letters and plans for the establishment of the new Cambridge Tripos and education for women as well as businessmen, inquiries about the positive and adverse aspects of the German and American school systems, are all instances of his concern for education. Without analysing Marshall’s ideas on these separate subjects, some of which have already been studied,1 I shall outline the central role played by education in Marshall’s view of economic and social progress. This role is recognized by Bowman (1990), who places Marshall, after Smith and Mill, among the forerunners of the theory of human capital formation. Since man is ‘the finest instrument of production in the world’, ‘the most important productive machine’ (Raffaelli et al. 1995: 117 and 98), Marshall firmly believed that education represents investment in human beings.2 This parallel between capital and knowledge represents a powerful warning against short term drives which may prevent the attainment of long-term educational objectives. Education confers benefits on society which cannot easily be foreseen and therefore needs help and protection. Parents are often pressed to curtail their children’s education, either because they do not reap the benefit of their efforts (Raffaelli et al. 1995: 103; Marshall 1920: 560–1 and 1961: 311), or, if altruistic behaviour be allowed, simply because the rate at which they discount the future is too high (Marshall 1920: 217). This explains why education systematically needs public intervention. However, the aim of education should not be so much the transmission of accumulated capital of knowledge as the learners’ ability to master the process. Mill’s ideal of the ‘free development of individuality’ (Mill 1977 [1859]: 261) strongly appealed to Marshall, who pursued it within his own original framework. The task of education is to encourage individual energy and allow it free play to develop its potential, taking into account what people are capable of doing rather than

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what they do. Its chief function is ‘to educate character, faculties and activities’ (Marshall 1920: 718) and make ‘latent faculties’ emerge. The concept of ‘a truly liberal general education’ is related to the model of the growth of the mind: school education ‘is important not so much on its own account, as for the power of future advance which a school education gives’ (Marshall 1920: 208). Marshall’s main concern can be identified with that of ‘learning how to learn’ and his criterion for the sequence in the subjects of study is determined by their fitness to help the development of the mind at various ages (Marshall 1919: 819). This is the reason why general education is more important than specialized education, which should never be imparted too early. This is a constant theme of Marshall’s, with relevant economic implications. Industrial abilities and, to a greater extent, business ability depend more and more on the broad faculties of judgment, promptness, resource, carefulness and steadfastness of purpose – faculties which are not specialized to any one trade. (Marshall 1920: 312) That general ability which is easily transferable from one trade to another, is every year rising in importance relatively to that manual skill and technical knowledge which are specialized to one branch of industry. (Marshall 1920: 573; cf. also 206–7) While automatisms tend to displace ‘work that used to require manual skill and dexterity, but not much judgment’, they ‘open up all sorts of new occupations in which there is a great demand’ for judgment (Marshall 1920: 261). Standardized work becomes automatic, mechanized and therefore tremendously efficient but valueless. Those very people who are ahead of others involuntarily demolish the foundations of their leadership: those men who have advanced the technique of an industry may find that they have lowered the importance and the pecuniary value of the special skill and experience which had enabled them to make the advance: and, what is true in regard to expert individuals, is also true in regard to expert nations. (Marshall Papers: 5/3/2) What really matters is not possession of some special skill, but the ability to continuously acquire new skills. While old skills are swallowed up in the stream of advancing technology, attention, consciousness and judgment shift towards new activities which require more time and energy and become much more valuable. The educational system must educate people out of repetitive work, teach them to swim against the stream of progressive standardization and ‘diminish the supply of labour, incapable of any but unskilled work’ (Marshall 1920: 717), where the term ‘unskilled’ refers to types of work that have lost their ‘novelty’ and ‘call forth no human faculty that is worthy of esteem’ (Marshall 1920: 684 and 205). This also applies to higher functions: ‘The quality which makes for leadership is of

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more vital significance than the leadership of which it is the source. That quality is a high order of individuality’ (Marshall Papers: 5/3/2). To push the mind beyond existing standards, education must be open and active. Marshall’s comparison between the German and the British school system comes to the point. ‘A chief strength of German education lies in its order and system’ (Marshall 1919: 129), whereas Britain has long neglected her educational duties but finds some compensation in the many opportunities she gives for the exercise of individual initiative: ‘the paths of the ocean have been the Universities of an exceptional number of her men’ (Marshall 1919: 96). By contrast ‘the splendid organization’ of the German ‘Real schools’ (Marshall 1919: 357) runs the danger of being too systematic: discipline is indeed a foe to spontaneity; while spontaneity is the chief creator of original work, and especially of that which makes epochs in thought. This danger has not been overlooked: and organized efforts for the increase of spontaneity have a place in Germany’s educational as well as in her military system: but after all spontaneity is the only effective inspirer of spontaneity, and its only trusty guide. (Marshall 1919: 129) Spontaneity is the wellspring of unpredictable new knowledge, which cannot be mechanized, while discipline promotes the transmission of orderly habits and the organization of scientific routines; both novelty and discipline form part of education. According to the principles of mental evolution, disciplinary order is continuously growing and gives Germany a competitive advantage in industrial sectors where the massive supply of scientific routine-services is turned to account in production (Marshall 1919: 130). However, spontaneous creativity is more precious and though the organization of scientific work fosters the production of new knowledge, breakthroughs, in both science and business, require imagination (Marshall 1919: 204) which cannot be the product of scientific planning. Marshall’s educational ideal aims at individual inventiveness rather than the mechanical transmission of acquired routines. To educate is ‘a task which calls for vitality and initiative on the part of the educator’, while ‘instruction … imparts information, with scarcely any education in the true sense of the term: much of it even tends to hinder the movements of faculty by clogging it with inert matter’ (Marshall 1919: 356). Some Marshallian idiosyncrasies, like his polemics against learning Greek accents and the cumbersome English spelling (Marshall 1919: 352, 820 n. and 1920: 208 n.), do not imply any rigid functionalist approach but descend from the idea that burdening the mind without exercising its faculties is a pure waste of mental energy. ‘Even technical education’ is to be ‘so used as to develop the faculties’ without ‘being directed mainly to loading up the minds of the students with facts, and enabling them to feel at home in the workshop’ (Marshall 1919: 99): ‘mere accumulation of knowledge stunts rather than educates the mind … the mind can be strengthened only by gradually increasing calls on its strength and spontaneity’ (Marshall 1919: 96).

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Learning does not consist in the mere acquisition of codified, ready-made thought such as can be found in disciplinary text-books. It requires ‘an active and critical attitude’ (Marshall 1919: 357 n.) which nurtures a sense of proportion, judgment, instinct and intuition. Marshall insisted on the educational value of self-directed ‘imitation’ by which the pupil’s mind learns by itself what a master does: ‘an hour’s rowing behind a first-class oar teaches more than much verbal education’ (Marshall 1919: 351). School education should follow the informal experience of learning to row rather than the other way round: ‘the teacher should think the matter out as he goes, and gets his class to think with him’ (Marshall 1919: 357 n.) rather than load information into the students’ mind ‘as goods are loaded into a truck’. The value of imitation calls to mind the uncodified, tacit elements of knowledge which Polanyi (1967) emphasizes and whose role in organizational performances is stressed by many contemporary economists (for instance, Nelson and Winter 1982: 76–8). The acquisition of knowledge is not exhausted by its codified elements but is an individual process which each pupil must perform his/her own way, building his/her own mental connections. This is also relevant in evaluating some features of economic organizations, such as are to be found in the industrial district (see §4.4). These principles inspired Marshall’s method of teaching. He tried to ‘get [the students’ minds] to work in swing with his’, inviting them to see by themselves the way in which a ‘trained teacher’ thinks, because ‘the best way to learn to row is to row behind a man who is already trained’ (Pigou 1925: 381). His preference for extempore rather than rigorous lecturing, which tends to become fixed and routine, is well-documented.3 The method, which he developed after the publication of Principles, ‘removed any necessity for that teaching “as textbook” which Marshall so explicitly deplored’ (Groenewegen 1990c: 40) and was fit for relatively small classes, where a personal element could be present: ‘the sharp distinction which he favoured between written instruction by book and oral instruction by lecture was, as he developed it, extraordinarily stimulating for the better men and where the class was not too large’ (Keynes in Pigou 1925: 51).4 These educational principles transcend the school-room and highlight the need to ensure young people have contact with real life quite early, when their mental elasticity is greater. There is more to learn in the workshop than in technical schools, where ‘imitation has to yield the first place to formal instruction’ (Marshall 1919: 351). Education is also a process of socialization, in which ‘sympathies’ are developed by personal contacts ‘on the river and in the football field’ (Marshall 1919: 822–3). Like his early hypothetical machine, human beings form their faculties and character in society where minds are variously interconnected and personal capital of knowledge and organization cannot be fully isolated. Judgment and intuition are of paramount importance precisely in dealing with other people: thus, the businessman, especially if running a small business, benefits from ‘frank willingness to learn from others and to cooperate genially with others’ (Marshall 1919: 584). Marshall’s educational ideals of individual freedom, development of character and faculties, personal knowledge, imitation and group sympathy have a bearing

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on his evaluation of industrial organization and division of labour, an issue already raised by Smith and revived in Marshall’s time by the movement for scientific management.

4.2 The division of labour Division of labour gives a further boost to the process of specialization and automation that is at work in any single mind, helping to expand the range of human action. Each individual is thereby freed from a great variety of tasks whose performance would otherwise absorb his whole mental energy. The dangers associated with such process of cumulative growth derive from the fact that it binds individuals to the performance of repetitive tasks. As with any other evolutionary process, the growth and success of routines may conceal their harmful effects. The order implied by such specialization, though necessary to progress, is liable to become a hindrance to further progress if structural rigidity prevails. This is true of the individual, whose need to keep the set of acquired automatisms in working order may conflict with the need to originate new ideas. All the more reason for this to be true of society, whose history provides numberless instances of fresh mental vigour sacrificed to exigencies of the social order. The caste system is Marshall’s typical instance of this kind of sacrifice (Marshall 1920: 245–6). Though undoubtedly a case of effective adaptation to social and natural circumstances, as both its diffusion and duration reveal, the system had its own great faults, such as the rigid subordination of the individual to ‘certain special exigencies of society’. From this point of view, division of labour has ‘a striking resemblance’ to the caste system as it still entails a persistent ‘sacrifice of the individual to the exigencies of society as regards the production of material wealth’ (Marshall 1920: 246; cf. also Becattini 1991: 180).5 Marshall’s early grasp and conspicuous interest in scientific management was a consequence of substantial overlapping between his view of the mind and Taylor’s pioneering studies on ‘functionalized foremanship’ and the ‘principle of exceptions’.6 A manualistic description of Taylor’s methods is sufficient to show this overlapping: simply stated … [Taylor’s greatest contribution] is that for each plane or level of executive rank and skill there should be a competent and sufficient routine and that such situations or circumstances as occasioned emergencies for which this routine lacked provision should automatically pass to the next higher executive. Thus the highest executive, by a process of automatic sifting and accumulation, should find himself confronted for executive decision by only such critical or widely inclusive matters as no executive of lesser station can efficiently and economically meet. (Wissler 1931: 34) In his discussion of Taylorism, while conscious of its gains, Marshall also points out its serious losses. Prominent among them is the missed opportunity to develop

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the higher faculties of individuals who exhaust their mental energy in the performance of monotonous, yet demanding tasks: that sort of activity is not educative: it may even prevent the mind from getting the rest during monotonous work, which might fit it for taking part in … higher activities of mind and spirit. (Marshall 1919: 388) The substitution of repetition work in massive standardized production … is not an advance, from the human point of view, over skilled handicraft: it increases man’s power over matter; but it may diminish his power over himself. (Marshall 1919: 699) Scrutinizing the present system of industrial organization in order to ‘remov[e] the evil intertwined with the good’ (Marshall 1920: 246), Marshall first looks for spontaneous tendencies that run counter to this sacrifice of the individual to production. This is a constant feature of Marshall’s reformist approach: to be effective, the reformer must profit from the different opportunities that the manifold arrangements of a complex system afford; like evolution itself, he must act as a bricoleur. Freedom covers the area between trusting blindly in evolutionary forces and dangerously disarraying their automatic mechanisms for lack of knowledge. First and foremost among the natural tendencies capable of mitigating the most dangerous consequences of divided labour is the fact that those very causes that make industrial work monotonous tend to replace it with new machines which ‘act as slaves for the humbler part of mankind’ (Marshall 1919: 663). But this process too is ambiguous and technical progress has a Smithian (and Marxian) side-effect: ‘the use of machinery tends to make man himself mechanical & is so far destructive of life’ (Marshall Papers: 5/9). Another automatic force that opposes the negative effects of the division of labour is the reward that markets confer on those employers who are able to take full advantage of their employees’ ‘higher mental faculties’ (Marshall 1919: 616) and ‘originating and constructive ability’ (Pigou 1925: 275). Besides being an expert in his industrial sphere, the Marshallian entrepreneur must be able ‘to bring out whatever enterprise and power of origination there is in them [the workers]’ (Marshall 1920: 297–98). This encourages the spread of intelligent and creative attitudes among the workers and – as we shall see – helps small businesses to thrive. To avoid the trap of short-sighted evolutionary paths, such beneficial automatic forces must be guided and reinforced by human purposeful intervention. Since evolution is undesigned, Darwinian, human beings must exercise their ‘prerogative’ of ‘forecasting the future’. In particular, Marshall’s concern for human spontaneity and versatility was the main source of his proposed interventions and set limits to the free play of division of labour in view of greater social benefits in the future. History shows that the introduction of new machines is no guarantee that everyone will become a gentleman or a lady, the aim set by Marshall in his early Lectures to Women and The Future of the Working Classes. If things are left

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to drift, the dream of the Greek poet, quoted by Marx, that people would ‘rest from labour’ enjoying the gifts of nature and that work would be ‘almost forgotten’ being ‘entirely subordinated to the growth of a man and of his character’ will never come true (Raffaelli et al. 1995: 90).7 Similar fears inspired his concern over business concentration.

4.3 Business and industrial organization Marshall’s in-depth analysis of industrial and business organization may be considered the pivot of his evolutionary economics. His perspective is dynamic: what really matters are the forces that mould the future and the chief aim of the economic system is to preserve and increase the springs of progress, mental energy in particular. The classical economists’ ‘most vital fault’ ‘was that they did not see how liable to change are the habits and institutions of industry’ (Marshall 1920: 763). This objection broadens the criticism raised against their assumption that human nature is constant and reminds us that the main conditions of production, on which progress and the development of human faculties depend, are variable. In a market economy, the evolution of industrial organization is driven by competition which, like natural selection, is to be preferred because of its automaticity and reliability, but must be opposed whenever it hinders new opportunities for further progress. Business concentration provides a typical instance of progress that is, to some extent, inevitable, as it is due to ‘the great forces of economic evolution’ (Marshall 1919: 521), but also associated with some negative effects. The benefits it confers on productive efficiency and the prima facie reasons in favour of a process that spreads throughout the industrial world do not preclude the possibility that in the long run losses may exceed benefits: ‘subordination to natural tendencies, when pushed to its extreme logical issue, is blind fatalism’ (Marshall 1919: 175). The dangers are greater precisely because these natural tendencies appear favourable to progress: ‘sources of individual or social decay are sometimes most dangerous, when they are associated with great achievements and rich benefits’ (Marshall 1919: 175). For example, the ‘new tradition, … repeated parrotwise, … that a small business must be out of place in the new age, … is all the more mischievous, because there is much important truth at the back of it’ (Marshall 1919: 581–2). To deal with this issue, Marshall relies on the heterogeneity of automatic forces and the possibility of grafting onto them deliberate interventions that deploy ‘far-reaching forethought and carefully planned organization’ (Marshall 1919: 609). Marshall’s approach led him fairly naturally to realize that the boundaries between the firm and the market were mobile and that the size of firms was not a datum but a consequence of decisions on problems of economic organization (cf. Loasby 1991a,b). Starting from this perspective, he naturally came to wonder why economies of scale do not cause a firm with a small initial advantage to devour the whole market. It seems at a first glance that ‘each step would make the next step surer, longer and quicker: so that ere long it [a strong manufacturing business] would have no rivals left’ (Marshall 1919: 315). The process has

68 The oeuvre cumulative forces, which gain momentum as it develops: ‘some of the forces that are working against the small producer are growing cumulatively’ (Marshall 1919: 248). Expansion of business fosters division of labour and the building up of more and better routines which call for increased capitalization. Such improvement of efficiency is also at work in the use of managerial abilities reinforcing the tendency towards concentration: the head of a large business can reserve all his strength for the broadest and most fundamental problems of his trade … he need not trouble himself much about details. He can keep his mind fresh and clear for thinking out the most difficult and vital problems of his business. (Marshall 1920: 284)8 The dependence of this advantage on Marshall’s view of the human mind is easily detected: by continuously shifting mental energy towards more general and difficult tasks, large organizations can take full advantage of division of labour in business management and can always keep a reserve of ‘thinking force’ free to be applied to ‘the broader movements of the markets, the yet undeveloped results of current events’ (Marshall 1920: 284). By contrast, the small employer’s brain is forever caught in the trap of routine work. However, as is to be expected with Marshall, given the complexity of social phenomena, natural forces do not converge. External economies are the bestknown spontaneous forces that check the tendency to business concentration. Yet, even if their effects were fully considered, small producers would only trail behind large enterprises and the process of business concentration would continue, though its speed would be reduced. External economies, though ‘constantly growing in importance’ (Marshall 1920: 284), neither cancel all the competitive advantages of large producers, nor give small producers any peculiar advantage. For a more effective counterweight, Marshall laid stress on what might be called ‘internal diseconomies’. His opinion concerning the head of a large enterprise is that if, as his business increased, his faculties adapted themselves to his larger sphere, as they had done to his smaller; if he retained his originality, and versatility and power of initiation, his perseverance, his tact and his good luck for very many years together; he might … attain something like a limited monopoly; that is of a monopoly limited by the consideration that a very high price would bring rival producers into the field. (Marshall 1920: 285–6) Big businesses find it difficult precisely to reproduce at the top the mental energy, the ‘creative genius’ (Marshall 1920: 316) that caused their initial growth. The fact that business abilities are neither hereditary (Marshall 1920: 299; 1919: 525 and 538) nor easy to acquire through formal education (Marshall 1919: 356) makes it difficult to maintain and reinforce existing market leadership. Managerial capitalism can remedy some of these drawbacks, but it cannot protect

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big businesses against the possible emergence of dangerous gaps between the needs of an ever-growing organization and the limited powers of the human mind. The marked disadvantage of massive vertical concentration is the tendency of subordinate departments to be overcome by routine. Shielded from market competition, their acquired automatisms go unchallenged and ‘fall behind current practice’ (Marshall 1919: 323). This shortcoming is typical of vertically integrated businesses: unless they stimulate innovation in every single part of their organization, they constantly face the danger of complete fading of creative mental energy from their sub-units. For the latter, protected from external stimuli, neither evolve by themselves nor send messages to the central system but simply remain inert and wait for impulses from the top. The tendency to bureaucratization, emblematically exemplified by public administration, is also a liability to giant industrial concerns (Marshall 1919: book II, chapter 8). Something similar happens to the human mind: ‘plasticity’ and ‘flexibility’ are lost once fixed patterns of reasoning and behaviour are established and no automatic mechanism of correction is at work. Moreover, advantages of size tend to die away quickly in industrial production, especially when the process of standardization is fragmentable, highly capable of being modulated. This is the reason why ‘the standardization of component parts is at once more productive of economy and less hostile to progress than that of complex structures’. The difference ‘is of special significance in regard to the context between giant businesses and those of moderate size’ (Marshall 1919: 227). The existence of markets for piecemeal standardized products continuously opens up new possibilities for small businesses, causing ‘a certain reversion to earlier conditions’ (Marshall 1919: 509) and helping them to thrive as either suppliers or users of component parts. In both cases, the small producer is relieved ‘of many troubles of marketing which might weigh him down’ and enabled ‘to give his energies to that work which is especially his’. There are many instances of this process: the small cutler, bicycle builder, milliner, dressmaker, shoemaker, builder and picture frame maker buy machine-made standardized material from large producers and work it carefully, giving ‘their main attention’ to customers’ tastes. At the same time, small producers can produce and market standardized components of elaborate products. Though constantly threatened with extinction, small producers always find new scope ‘for the elasticity, for the initiative, and for the watchful care about details’ in which they excel (Marshall 1919: 245–8). Standardization and the introduction of machinery make the value of standardized production shrivel up, though its amount is increased, while the value of that labour which stays on top of the process and requires individual attention is enhanced. The process is similar to that which helps to understand the advantages of general over specialized education: performances which are easily automatized are tremendously effective, but soon become devalued. Finally, the chief advantage of small and medium businesses is represented precisely by their readiness to change, their direct and personal links with their customers (‘special markets’9 that resemble Darwinian ‘places in the economy of nature’ or, in modern words, ‘ecological niches’) and their ability to detect and develop their employees’ ‘higher mental faculties’. The latter advantage

70 The oeuvre in particular – and Marshall’s firm reliance on small businessmen’s ability and interest in appreciating their employees’ latent faculties’ – provided the main reasons both for his hope and his confidence in their thriving future.10 By contrast, in big businesses ‘the foremen and other officials of medium grades are not always quick to appreciate fully any higher qualities that may be latent in a young artisan: they judge him probably by his output; but that, though a good measure of his value as an operative, is a very poor measure of his higher capabilities’ (Marshall 1919: 662). In his strenuous defence of small businesses, Marshall praised their ability to foster creative innovation, bring forth the latent faculties of their workers and safeguard powers of variation and progress. Small and big businesses are therefore types of organization that naturally have their own advantages and disadvantages in economic competition. Big businesses have maximum control and power of coordination over their departments, but need much concentrated energy at the top, face the laziness of their sub-units and are unable to detect their employees’ latent faculties. Small businesses always appear to be on the verge of extinction because of increasing economies of scale, but their specific qualities and the very process of economic evolution open up new opportunities for their activity. In this analysis, it is not easy to trace the inconsistencies that Limoges and Menard (1994: 353) point out as the main reasons for the early abandonment of Marshall’s programme by the economic profession, an abandonment that the authors lament as the ‘turning point in the modern history of economics’. The authors maintain that lack of Darwinian buffers against growth of size induced Marshall to revert to the ‘typological’ Linnaean concept of the ‘representative firm’. But if greater attention is paid to the ‘neurophysiological analogy’, such a sweeping conclusion can be dismissed, suggesting that Marshall’s Darwinian path was not bound to advance towards the deplorable outcome of monopolistic concentration. While both neoclassical and Marxian economists insist on the cumulative technological advantages of industrial concentration, due to increasing economies of scale, Marshall’s analysis, centred on the dialectics between standardization and innovation and the requirements and problems of mental evolution, reaches less clear-cut conclusions: ‘there seems no doubt – he wrote in 1890 – that the increase in the average size of factories has gone on not faster, but slower than was thought probable a generation or two ago’ (Pigou 1925: 279). This conceptual framework was not abandoned even when he had to acknowledge the decisive shift towards business concentration and joint stock companies of the following decades, which brought about one of the most remarkable revisions of Principles (Marshall 1920: 316, 343). As has now become familiar with Marshall, though a certain increase in business concentration is inevitable, the process is not to be left to work out its results automatically. All the more so since, while in selecting the other factors of production the principle of substitution works through the conscious agency of business undertakers, ‘with regard to them it has no other agency than the direct influence of their

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own competition. So, it works blindly, or rather wastefully’ (Marshall 1920: 663). Precisely because, on the whole, natural forces are favourable to concentration, deliberate interference with market mechanisms should be designed to help small and medium businesses. This attitude, which made Beatrice Potter Webb label him an ‘idealist anarchist’ (Mackenzie and Mackenzie 1983: 108), was neither wishful thinking nor a romantic struggle against the stream of natural tendencies, as Mrs Webb believed. She felt that industrial firms were growing bigger and bigger and that the only remedy against economic oligarchy was their democratic control. By contrast, Marshall, fearing ‘the bureaucracy of the great industrial machine’, found relief in thinking that the evolution of the size of firms was less one-directional and could be influenced by human decisions. The complex nature of modern society, with its wider variety of possibilities, enhances the opportunity for exercising forethought and limiting business concentration. This policy is required since some of the advantages of concentration are ‘bought too dearly’ if they are ‘obtained at the expense of a diminution of the spirit of free enterprise’ (Marshall 1919: 582). The future prosperity of small businesses is a benefit to both industrial production and society ‘for small businesses are on the whole, the best educators of the initiative and versatility, which are the chief sources of industrial progress’, ‘the most important element of national wealth’ (Marshall 1919: 249 and 594), ‘the nurseries for the best brains in large businesses’ (Marshall 1919: 525). The contrast with big companies (and State enterprises) is strong: the latter are run by routine and vis inertiae and their growth ‘at the expense of small businesses with greater elasticity and power of origination’ (Marshall 1919: 321–2) must be watched ‘with some uneasiness’ (Pigou 1925: 279) as their mechanical administration ‘represses elasticity and initiative’ (Marshall 1919: 324) and, as a rule, ‘does comparatively little to educate high creative faculty’ (Marshall 1919: 603). Significantly, in the above quoted conference on ‘Machinery and life’, big businesses, together with collective agreements, are singled out to demonstrate the dangers of modern economies: ‘big mechanical organized businesses are necessary and must have an ever greater scope’, but they are ‘a necessary evil … to be accepted only as a means to a greater good. Onus probandi’ (Raffaelli 1994b: 21). Hostile to elasticity, anonymous in its relation with its employees and customers, the large company now appears as ‘a temptation’ and any ‘increase in the scale of its operations’ may be the cause ‘of some little injury to the community’. If this were the whole of the case – Marshall writes – then every new advantage, that modern changes confer on large businesses in their contests with small, would be a source of danger to social progress. … A tendency to ossification of the social organism might therefore be feared as the result of bureaucratic habits. (Marshall 1919: 325) A ‘mitigation’ but not a ‘reversal’ of this conclusion was found by Marshall in the spread of journals and conferences on management techniques, which offered new opportunities and stimuli to innovation by laying managerial decisions open to the judgment of a critical and competent audience (Marshall 1919: 326). Though this

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process, whose strength depends on the innate sympathetic desire for the approval of others (see Chapter 5, n. 35), reduced the dangers associated with industrial concentration, Marshall opposed giving free rein to giant organizations, both public and private. He argued that the long-term requirements of the socio-economic system were better met with a wider variety of organizations and favoured decentralized solutions which respected the autonomy and responsibility of their members. Here, as elsewhere, Marshall remained faithful to the Darwinian principle that ‘the tendency to variation is a chief cause of progress’ (Marshall 1920: 355). Marshall’s approach to business organization is original, profound and susceptible of further applications. The modern tendency of big businesses to give wider autonomy to sub-units and their policy of training and promotions may counter some of the weaknesses pointed out by Marshall. At the same time the unexpected vitality of small and medium businesses confirms Marshall’s evolutionary conception, which also helps to understand analogous phenomena in modern science, where small research groups are continuously displaced by large organized teams, yet always find new areas in which their work is required precisely thanks to the growth and diffusion of standardized knowledge.

4.4 Industrial districts Industrial districts were one of the most relevant phenomena of his age which Marshall’s conceptual framework helped to illuminate. The expression ‘industrial’ or ‘manufacturing district’ was widely used in the first part of the nineteenth century when some areas, like Lancashire, had clearly become the seat of specialized industrial activities.11 However, it is generally acknowledged that only in Marshall’s writings did the term cease to be a ‘descriptive device’ (Sforzi in Becattini 2000a: 21) and – though timidly and unsystematically – began to acquire its standing as a socio-economic concept. Marshall’s analytical idea of localized external economies provided the kernel around which district studies were organized (Chapman 1904) and have recently been renewed (see pages 127–8). Marshall’s evolutionary views point to the theoretical relevance of district organization which, far from representing an appendix to his social thought, was directly connected to its core and constituted a specific way of dealing with processes of standardization and innovation that were inherent in his concept of progress. Discussion of automatic forces for and against business concentration would lead to a very unbalanced result if decentralized capitalism were compelled to solve its huge problems of coordination by wholly conscious efforts and interfirm collaboration could not be ‘automatic’. An interesting consequence of Marshall’s multi-level view of organizations is that automatisms need not be limited to the elementary sub-systems. To a certain extent, their coordination itself can be automatized and performed without conscious attention, as happens when various elementary mental connections of ‘Ye machine’ are fused together to form an instinct. Higher level automatic coordination has the same survival value as first level automatization: both save mental energy. Like the Smithian market, it also economizes on moral qualities. Conscious inter-firm cooperation, such as

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the sharing of laboratories and market facilities, is to be preferred from an ethical point of view,12 but automatic, spontaneous collaboration is more trustworthy since it relies on ‘the strongest, and not merely the highest forces of human nature’ (Marshall 1919: 664). District organization can compete with big integrated businesses as it can manage a growing set of routines – and the corresponding capital equipment – without requiring too much conscious attention. Consistently with Marshall’s mental philosophy, a reliable answer to coordination problems should absorb only a small fraction of the scarce and precious resource of attention. Marshall found a very good instance of such automatic cooperation in ‘a great industrial district[,] where numerous specialized branches of industry have been welded almost automatically into an organic whole’ (Marshall 1919: 599). Without any conscious intervention and centre of coordination, the industrial district frames a complex pattern of division and integration of labour that would be difficult for a big business to plan, whatever effort it applied to the task: this specialization is however thoroughly effected without conscious effort in the Lancashire cotton industry; and especially in those branches of it, which are mainly in the hands of a multitude of independent businesses of moderate size. (Marshall 1919: 601) The British cotton industry, Marshall argues (1919: 601), outperforms its competitors by ‘trusting almost exclusively to automatic organization’. Lancashire is ‘perhaps the best present instance of concentrated organization mainly automatic’; automatisms spread throughout the district and new ones arise simply through contact and experience. Most of them are intangible, like skill in the ‘manual handling of a material’ (Marshall 1919: 284), and create ‘an industrial atmosphere’ that cannot be transplanted elsewhere (Marshall 1919: 287). They are diffused through personal contact and imitation, whose educative value is unsurpassable. Thus, the highly specialized units of the industrial district embrace a set of continuously evolving skills that may be taken for granted. In the contest between giant businesses and industrial districts, Marshall praises the pliability of the intermediate, complex automatisms of the latter and makes it clear that in deliberately planned organisms, when consciousness shifts elsewhere and systematic routines become established, the absence of natural selection enhances the rigidity of the system. Inasmuch as it is a consciously directed organization, the giant business enjoys greater freedom, but once its mechanisms are established they do not evolve naturally and are not modified till the next conscious intervention (suffice it to think of modern re-engineering techniques). Planned economies face the same danger on a larger scale (see §4.6). By contrast, district routines are less freely and consciously established, but their coordination evolves naturally, by trial and error. In other words, competition routinely reforms custom routines; it works smoothly because it works automatically, unconsciously, like custom, but without its rigidity. In the modern industrial world even innovation and contrivance are, to some extent, routinized and performed

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automatically under the motive of ‘the reasoned expectation of net gains’ (Pigou 1925: 367). Districts represent a particularly intensified type of market relationships and highlight the plural meaning of the term ‘market’ in Marshall’s thought (Dardi 1990): the monolithic market of Walrasian and Marxian economics, no less than their value theory, is substituted with a multi-faced entity (Marshall 1919: 182; Marshall 1920 in book V, chapter 1). Summing up, districts, like giant businesses, ensure a growing availability of routines since they too can reach the size required for standardization of productive processes, but they do so at lower costs for their maintenance and coordinated management. Coordination can be generated by ordinary interrelations between distinct operative units while the upkeep of routines, which are not shielded from competition, as they are in vertically integrated businesses, goes on without requiring specific mental energy. However, as Loasby (1998a: 80–3) noticed, risks of ossification impend over the district as well, and its automatic coordination can hinder innovation, especially when production has to be revolutionized and natural adaptation fails. This breakdown calls for some extraordinary intervention and the oiled, automatic coordination of the district becomes a liability rather than an asset. No set of automatically coordinated automatisms, however numerous and flexible, can produce the same range of variability as conscious direction, which is the prerogative of human action. As the Lancashire cotton crisis was soon to prove, triggering the Marshallians’ efforts at ‘rationalization’ (see page 125), conscious intervention becomes unavoidable when radical environmental changes occur. In its absence, agents tend to follow their usual behavioural patterns, which worked so well for decades, and restrict individual output, waiting for better times. They act like beavers which build marvellous underground passages and dams even when there is no stream and no risk of flooding, showing that instinct and custom are inferior to reason (Marshall Papers: 5/9), as much as the organization of ants and bees, ‘automatic and unconscious, without direction by foresight and deliberate contrivance’, is inferior to the semi-automatic customary elements of human life, which are provisional and modifiable by reason (Marshall 1919: 164). When the required changes are radical, and imply reorganizing the whole system, survival of the district depends more on its social, cultural and political life than on its purely economic organization. Its chance of survival depends on the strength of its democratic and cooperative environment. Given individual differences, the ‘inter-communication of ideas’ between ‘many minds’ enhances the probability of finding someone ‘fitted to originate new ideas’ (Whitaker 1975, vol. II: 198; cf. also Marshall and Marshall 1879: 53),13 but when, in order to be effective, the decision to change has to be taken by the whole community, social cohesion becomes decisive. Though Marshall is often credited with preferring big integrated businesses, it appears that his social philosophy leans towards other types of coordination, in which individuals are active subjects of co-evolution whereas big businesses and scientific management tend to direct productive efforts from above (Whitaker 1999). Since for Marshall the key to progress lies in the development of human abilities, which are often latent and waiting to be awakened, the ‘republican’ environment of

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small and medium-sized businesses, where ‘many minds’ are active and ready to cooperate, looks far more promising than the ‘monarchical’ environment of big businesses.14 A territorial system of decentralized industrial activities always favours contacts between people of different social descent and does not create strong hierarchical barriers which would deprive the common worker – and this would be his life-sentence – of contacts with people who can evaluate his attitudes for the performance of higher tasks than those he is carrying out at the moment.

4.5 National leadership and stagnation Marshall’s oscillations with regard to the meaning of the term ‘nation’ (see pages 42–3) bear witness to the flexibility of his concepts: grouping can take place along different dividing lines, none of which is definitive. Industrial districts, already present in the early writings and widely discussed in Principles, appear to lose some ground at the turn of the century and their place in Industry and Trade is not as prominent as might have been expected, given their connection with the main issues of the book. It is true that the book begins with the statement that the general principles of the interrelationship between industry and trade – of their co-evolution in particular – ‘have no reference to nationality’ and ‘are almost as applicable to the trade between two neighbouring parts of the same country as they are to international trade’. Lack of statistics of foreign trade other than international trade compels us to choose political nations as terms of reference, but if the local spirit of a province or industrial city run high, and if some economic conditions of relative self-containment were satisfied, ‘then the people of such a place would be a nation within a nation in a degree sufficient to render propositions which relate to international trade, applicable to their case from an abstract point of view’ (Marshall 1919: 13–14). This echoes the early proposal of considering prices as terms of trade between different localities, or sectors, but on the whole Marshall maintains that national states represent the proper subject of analysis, given their commercial, educational, legal and cultural unity, and identifies ‘economic nations’ with ‘political nations’. He explicitly remarks that local external economies are declining in importance, since mechanization diminishes the demand for ‘that sort of highly developed manual skill, which requires special training from boyhood upwards’ (Marshall 1919: 167–8); therefore, modern industrial businesses can be started by able businessmen in any district whose population ‘is energetic and has a fair share of alert intelligence’. This process tends to erode state borders as well, but in his times Marshall considered that nations were the best units of analysis to discuss problems of industrial leadership in the light of his evolutionary model. Germany’s prominence in fields where organized knowledge is required has already been noticed (see page 63). Ability to perform highly standardized work explains Germany’s leadership in chemicals and similar products. Moreover, while Britain is burdened by old regulations, customs and knowledge, Germany, being a new country, can freely adopt new methods of production. This offers a great advantage when the methods of industry are changing rapidly, as

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witnessed by English history itself, whose industrial revolution took place outside the commercial towns. When production techniques change, old routines become a hindrance and new methods can be more freely adopted by newcomers (Marshall 1919: 135–7). France – and possibly, in the near future, Italy which ‘is throwing out flashes of genius’ (Marshall 1919: 106) – excels in fashion, creativity and design: ‘new Parisian goods are sold at very high prices to the richest customers in all countries’. But after a while people in commercial countries, endowed with a high faculty for organization, study the imported French model, catch the keynotes of its ideas: they translate as far as possible into mechanical language, and produce passable imitations for the middle and working classes. … Meanwhile, however, Paris may have made one or more new models, which can be sold at scarcity prices to those who are tired of the last model, partly because it has become somewhat vulgarized. (Marshall 1919: 118–19) French production must always stay on top of existing routines which follow the French lead while France goes on to create new products: ‘to maintain her position, France needs a continual supply of fresh inventive minds’. New contrivances continuously modify the production and consumption of clothes while standardization dogs them every step. This process suggests how Britain could revive her vanishing industrial leadership: when ‘the arts and resources of routine mechanical manufacture’, in which Britain was wont to excel, are ‘the common property of all the four quarters of the globe’, Britain must carefully look at the experience of France for her own future (Marshall 1919: 120). This cycle of innovation and standardized production at the international level replicates the evolutionary model of the mind and is reproduced, on a smaller scale, by the succession of the two types of undertakers, ‘those who open out new and improved methods of business and those who follow beaten tracks’ (Marshall 1920: 597; cf. Pesciarelli 1991: 146–7). America’s leadership is due to ‘multiform’ standardization and therefore ‘the provinces of French and American methods are on the opposite sides of the broad fields of industry’ (Marshall 1919: 140). American methods consist in analysing ‘the ultimate product into simple parts’ and adapting supply to demand by different combinations. America’s enormous market provides continuous opportunities for recombining standardized processes in order to meet an expanding demand. Builders assemble standardized components in standardized ways and architects can put the finishing touch by adapting buildings to personal exigencies. The American population forms a large market for homogeneous goods since the different races yield ‘to the dominant spirit of the strong mixed race among whom they have settled’, while at the same time the variety of races supplies ‘a unique combination of the faculties and aptitudes needed’ for the various productive tasks of modern economies (Marshall 1919: 147–8). Willingness to migrate and

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experiment, social mobility and hope to succeed in the vocation which offers ‘the highest distinction’ give America an almost undepletable reserve of inventive energy while the arrival of poorly educated people ensures that the lower stations, devoted to routine tasks, are replenished without loss of human faculties; indeed with some gain given the immigrants’ initial destitution. If leadership implies ability to innovate, stagnation derives from lack of creativity. This lack is never absolute and an old country ‘may become new all of a sudden’ (Marshall 1919: 142). Japan is ‘a bold claimant for leadership’, while India suffers from the rigidity of time-worn custom, which Marshall initially judged to be almost absolute, depending on religious sanctions, ‘passive acquiescence in “natural” arrangements’ and ‘absence of the habits of the determination of his conduct on the part of each individual so as to obtain most completely his own ends’ (Groenewegen 1990b: 13). It appears that Marshall changed his mind on India and other stagnant societies during his Oxford years, under the influence of Vinogradoff.15 He was reminded of this period when Cunningham, stressing the fixity of custom, downgraded the scientific value of abstract economic analysis. It appears that Maine’s concept of ‘legal fiction’ – that is ‘any assumption which conceals, or affects to conceal, the fact that a rule of law has undergone alteration, its letter remaining unchanged, its operation being modified’ (Maine 1866: 26) – convinced Marshall that custom is often changed beyond recognition, especially where it is almost sacred: ‘people brought up under the influence of custom … adopt different means for attaining their ends from those which we do, and are not nearly as conscious of what they are doing’. The conclusion, which came just in time for Marshall’s heartiest praise of the ‘economic organon’ in his 1885 Cambridge inaugural lecture, was that ‘the desire to do what is best for oneself is seldom wholly absent from human nature’ and, however tight the prescription of custom may be, ‘there always remains a fringe of debatable ground in which a pushing character can assert itself ’ (Marshall 1961: 738–9). The modifying action of this force, almost identical with Smith’s ‘desire of bettering one’s condition’, is especially effective in economic matters, such as price movements (Keynes 1926: 274–5). This new attitude nourished high hopes for Indian progress, but Marshall did not wholly rely on these ‘subterranean channels of change’ (Marshall 1961: 741) produced by the ‘desire to do what is best for oneself’ but looked for more direct roads to progress. Japan’s ‘quick rise to power supports the suggestion, made by the history of past times, that some touch of idealism, religious, patriotic, or artistic can generally be detected at the root of any great outburst of practical energy’ (Marshall 1919: 161). The Japanese student in Cambridge ‘nearly always asks himself in what way he can strengthen himself to do good service to his country on his return’ while ‘the best Indian minds seek self-culture, or the barren work of pleading in the Courts [barren of good to the country as is the sand of the sea shore], rather than those creative enterprises which might make their country strong’ (Whitaker 1996 vol. III: 268, 283). Attention to the role of individual and collective values, also displayed by Marshall’s analysis of the causes of British and American leadership,16 tallies with his social and political ideas.

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4.6 Political and social issues Marshall’s interest in politics and society provides another field for testing the pervasiveness of his evolutionary dialectics of order and creativity, necessity and freedom. Spurred to study political, social and economic issues by ‘the need to assess the possibilities of the higher and more rapid development of human faculties’ (Pigou 1925: 10), he soon developed ‘a tendency to socialism’ which nourished his belief that while the causes which produce strong inequalities are natural, the causes of such causes are ‘not wholly beyond human control’ (Marshall 1919: vii; cf. MacWilliams 1975). But while he found socialist aims practicable and noble, he rejected all socialistic schemes of administration since they did not make ‘adequate provision for the maintenance of enterprise, and individual strength of character’: ‘the true danger of Socialism – Marshall wrote to Benjamin Kidd – lies in its tendency to destroy the constructive force of variation and selection’ (Whitaker 1996, vol. II: 114) and produce ‘want of initiative, of variation and of progress generally by means of trial and error’ (Marshall Papers: 3/16). He was alarmed at the prospect of collective ownership and public management which ‘would deaden the energies of mankind, and arrest economic progress’ (Marshall 1920: 713) and went as far as to suggest that the socialist movement was ‘not merely a danger, but by far the greatest present danger to human well-being’ (Whitaker 1996, vol. III: 232). ‘I am constantly fighting – Marshall stated to the Commission on the Aged Poor – against those tendencies of socialism that are towards increased bureaucracy’ (Keynes 1926: 261). Municipal socialism is no exception to the rule, as confirmed by Marshall’s targets while he was sitting in the Labour Commission: ‘where you have bureaucracy there you will not have progress’ (Groenewegen 1996: 195). The worst of all possible governments, however, becomes necessary when destruction of orderly automatisms is pushed too far. Ignorance of the role of social order, in the vain attempt to build a wholly unconstrained social system, is liable to lead to the imperious need to re-establish strong rule. The socialists’ ‘untrained minds’ (Pigou 1925: 109), refusing to rely on existing automatisms without having devised new ones, lead to catastrophic results.17 The conclusion was already stated in Mill’s Chapters on Socialism, which fortified Marshall’s tendency to socialism (Marshall 1919: vii) but also warned him of the dangers of revolutionary change: ‘they [revolutionary Socialists] are unaware that chaos is the very most unfavourable position for setting out in the construction of a Kosmos, and that many ages of conflict, violence and tyrannical oppression of the weak by the strong must intervene’ (Mill 1967 [1879]: 749). According to Marshall’s evolutionary model, automatic market forces cannot be removed all of a sudden without making room for an ‘omnipervasive authority’. Deprived of its customary automatic controls, unable to establish new ones, the social structure ‘may probably drift into chaos, from which relief can be found only in a military despotism’ (Marshall 1919: 660). Applying the principle set out in ‘Machinery and life’, it may be concluded that order deadens freedom but is also necessary to its very exercise.18

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Centralized planning is unworkable not only because the central authority is unable to collect and manage the huge amount of information it requires (the main neoclassical critique of economic planning), but also because it spreads over too many tasks the limited and precious resource of attention, which should instead ‘be concentrated on work which none but Government can do’ (Pigou 1925: 336–7). This shortcoming brings into the social sciences the psychological problem of the limits of short-term memory and the related computational problem, already noticed by Babbage, of the limited capacity of the ‘mill’ (working memory) as compared to the almost inexhaustible capacity of the ‘store’ (long-term memory). The advantages of social systems whose working requires limited energy – both moral and intellectual – played a key role in Smith’s polemics against ‘the spirit of system’ and in his acceptance of the market and were decisively present to Marshall, who knew the possibilities, but also the operational constraints, of any structure that replicates the working pattern of mental organization. Like Simon’s (1983: 21, 29–30 and 79–83), Marshall’s anti-state-socialism derives from the emphasis he places on the bottleneck of attention. As already noticed by Rizzello (1999), von Hayek’s criticisms of centralized planning also stem from a similar cognitive matrix. However, Hayek’s attitude was much more conservative than Marshall’s since the Austrian economist’s preference for ‘natural’ as opposed to ‘artificial’ processes was unconditional, unduly restraining the possibilities of conscious intervention. While believing that spontaneous ‘institutions’ were to be preserved, he considered contrived ‘organizations’ as dangerous. This brought about a much sharper contrast between markets and organized systems than is to be found in Marshall’s writings. Though opposing the socialists’ proposals, Marshall was sympathetic with their ideals. They ‘knew something about the hidden springs of human action of which the economists took no account’ (Pigou 1925: 156). Trade Unions and Cooperatives embody the noble ideals of socialism and train the workers ‘in a habit of subordinating their own personal will to the good of the state’ (Raffaelli et al. 1995: 115), ‘to work with others for some broad and high aim’ (Pigou 1925: 228). Trade Unions teach people to become citizens, ‘as did the small republics of ancient Greece or medieval Europe’ (Whitaker 1975, vol. II: 364) but run the risk of using their power ‘to the public detriment’ (Groenewegen 1996: 290), especially in the public sector or in sectors that are protected from competition. When sectorial Trade Unions become too strong, they tend to oppose the public interest, as Marshall believed was the case with the engineers’ strike of 1897 (Whitaker 1996, vol. II: 203–5). The episode led him to consider ‘collective agreements’, together with ‘big mechanically organized businesses’, as apt to become an evil (Raffaelli 1994b: 21). Marshall’s praise of cooperation was less conditional. Its main worth is that it pays attention to ‘the production of fine human beings’ more than ‘rich goods’ (Pigou 1925: 228). Since cooperative enterprises do not confer any immediate economic return to their members, their noble aim needs protection. However, in doing business, cooperation faces the choice between paying high salaries for adequate managerial abilities or relying on the ‘cooperative faith’. Both objectives are

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essential, but also difficult to reconcile with each other. The latter constitutes the main strength of cooperation, and cannot be ignored, but weighs against the former, making cooperation viable only where ‘routine’ prevails. Economies of scale induce consumers’ cooperatives, like private enterprises, to become centralized, but of course this is another instance of economic success which is bought too dearly because it hinders the educative value of cooperation. Marshall thought that in the long run the British federal tradition, leaving large autonomy to federated branches, was more promising. In principle, Marshall’s ideal was akin to a communistic society in which each one works for the community and obtains returns in proportion to his/her needs (Marshall Papers 5/7; cf. Becattini 1991). This would imply ‘an absolutely virtuous character’, which he saw approximated in the small communities he visited in America (Whitaker 1996, vol. I: 69–70). Imagining Utopian worlds can be compared to the construction of edifices of ‘pure crystal’ which is ‘productive only of good, so long as their purpose is clearly understood’. It affords ‘good training to the mind’ but, like the pursuit of all other abstractions, must be ‘confined to its proper place’ (Marshall 1920: 782–3). The more realistic aim of Marshall’s political philosophy, at least for the foreseeable future, was a variety of civic republicanism, as confirmed by his exaltation of the spirit of independence of classical Athens and medieval free towns.19 For Marshall, the progress of human character is steady and fast when individuals are gathered into distinct and related communities, each with its own strong sense of collective identity, that degree of equality which allows its members to feel that they belong to the community, and a spirit of cooperation and emulation which is exercised within the community in order to emerge in work, arts, devotion and all the manifestations of community life. This spirit helps to build the asset of resources with which the community itself competes and cooperates with others, either to build temples and cathedrals or face imperial threats – as happened in ancient Greece and medieval Italy – or to succeed in the modern exchange economy. Some of the social, cultural and political features which can better promote and strengthen human qualities seem to characterize the environment of industrial districts. Marshall appears to have these features in mind when supporting the movement for the promotion of industrial villages and anticipating that for gardencities (Groenewegen 1995a: 449–53). Proliferation of relatively autonomous centres of economic activities, not too far away from each other, represents a spatial model capable of fostering specialization and integration: ‘the work of several firms, not always in the same business, might in some cases be sent together. Gradually a prosperous industrial district would grow up’ (Pigou 1925: 149–50). The negative effects of the division of labour are minimized when specialization takes place in a diversified environment, rich in stimuli, like the city – in its broad sense of the melting pot where different experiences meet and evolve – situated in an unspoilt natural environment (another recurrent theme of Marshall’s reflection). This ideal city is not the great metropolis, but rather a node in the network of small villages which historically came first – before its ‘monstrous’ growth, London was surrounded by many distinct villages which could

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‘have become industrial districts interspersed with green fields’ (Pigou 1925: 144) – and which garden-cities and industrial villages may help to revive. The industrial district bears some resemblance to the evolved variant of a sociocultural model triggered by the spatial dispersion of groups and activities. The nodes in this network, though initially consisting of sets of almost unspecialised small activities, will tend to specialize and give rise to districts – and districts of districts – like all evolutionary phenomena of the division of labour, with their twofold tendency to differentiation and integration under the dual push of variation and selection, innovation and automation. Marshall’s democratic thought is also visible in his high opinion of social mobility, in the idea that in uneducated minds lie buried treasuries of intelligence, which represent the greatest social ‘waste product’, and in the battle against the degrading effects of poverty. For him, as for Mill, everyone must be educated to be a citizen and take part in public life. Though conscious of the growing need of scientific knowledge for political decisions, like the regulation of monopolies, he rejected the rule of technocrats. The social scientist is no more competent to suggest political action than any other citizen: political economy ‘does not possess the power of giving direct and complete answers on points involving questions of right and wrong’ (Raffaelli et al. 1995: 183). With all the strength of his scientific ‘organon’ on hand, the economist can only say what proposals are patently contradictory: ‘sometimes indeed the economist may give a practical decision as it were with the authority of his science, but such a decision is almost always merely negative or critical. It is to the effect that a proposed plan will not produce its desired results’ (Pigou 1925: 165). But for practical conclusions, he must rely on ‘the common sense and the moral judgment of the community’ (Stigler 1969: 200), on ‘our ethical instincts and our common sense’ (Marshall 1920: 28). This calls for public debate in which the diverging interests are fairly represented. Marshall’s reliance on well-informed public opinion is part of his democratic perspective: ‘the chief of the remedial forces of nature in regard to human action is knowledge’ (Marshall 1919: 442). Fair solutions to any complex social problem can be reached only by looking at it from different perspectives, discussing their relative worth and broadening knowledge of each other’s opinions (Raffaelli et al. 1995: 6–7). Labour conflicts, Aged Poor relief (Keynes 1926: 245 and 258), tenant compensation (Whitaker 1996, vol. III: 112) and especially trust regulation (Marshall 1919: 510 n.) must be tackled through Committees and Commissions where sets of persons ‘who have intimate technical knowledge of, and strong interest in the subjects investigated’ can put their own case ‘vigorously’, bringing to light any flaw in their opponents’ statements and arguments. Conciliation and arbitration are the proper way to regulate labour conflicts. The problem, which is even stronger in trade regulation policies, is that sectional interests may reach agreements to the public detriment, neglecting the interests of ‘the non-vocal multitude’, which lacks ‘the special knowledge required for ascertaining exactly where lie their interests in the matter under discussion’ (Marshall 1919: 443). To avoid this undesirable outcome, society needs the advice of ‘able men … who have no personal interest in the subject under discussion’ but ‘familiarity with its

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general scope and even with its more important practical details’. This is the greatest possible contribution to politics by academic researchers. When scientists openly side with one of the parts in a conflict, like classical political economists, unable to sympathise with the workers (Pigou 1925: 155), they are unable to perform this task.20 One-sidedness was also a fault of the otherwise meritorious Charity Organization Society, which did not fully understand the point of view of the poor whose distress it was striving to relieve. As noted by Charles Booth, Marshall’s ‘sympathetic treatment’ implied a ‘democratic treatment’, aimed at ‘bringing in the working classes into the administration of poor relief’ (Keynes 1926: 245). His polemics against Bernard Bosanquet, who publicized the COS’s views in favour of private relief, affords an unexpected opportunity to look at the usual Marshallian mix of standards and variations, applied to a social policy issue. For Marshall, standardized methods of public relief to able-bodied poor need to be introduced, though they are always inadequate to cope with individual circumstances. Since the officials who dispense relief, the guardians, ‘must go more by fixed rule than COS committees’ (Keynes 1926: 204), each applicant for relief should be examined by an enlarged Committee and sent to the guardians if judged to fall into routine categories but left for discriminating and individual care if presenting some speciality of his/her own. Against the COS, which, stressing the variety of individual cases, criticized public, standardized ways of assistance, Marshall argued that some standardization was possible and could even grow since ‘ “simplicity” is a matter of degree; and the efficiency of public machinery is a matter of degree also, and it has risen in degree with the progress of time’ (Marshall 1892: 376). On the other hand, against social despots who thought it possible to build a perfectly standardized ‘machinery of assistance’, he stressed the dangers of excessive simplification and the need that assistance should be fitted to individual circumstances: ‘I am not sure about its being simple. No I want relief to be very complex’ (Keynes 1926: 239). The attempt to simplify and generalize is necessary, both in science and politics, indeed it is the key to progress, but faces the danger of ignoring the variety and novelty of the social world.

5

Some methodological issues

Whereas Chapters 3 and 4 centred on the achievements of Marshall’s evolutionary system of economics and social thought, this chapter is devoted to scattered methodological issues variously connected with his work. It endeavours to shed light on a number of points from the evolutionary perspective outlined in the previous chapters.

5.1 Mathematics and models Marshall conceived of mathematics as a powerful means for systematic reasoning, for the construction of analytical models devised to deal with economic processes under idealized conditions and solve complex problems that bore a close affinity to one another.1 As a student in the Mathematical Tripos, he knew the merits of mathematical language, so precise and rigorous, and, during his economic apprenticeship, he did not fail to appreciate and adopt Cournot’s graphical representation of supply and demand.2 Although in the fifth edition of Principles, he felt the need to remind readers that ‘graphic illustrations are not proofs’ but ‘merely pictures corresponding very roughly to the main conditions of certain real problems’ (Marshall 1920: 155 n.), echoes of his early mathematical studies resound in his praise of ‘the terse, compact, precise language of mathematics’ (Marshall 1920: 545). Mathematics helped him to build his own machinery of economic thought through formalization and abstract reasoning. The result is the ‘organon’, ‘an engine for the discovery of concrete truth, similar to, say, the theory of mechanics’ (Pigou 1925: 159). This achievement earned him fame and universal recognition though, according to Keynes, Marshall failed to realize that his strength lay rather in model-building than in the search for ‘concrete truth’ (Pigou 1925: 36) and ‘often confused his models, for devising which he had great genius, by wanting to be realistic and by being unnecessarily ashamed of lean and abstract outlines’ (Keynes 1973b, vol. II: 296). After Whitaker’s edition of the Early Economic Writings, attention focused on the elegance and modernity of Marshall’s early economic analysis and Keynes’s regret came to be widely shared. Marshall’s unwillingness to publish his early diagrammatic analysis, ‘divorced from its appropriate applications’ (Pigou 1925: 34), is usually attributed to a continuous shift towards excessive realism which brought him to relegate into the

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appendices those elegant mathematical models which were creatively scattered throughout his early manuscripts. The view that economics mattered and should be understood by laymen – businessmen, trade unionists and civil servants – reinforced by Jowett’s advice (Whitaker 1996, vol. I: 180), may explain why mathematics was hidden, but the opinion that mathematical models by themselves are dangerously prone to lose sight of the real world had deeper foundations. Although his scepticism about mathematical economics grew over time, limitations, shortcomings and misunderstandings in the uses of models troubled Marshall right from the beginning, as evidenced by his reaction to Sidgwick’s selection of chapters from the essay on foreign trade and later on by his caustic comment regarding Edgeworth’s Mathematical Psychics: ‘it will be interesting to see how far he succeeds in preventing his mathematics from running away with him and carrying him out of sight of the actual facts of economics’ (Whitaker 1975, vol. II: 267). In dealing with the issue of mathematical models, the historian is left with the impression of ambiguity which is so disappointingly frequent with Marshall. He appears to have been uncertain which way to go, whether to follow his logical inclinations and enrol in the pioneering army of model-builders or join the heretical army of historically minded economists. However, it is prima facie reasonable to think that he rejected this alternative as groundless, since the economist needs both more powerful analysis and better knowledge of the historical context, whose very evolution calls for new analytical tools. This commonplace view is rooted in his theoretical system and cannot be dismissed as inconsistent (unless consistency be equated with narrow-mindedness). The aim of mathematics is to train the economists’ mind, to teach them ways of reasoning out economic problems. Thus, Berry’s lectures on ‘The Diagrammatic treatment of pure economic theory’ are really lectures on method and language: aimed at strengthening grasp, not inculcating doctrine (Whitaker 1996, vol. II: 259) and the aim of book V of Principles is ‘not so much the acquisition of knowledge as of power’, that is, power of reasoning (Marshall 1961: 72). At the beginning of the twentieth century, Arthur Bowley became the privileged target of some of Marshall’s most severe criticisms of the purely analytical turn of mind. Mathematical economics is like ‘practising of scales on the piano’, helpful ‘to train sound instinctive habits’ but ‘not for direct construction’ (Whitaker 1996, vol. II: 307), or, according to another of his metaphors, like physical force in boxing. Devising complex mathematical models wholly unrelated to the real world – Marshall warns – is both easy and misleading: ‘I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics’ (Whitaker 1996, vol. III: 130). The most straightforward statement of Marshall’s concern for the dissociation of economic science from the real world is a well-known passage from a previous letter to Bowley: ‘I believe that a Boer marksman, who takes account of the wind, will by instinct get nearer the truth than he [the economic student] by mathematics’ (Whitaker 1996, vol. II: 301). Since building standard ways of dealing with recurring problems is no aim in itself, unless it is a response to some needs of empirical research, mathematics,

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which helps to ensure coherence and simplicity, is but a tool in the process. Marshall went as far as to suggest that, in the end, it could be dispensed with even as a tool and replaced by ordinary language (Whitaker 1996, vol. III: 130). Modelling – especially with the help of precise mathematical symbols – always implies simplifying and neglecting parts of reasoning that resist such treatment. This rest should not be thrown away but kept ‘formulated by side of the mathematics’ (Whitaker 1996, vol. II: 257).3 Coase, himself a critic of ‘blackboard economics’, shared similar cautious views on the use of mathematics and was sympathetic with such warnings (Coase 1988b: 28–30), but few economists would now agree with Marshall’s overall conclusions. Since his time, the role of mathematics in economics has undergone a remarkable expansion and any attempt to root it out would greatly impoverish the economists’ power of reasoning. Thus, whereas Hodgson (1993b) regretted Marshall’s inability to launch a new trend of evolutionary economics, Brems (1975) charged him with marking ‘the end of an era’, precisely when Fischer, Walras and Wicksell, who were far more willing to make use of mathematical tools, ‘marked the beginning’ of a new one. By contrast, Nelson and Winter (1982: 45) hypothesize that the fault lay with the mathematics of Marshall’s time, inadequate to express the evolutionary ideas, he wished to convey by ‘an abstract theory that was analytically tractable and logically complete: given the mathematical tools at his disposal, he could not reconcile these two objectives’. This hypothesis helps to answer both criticisms and opens the way to modern evolutionary economics which can make use of mathematical models unavailable to Marshall, who lacked the appropriate mathematical language and attempted to represent the dynamic processes he had in mind by means of static curves. Both Foster (1993) and Nelson (1995) maintain this thesis, which finds support in Dardi’s (forthcoming) argument that Marshall’s diagrams were particularly unfit to express the evolutionary idea that ‘the economic pendulum does not swing back along the course by which it came’ (Marshall 1961: 71; cf. also Thomas 1991: 3).4 Any move along the supply curve is irreversible and this drove Marshall into the kind of troubles he tried to face in appendix H of Principles with the ‘particular expenses curve’. Similar phenomena of hysteresis also apply to demand curves, whenever new patterns of consumption, established by price variations, do not easily vanish after prices have returned to their former level (Marshall 1920: 808; cf. also Whitaker 1975, vol. II: 163). Marshall himself recognized that the fault might lie ‘partly’ in ‘the imperfections of our analytical methods, and may conceivably be much diminished in a later age by the gradual improvement of our scientific machinery’ (Marshall 1920: 809).5 It is impossible to determine how far Marshall’s critical attitude to mathematical economics derived from his disappointment with the kind of mathematics he knew. Though holding no a priori reason for discouraging attempts to formalize economic relations, he warned that analytical models meet with severe limitations and that, at least for the foreseeable future, theoretical knowledge of human affairs should be content with ‘short chains’ of reasoning and ‘single connecting links’ (Marshall 1920: 773), there being ‘no room in economics for long trains of

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deductive reasoning’ (Marshall 1920: 781). Small changes can be dealt with under ceteris paribus assumptions but when change goes deeper, account must be taken of forces which lie outside the realm of formal economics: ‘a small addition to a man’s income will generally increase his purchases a little in every direction: but a large addition may alter his habits, perhaps increase his self-respect and make him cease to care for some things altogether’ (Marshall 1920: 772). This kind of change may also be within the capacity of modern mathematical models but, however much the machinery of thought were perfected, it would afford only partial knowledge of social phenomena and form one side of economics, to be supplemented by empirical studies, more historically minded, and relevant for an understanding of the evolution of the economic system. The framing of economic machinery, of those automatic routines embodied in formal models able to deal with repetitive conditions, or with repetitive patterns of change, must be continuously tested against reality. Allowing it to grow freely, by parthenogenesis, means ignoring that it is purely instrumental and that its worth, like that of any evolving structure, has to be assessed by its result.

5.2 ‘The Many in the One, the One in the Many’ For many decades, when general equilibrium theory was perceived as the frontier of economic research, it was fashionable to stress the relevance of pure theory and undervalue applied and empirical studies. Marshall was rather unhappy with the idea of separating the two sides since both are required for the advancement of economic science. In his view, economics was made up of two parts, neither of which by itself could make an exclusive claim to the name of economic science: The work of the economist is ‘to disentangle the interwoven effects of complex causes’; and for this, general reasoning is essential, but a wide and thorough study of facts is equally essential, and a combination of the two sides of the work is alone economics proper. (Whitaker 1996, vol. II: 393)6 He firmly believed that ‘pure theory’ – by itself ‘an essential, but a very small part of economics proper’ (Whitaker 1996, vol. II: 393) – should not live a life of its own, as indeed it has done since Marshall’s time, but should be supplemented by the study of changing historical conditions. These two parts, which can be classified as theoretical and empirical, deductive and inductive, are called to mind on many occasions, in particular when Marshall was reading Keynes’s draft and proof of Scope and Method of Political Economy (1888–90) or outlining the tasks of University teaching in long and animated disputes with his colleagues at the London School of Economics (1899–1902). The two episodes have been analysed by Coase (1975) and Coats (1967) respectively. Both articles sympathize with Marshall’s awareness of the economist’s tasks and offer a good perspective on the subject. As Coase (1975: 27) rightly notices, Marshall ‘had little interest in what he termed “philosophical economics” … in a sense he can be said to have held no

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views on method’, the right method being that which best suits the problem at hand. Always avoiding abstract discussions on methodological issues, he held a pragmatic and open attitude which loosely reminds us of the ‘anything goes’ of Paul Feyerabend’s (1975) anarchist philosophy of science: ‘I take an extreme position as to the method & scope of economics – he wrote to J. N. Keynes – In my new book I say of methods simply that economics has to use every method known to science’ (Whitaker 1996, vol. I: 299–300).7 The two main methods, induction and deduction, should be used jointly: You make all your contrasts rather too sharply for me … I think the right order is first to emphasize the mutual dependence of induction and deduction, and afterwards to show in what kind of inquiry the economist has to spend the greater part of his time in collecting arranging and narrating facts, and in which kind he is chiefly occupied in reasoning about them and trying to evolve general processes of analysis and general theories which shall show the Many in the One and the One in the Many. (Whitaker 1996, vol. I: 338–9) Given this interconnection, Marshall went on to argue that ‘economic analysis’ should be preferred to ‘economic theory’ or ‘pure theory’, expressions which seem to imply that analytical tools are valuable in themselves. Similar doubts, and even ‘indifference’ towards the ‘elegant toying’ of ‘pure theory’, were later expressed to Hewins, then Director of the London School of Economics (Whitaker 1996, vol. II: 280), and Cannan, one of its leading teachers (Whitaker 1996, vol. II: 397). If we consider the time-span of these pronouncements and their occurrence in letter writing, which is liable to ad hoc reasoning, the absolute coherence of Marshall’s presumed eclecticism is striking. The two sides of economics are connected by the motto ‘The Many in the One the One in the Many’ a favourite theme of Marshall’s and of nineteenth century British idealism as well (Camporesi 1980). Of Platonic origin – with the One representing the Idea, the Absolute, and the Many the plurality of phenomenal objects – the motto was applied by the Scottish philosophers to the relationship between the uniqueness of consciousness and the variety of mental experiences. Though Marshall was aware of this psychological meaning, it is more probable that the later influence of Hegel’s logic, under Jowett’s lead, drove him to choose the motto as a kind of epistemological golden rule, stressing the evolutionary dialectics of science and counterbalancing the naive empiricist approach which tended to prevail in social science.8 The motto became familiar to some of Marshall’s correspondents during his campaign for the establishment of the Cambridge Economics and Political Tripos. After pointing out to Hewins how students could acquire general knowledge by reasoning on experience, he went on to state his dialectical view: having discovered the One in the Many, they might set forth afresh the Many in the One. … In my view the Many is the ground of study; the One is the

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The One – ‘general economics’ or ‘economic analysis’ – is the result of work on the ‘ground of study’ of the Many; a result which, once obtained, can help to survey that ‘broken ground’.9 While ‘pure theory’ was the focus of the London School’s curriculum, the Tripos Marshall was striving to establish followed the ‘central idea Cambridge-born’ of ‘The One in the Many, the Many in the One’ (Whitaker 1996, vol. II: 258) which inspired his Plea (Marshall 1961: 173). Other uses of the motto – for instance when ‘The One’ is identified with ‘the habits of action, thought, feeling and aspiration of the whole people’ of a certain locality (Marshall 1919: 6), or with the central problem of applied research (Marshall Papers: 5/8) – pursue the same aim to show that scientific knowledge always connects variable, heterogeneous elements with constant, unifying principles. How, in his perspective, could the realistic and the analytical side of economics be combined to form ‘economics proper’? Part of the answer lies in ‘the sense of proportion’, which, ‘disciplined’ only by experience (Marshall 1961: 166), acts as a counterbalance to excessive reliance on abstract reasoning and helps to evaluate the practical relevance of any model. Deeply rooted in Marshall’s view, already envisaged in 1890 and better expressed in 1895 (Edgeworth 1895: 585), the concept became prominent in Marshall’s polemics with the London School’s folks: ‘you imply – he wrote to Cannan – that economic theory gives a sense of proportion. I should say that economic theory is that (vital) part of economics which exercises the analytical and ratiocinatory faculties but not educates a sense of proportion’ (Whitaker 1996, vol. II: 397). Pure mathematical analysis tends to distort that sense because it emphasizes those elements ‘which lend themselves most easily to analytical methods’ and encourages ‘a tendency towards assigning wrong proportions to economic forces’ (Marshall 1920: 850). The sense of proportion is educated by wide historical knowledge, especially of the modern age (Whitaker 1996, vol. III: 13), while ‘specialists who never look beyond their own domain are apt to see things out of true proportion’ (Marshall 1920: 770).10 In this, as in other cases, scientists follow the rules of ordinary life, which they simply refine. ‘The sense of proportion’ is likewise one of the leading qualities of the ‘constructive’ businessman, who concentrates ‘the forces of his mind’ on the relevant elements of the practical problems he faces and develops his conclusions with a just sense of proportion (Marshall 1919: 48; cf. also 1919: 356). When that sense prevails in business life, it ‘runs over’ into applied research (Marshall 1919: 156–7). Marshall’s insistence on the affinities between businessmen and economists, often considered a sign of class bias, reflects the fact that both apply their mental strength to new problems and try to innovate: ‘the methods of the two [the pure student and the practical man], if both are able investigators, will have much

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in common’ (Marshall 1919: 204). Both need the same set of qualities: ‘perception, imagination and reason’ (Marshall 1920: 43–6 and 1919: 822–3), especially imagination, disciplined by a just sense of proportion. Notwithstanding the realistic outlook of Marshall’s evolutionary epistemology, he never inclined towards simple-minded empiricism. Not surprisingly, given his early philosophical and psychological views, he openly and repeatedly rejected the idea of direct empirical tests since facts are theory-laden, as modern epistemology would say: ‘facts by themselves are silent’ (Pigou 1925: 166), ‘by themselves teach nothing’ (Marshall 1920: 38), ‘economic doctrines cannot be tested’ (Marshall 1919: 679). Crude collection of facts is impossible and even their crude interpretation is worthless, like ‘pure theory’ dissociated from the real world.11 Marshall’s early view of the active role of the human mind was incompatible with naive empiricism.

5.3 The principle of continuity in the historical context ‘Natura non facit saltum’, which Darwin (1872 [1859]: 206) called the ‘canon’ of biology, and which captures his obsession with continuity, is the motto of Principles, whose preface is devoted to highlighting its multifarious applications: continuity in the growth of economic knowledge, between egoistic and altruistic motives, actions of city men and ordinary people, normal and abnormal conduct, normal and market values, long and short period, rent and interest, ‘floating’ and ‘sunk’ capital, workers and the appliances they produce (and their respective earnings) and between what is classified as capital, necessaries and productive labour and what is classified as their opposite. The list of Marshallian concepts which shade into one another by degree can be extended almost ad infinitum: economic and social laws, material and personal capital, skilled and unskilled labour, prime and supplementary costs, civilized and uncivilized races (Marshall 1920: 33, 660–3, 360–1 and 378), competition and monopoly, production and marketing, parallel and consecutive railway lines (Marshall 1919: 178, 170, 485). In all these cases, there is a ‘continuous gradation’ between the two opposite sides, they ‘shade into one another by imperceptible gradations’, the line of division is ‘increasingly blurred’, indistinct’. Insistence on continuity is most valuable since all knowledge, and science in particular, advances by splitting what cannot be separated in principle. Breaches of continuity are inevitably caused even by common language, which draws sharp lines by classifying objects under different headings. If the production of new words were unlimited, language could be compared to an all-powerful digital photography, capable of attaining unlimitedly high resolution, but ‘there are not enough terms in ordinary use in any language’ and the economist is not free to create all the technical terms he needs (Marshall 1919: 680). Therefore, the economist must shun ‘inflexible definitions’ and ‘accommodate himself to the practice of the marketplace’ (Marshall 1919: 214), with its ‘vague’ uses of words (Marshall 1920: 75 and 82), simply trying to refine and clarify common sense. But while ordinary language allows for ‘shades of meaning’ and its vagueness ‘veils a real complexity’,

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leaving the task of supplying the necessary amount of precision to the social context, so that ‘almost every phrase in common use has a real meaning, though it may be difficult to get at’ (Marshall 1920: 129; Pigou 1925: 212), the economist begins with ‘bold and rigid definitions’ which ‘lull the reader into a false security’ (Marshall 1920: 51–2). However, as Bagehot noticed, gaining Marshall’s approval, scientific language is not free to avoid ‘the interpretation clause’, which in ordinary language is tacitly implied by the context. Between the two classical models of language – respectively represented by Descartes’s (1999 [1637]: 11–12) ideal language, resembling the planned and perfectly ordered city of the Renaissance, and Wittgenstein’s (1963: 8) accidentally arising language, reminiscent of the undesigned and self-grown mix of buildings, lanes and squares of medieval cities – Marshall shows clear signs of preference for the lively imperfections of the latter, whose evolution can be compared to that of life (Darwin 1872 [1859]: chapter 14) For Marshall, the merits of ordinary language depend on its flexibility and evolving nature. Continuity between science and common sense is another typical instance of evolutionary thought. Peirce (1984), the champion of evolutionary philosophy based on the ‘principle of continuity’, praised the vagueness of ordinary language. His ‘concern about an overemphasis on precision in science’ (Alborn 1989: 24) reminds us of Marshall’s warning that ‘the attempt to make [notions] precise over-reaches our strength’ (Marshall 1920: 460).12 For both authors, science is embedded in common sense, ‘the outcome of the experience of life, our own life and that of our ancestors’, and the function of precise scientific devices is ‘to give increased power to common sense’ (Marshall 1961: 73).13 There is no evidence that Marshall knew Peirce’s work, which, however, brought to its extreme consequences, the nineteenth century ‘widespread predilection for continuity in all areas of knowledge, in mathematics, physics, earth-and-life science, general philosophy and even in historiography’ (Bochner 1973: 493). It was only in the twentieth century, with the discovery of quanta, photons, chromosomes, fractals and the digital revolution, that discreteness took its revenge. The number of possible influences on Marshall’s principle of continuity is so large that, without direct evidence, it is almost impossible to select any single one: Lyell’s ‘uniformitarianism’ in geology and Darwin’s biological evolutionism, both insisting on cumulative minimal steps, field and wave theories in physics, mathematical and statistical notions of continuity, political anxiety about sudden changes, nurtured by the excesses of the political revolution in France and the industrial revolution in England, the evolutionary philosophy of Spencer and Clifford, Maine’s conception of history (and in part also Hegel’s) are all serious candidates. Probably, none of them was decisive and the pervasiveness of the theme was more relevant than any single influence. Clifford’s views provide a clue to the cultural milieu in which Marshall’s principle was formed and, given their friendship, may deserve a closer look.14 One of the main tasks of Marshall’s principle – to underline interdependence (Marshall 1920: ix–x) – had already been stated by Clifford, who aimed at replacing the search for the causes of events (why?) with an exploration of their functional

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interrelations (how?) by means of ‘the hypothesis of continuity … [which] involves such an interdependence of the facts of the universe as forbids us to speak of one fact or set of facts as the cause of another fact or set of facts’ (Clifford 1886 [1870]: 75).15 This kind of interdependence, which Marshall borrowed from astronomy (Pigou 1925: 94–5 and 313), forms the core of general equilibrium theory. At a first glance, it appears that Marshall soon abandoned this notion, withdrawing behind partial equilibrium and the ceteris paribus clause.16 But his true intent was to pursue a more difficult task, derived from a wider conception of the interrelations between economic phenomena. Whereas Walras was fascinated by general interdependence, the mobile target of Marshall’s holistic approach was far more complex. Walras’s aim was to compress everything into a single picture and acquire a simultaneous, global image of the economic system’s general equilibrium, resulting from the mechanics of many separate particles. Marshall’s theory can better be represented by a system of multiple levels in which the upper layers depend on the lower ones for their existence but exhibit new properties and preside over lower level performances, as was the case with Clifford’s succession of action, character and spirit of the age (see pages 26–7). Trees and forest, tactics and strategy, mechanics and biology (Marshall 1961: 70 and 63) are all instances of this view, which Marshall also tried to approximate by means of purely mechanical analogies like those of the man packing his parcels on the rack of a moving train, of satellites moving around revolving planets (Pigou 1925: 312 and 317–18) and of ‘the pendulum and the string’ story (Marshall 1920: 346). Readers are often disconcerted by this wealth of metaphors which convey the difficult problems of social research and betray Marshall’s dissatisfaction with any simple, reductionist answer.

5.4 Meaning and uses of the principle The role of Marshall’s principle of continuity is manifold, but always related to the evolution of the economic system. Sometimes, it helps to bridge the gulf between any two beings by pointing towards their common origin and eliminates their apparent discontinuity by genetic explanation, as can be observed with interest and quasi-rent (Marshall 1920: 421; cf. also 1961: 51). In this case, macrodiscontinuity, evinced by classificatory reasoning, can be decomposed into evolutionary micro-steps and rent can be seen as the limit of interest on fixed capital, when the latter’s life tends to infinity.17 In other cases, micro-discontinuity, due to the action of sudden impulses, can be composed into a continuous, evolving thread. This kind of continuity follows from Marshall’s conception of economics as a science of collective phenomena: discontinuity is often shown at the level of individual events, but statistical aggregation turns it into its opposite and replaces rigidity with plasticity. Thus, individual demand for hats increases by ‘great leaps’, but aggregate demand does so by continuous gradation (Marshall 1920: 98); again, individual firms invest by leaps, but in the aggregate react continuously to external signals (Marshall 1961, vol. I: 407 n.). Aggregation smoothes away the discontinuous elements of reality and can be interpreted as

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a particular application of the ceteris paribus clause, since it allows any individual deviation from the average to be disregarded (Schlicht 1985 and 1992). This is precisely the reason why Marshall dismissed the relevance of Mendel’s findings to economics: ‘for economics is a study of mankind, of particular nations, of particular social strata; and it is only indirectly concerned with the lives of men of exceptional genius or exceptional wickedness and violence’ (Marshall 1920: 844). So far, we have stressed the relation between continuity and evolution, but this appears to run counter to Marshall’s decision to discuss the former in the preface to the ‘first’ or ‘introductory’ volume, which was concerned not with evolution but with the repetitive, normal elements of economics (Marshall 1961: 46–7). To explain this choice, Boland (1990) links the principle to the limited task of providing the necessary framework for the application of the more technical ‘principle of substitution’, which he identifies with the marginalist search for the maximum value of continuous functions.18 The mathematical meaning of continuity is certainly part of Marshall’s concern about continuity, but this explanation fails to consider that the principle of substitution itself, subordinate to the more general principle of continuity and likewise connected with the interdependence of economic phenomena (Marshall 1920: xv), is dynamic, or rather biological, and cannot be identified with the maximizing tool of the marginalist school (Loasby 1990: 121–2). In Marshall’s work, the concept of margin does not play the same role as in most of his contemporaries since ‘marginal uses do not govern value’ (Marshall 1920: 411) but are simply the locus where opposing forces balance each other and can be measured. The principle of substitution is a dynamic force which directs change, ‘a special and limited application of the law of survival of the fittest’ (Marshall 1920: 597), ‘one form of competition’ (Marshall 1920: 540) which is itself ‘one of the many agencies through which natural selection works’ (Marshall 1961: 75). Marshall’s defence of the principle of substitution against Hobson’s assumption of fixed coefficients of production (Marshall 1920: 409–10 n.) can be considered isomorphous with the defence of Darwinian evolution against Cuvier’s principle of the correlation of parts. Cuvier (Hobson) maintains that different species (technologies) are possible but that there is no smooth transition from one species (technology) to another, since change in one part of a system is impossible without simultaneous change in all the others. Innovation cannot be grafted onto the old system since it requires complete rearrangement of its elements. Against Hobson’s view, Marshall (like Darwin against Cuvier’s) maintains that small changes, ‘generally continuous’, do happen and explain how industrial (like biological) evolution works. Loasby (1998a: 73) rightly states that the principle of substitution ‘is not, as in modern textbooks, simply an optimizing rule for adjusting factor proportions to changes in relative prices but a guide to experiments at the margin’. Furthermore, the concept of elasticity is a dynamic notion which helps to focus on the speed and intensity of marginal reactions of demand and supply to price changes.19 It is another tool for analysing the intensity of the forces of change and, like most of Marshall’s analytical concepts,

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becomes of little use once it is taken out of the evolutionary framework to which it belongs. A book on foundations is classificatory by definition and groups cases together so that they can be processed mechanically by scientific reasoning. Veblen was not wide of the mark when he compared Principles to a book on ‘systematic botany’, striving to further ‘the advance of the science outside the scope of taxonomy’ but in which ‘the taxonomic bearing is, after all, the dominant feature’ (Veblen 1919 [1899–1900]: 173–5). He also recognized that the principle of continuity gives an air of evolutionism to the work and bears witness to Marshall’s aspiration to treat economic life as a development. The principle seems to fit the introductory volume precisely because it acts as a reminder that economic taxonomy is always provisional and must be checked against an ever-changing reality. It aims to stress the need to keep the whole in view while breaking the continuum but, equally, to endorse such breaks on the assumption, as Glassburner (1955: 585) points out, that ‘only if nature could be regarded as unlikely to take any leaps’ could ‘factors of change be impounded in ceteris paribus’. The principle emphasizes the dialectical succession of division and reunion which characterizes the growth of knowledge. Deeply embedded in the Victorian culture, the principle was at variance with the feelings of successive generations and contributed to the oblivion which befell Marshall’s evolutionary views. The clash between the two ontologies is exemplified by Moss, who criticizes Marshall’s dismissal of the role of ‘men of exceptional genius’, blaming ‘his commitment to the methodological rule … that nature does not move in large steps’ for his denial ‘that the entrepreneur could affect the economy in the manner Schumpeter described’ (Moss 1982: 11). But verdicts on ontological issues cannot be given once for all. Marshall’s continuity thesis on the issue of social change took account of the friction exercised by human nature – ‘for though institutions may be changed rapidly; yet if they are to endure they must be appropriate to man: they cannot retain their stability if they change very much faster than he does’ (Marshall 1920: 249). Though one-sided, like its counterpart, this view is illuminating. It reminds us of Tocqueville’s judgment on the French revolution and analogous long-run conceptions of historical change, which do not tend to disappear.20

5.5 Shifting metaphors Marshall’s early model of the mind affords a unique opportunity to visualize how mechanical devices can reproduce evolution. This issue was of major concern to Marshall the economist, whose views on the biology–mechanics relationship seem no less ambiguous than those on the mathematics–realism issue. The two metaphors – mechanical and biological – run through his main writings, puzzling the reader who looks for neat alternatives since Marshall thought of them as supplementing each other, in a hierarchical relationship. The biological metaphor points to the existence of deeper adaptations than those revealed by focusing on the equilibrium of mechanical forces. Attention should shift from one level of reality to the next without throwing away the achievements of the study of

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mechanical equilibrium, the ‘backbone’ of economics (Marshall 1920: 769). Improved knowledge of economic biology must go together with that of its supporting structure, just as adding a new floor to an edifice requires reinforcing its foundations. In the attempt to discover how living organisms work, biology relies on physics instead of making it useless. Marshall took the mechanical metaphor from Mill who, in his early essay ‘On the definition of political economy’, had ‘brought about the fact that there is a close analogy between the methods of economic science, and those of the science of mechanics’ (Whitaker 1975, vol. II: 118). Marshall realized that this powerful analogy ‘ought not to be abandoned hastily’, because it could be rendered more and more complex, helping to study cases like that of a ‘satellite which is moving around a planet, which is itself moving around another centre’. However, he also came to realize that any hope of thoroughly representing economic evolution by mechanical means would be vanquished by insurmountable limits. Mechanics can explain alterations ‘in the quantity and not in the character of the forces at work’, whereas economic progress implies change ‘in the character as well as the magnitude of economical and social forces’ (Pigou 1925: 317–18). The context shows that Marshall’s concern, as in ‘Ye machine’, is with events that ‘react upon the conditions by which they were produced; so that future events cannot happen under exactly the same conditions as they did’. Thorough explanations of economic evolution by mechanical quantities seem to meet with difficulties. They may still be compatible with his early saying that each movement in the moral world implies alterations ‘in the magnitude if not the character of the forces at work’ (Whitaker 1975, vol. II: 163), but they are ruled out when, as in the later passage, ‘if not’ is replaced by ‘as well as’. Consciousness of the limits of mechanical reasoning led to one of Marshall’s most often quoted remarks: ‘The Mecca of the economist is economic biology rather than economic dynamics’ (Pigou 1925: 318; Marshall 1920: xiv). In Marshall’s times, biology, the queen of the life sciences, the leading science dealing with ‘living force and movement’ (Marshall 1920: xiv), had become evolutionary and offered itself as the natural term of comparison for economists who were conscious of the difficulty of representing economic change by purely mechanical models. But, in the long run, the new analogy revealed itself troublesome and dangerous until Marshall’s ‘Mecca’ was discredited by its presumed connections with Spencer’s failure to understand the role of chance and unwillingness to accept the insurmountable gap between somatic and genetic variation. Marshall’s warning that ‘analogies may help one into the saddle, but are encumbrances on a long journey’ (Pigou 1925: 314) was turned against his own biological analogy, as he himself experienced. Thanks to his contacts with William Bateson, an early advocate of Mendelism, he realized that biology was adopting a negative attitude towards transmission of acquired behaviour and that his own principle of continuity, allowing only for slight changes, was not entirely supported by biological research (Marshall 1920: 247–8; 1961: 326; 1919: 163–4 n.). Unable fully to understand the gap between heredity and individual development, which modern experiments in breeding were establishing,21 reluctant to bow to Mendel’s findings and eager to defend the idea that acquired social habits are

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transmitted, he endeavoured to avoid entering into the controversial ground of biology and withdrew behind the differences between the two fields, unconvinced that the results of experiments with peas could be applied to the social world. Thus, in his assault on Pearson’s assessment of the lack of influence of parental alcoholism on children, he sought refuge in the minimal assumption that parental behaviour mattered (Groenewegen 1995a: 479–86). Marshall’s bias against Mendelian genetics was nurtured in the wave of the ‘non-Darwinian revolution’, to borrow Bowler’s (1988) felicitous expression describing the spread of evolutionary ideas in the second half of the nineteenth century, when Darwinian and Lamarckian–Spencerian views were usually confused. When biology met with genetics – so the story goes – and continuity, adaptation and progress were replaced by sports, chance variation and selection, Marshall’s biological analogy had to be jettisoned. The Neo-Darwinian revolution soon appeared to wreak havoc upon Marshall’s hope to reach the end of his pilgrimage into the foreign land of economics and, as Moss (1982: 234) puts it, ‘the economist lost his Mecca’. Hodgson (1993b) argues that Spencerian influences flawed Marshall’s attempt to put economics on the evolutionary track and explain why his programme was soon abandoned. This conclusion is highly disputable. As already noted, Marshall held Darwinian views on the role of chance, variation and selection, which, as Darwin himself attests, were not incompatible with belief in the transmission of acquired characters. Whatever one’s belief concerning the manner of transmission of new characters, one can retain the view that chance variation is their original source. And whatever one’s position on the transmission of characters, one can rely on natural selection to remove those that do not work effectively. Hodgson (1993b: 410) takes his criticism one step further when he writes that Marshall, ‘like Spencer … but unlike Charles Darwin’, saw variety ‘as a result of social economic or biologic development, not its major cause’; yet, he quotes Marshall’s statement that ‘the tendency to variation is a chief cause of progress’ (Marshall 1920: 355). There is no doubt that Marshall meant precisely what he wrote: the sentence is a comment on the reflection that ‘even in the same place and the same trade no two persons pursuing the same aims will adopt exactly the same routes’ and most of Marshall’s ideas on industrial and social organization imply that variation is a cause of social development. This is the reason why a perfect equilibrium adjustment is undesirable: ‘For after all man is the end of production; and perfectly stable business would be likely to produce men who were little better than machines’ (Marshall 1919: 195). Hodgson himself acknowledges that Marshall’s reference to ‘survival of the fittest’ was qualified in a way which distanced him from Spencer, since Marshallian evolution had no teleological end and did not coincide with ‘progress’ (Hodgson 1993b: 412).22 The contraposition between Lamarckian–Spencerian hereditary transmission of acquired characters and Darwinian chance variation and natural selection does not provide a suitable basis for assessing Marshall’s evolutionary view of society, which does not depend on any specific mechanism of biological heredity. The main drift which he derived from the biological analogy was its contribution to

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development and generalization of Smith’s insights on the division of labour, by emphasizing processes that were common to ‘social and especially industrial organization on the one side and the physical organization of the higher animals on the other’ (Marshall 1919: 240–1). Following Spencer, he referred to the common element as a process of differentiation and integration, driven by underlying mechanisms of variation and selective routinization. Even his much abused analogy between a system made of different individual organisms (industrial organization) and a single organism made of different parts (physical organization) was the same that led Darwin to explain how different species are formed, giving rise to complex ecological systems, through divergence of individual characters. Division of labour is capable of explaining both intra- and inter-organic evolution and presides over the principles of individual and social evolution.23 Marshall was conscious of the debt Darwinian biology owed to Smithian economics and felt the time had come for it to be repaid (Marshall 1920: 240).24 Finally, Marshall’s belief in the purposeful exercise of human faculties of foresight – in our ‘limited but effective control over natural development by forecasting the future and preparing the way for the next step’ (Marshall 1920: 248) – appears to crush any hope of learning from Darwinian biology. However, this conclusion overlooks the common element stressed by Marshall and indeed ignores that such a difference exists. While natural evolution is blind (or at least, short-sighted), human beings strive to direct economic and social evolution by relying on the transmission of cultural traits and the growth of knowledge, whose ‘creation reacts on the matter to which it relates, reconstructs that matter and renders ipso facto invalid the provisional generalizations of which it is the embodiment’ (Marshall Papers: 5/8).

5.6 Economic measurement and beyond Marshall’s ethics was the product of his time. His pre-Weberian epistemology did not distinguish between the positive study of norms as facts and the normative study of norms as norms. Moreover, his evolutionary views, with their Spencerian leanings, may have raised hopes of absolute ethical standards. The former defect is unaffected by knowledge of the model of the mind and the latter issue is left undecided, though Marshall’s rejection of any kind of perfect adaptation between human beings and their environment tilts the balance towards a negative answer to the existence of anything absolute, including values. Where the model proves helpful is in deciphering his views of the relationship between utilitarian and evolutionary ethics and their impact on the economists’ task. In the nineteenth century, economics was associated with utilitarianism and authors like Jevons and Edgeworth still hoped it could provide the felicific calculus craved by utilitarian philosophers. At the turn of the century, Pareto dropped the psychological content of the economic man while preserving the rationality assumption implied by it, thereby leading the way to further attempts at reducing economics to a pure mechanics of rational action which paid no attention to motives and values. By contrast, disparaging the mean morality implied by the

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economic man and denying that economic activities could be studied without considering their ethical side, economists of the ‘historical school’ and ‘ethicist’ philosophers proposed replacing the utilitarian–associationist view of individuals as calculating machines by wider psychological theories of human behaviour, inspired by evolutionary or intuitionist ethics.25 From the standpoint of this alternative, which in a sense resembles that between associationism and idealism in the theory of knowledge, Marshall is once again classified as ambiguous, eclectic to say the least, and thought to border on inconsistency. He appears to share orthodox views – some mix of utilitarian and Paretian assumptions – when observing weekday behaviour in the marketplace and to don the attire of the moralizing priest for Sunday services.26 Focusing on the explanation of human behaviour afforded by Marshall’s theory of hierarchically integrated levels, it seems possible to reconcile these dual features. In this paragraph, we shall consider how far Marshall believed economics can be studied in its own right and in the next, why its absolute separation from wider ethical themes is impossible. The former step will assess the merits of economic measurement according to utilitarian or Paretian methodology, the latter will introduce the need to shift to evolutionary ethics. According to Marshall, the rational and moral sides of human nature are ‘capable of being distinguished, but not of being separated’ (Whitaker 1996, vol. II: 114) and this is reflected in his view that ‘economic investigations should be clearly distinguished from ethical discussions, even when they cannot be separated from them (Raffaelli et al. 1995: 189–90). He became aware of the autonomy of ethics very early, thanks to the censure by John Grote and Sidgwick of chapter 4 of Utilitarianism, where Mill claimed to deduce what ‘ought to be’ (general happiness ought to be desired) from what ‘is’ (each person desires his own happiness). Realizing the distinction, Marshall refrained from confusing economics with hedonics, as Jevons did in his Theory (Whitaker 1975, vol. I: 9 and 46–7). The demarcation line is drawn in a long footnote added to the third edition of Principles, to explain the replacement of the term ‘pleasure’ by the more neutral ‘self-satisfaction’ (Marshall 1920: 17 n.).27 This move helps to safeguard ‘the starting point of economics’, the possibility of measuring the forces which drive people to act, separating it from any specific theory of human motivation. Stripped of any other content, the lesson embodied in this pre-ethical dimension of economics states the comparability of motivating forces, the possibility of bringing all actions to the same level, subduing them to some common measure. This conclusion is already implied in the role of pleasure in ‘Ye machine’ where each action can be compared to any other in terms of its motivating force, irrespective of any other consideration (see Chapter 2, n. 5). Marshall attributed this vital result to Bentham’s ‘stress on measurement’ (M. P. Marshall 1947: 19) and to Smith, who put forward a ‘new point of view … from which a commodity is regarded as the embodiment of measurable efforts and sacrifices’ (Pigou 1925: 126). Thanks to this achievement, while ‘the pure science of ethics halts for lack of a system of measurement of efforts, sacrifices, desires, etc., fit for her wide purposes … the pure science of political economy has found a system that will

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subserve her narrower aims’.28 Reference to ‘the science of ethics’ provides evidence that the distinction between ‘ought’ and ‘is’ does not rule out the oldfashioned idea that ethics was a science, the science of right behaviour. This opinion, liable to criticism from the point of view of modern philosophy, was stated by J. N. Keynes, who compared ethics to logic, in its turn conceived as the science of ‘right reasoning’ (Keynes 1891: chapter 2, n. 3). Whitaker (1977: 186, n. 63) justly concludes that Marshall ‘concurred with J. N. Keynes in seeing a legitimate role for the “ethics of political economy” ’ as ‘an applied branch of the “normative science” of ethics’. Undoubtedly ‘redolent of “ethical absolutism”’, although Marshall’s ideas do not necessarily imply that ethics could work out absolute standards, they suggest that ethics could make progress, like science, and that evolutionary ethics could help to rank ideals according to its progressive findings. However, Marshall’s distinction between ‘ought’ and ‘is’ singles out economics as a subject of research which is neither concerned with motives, nor with their worth, but with their force, or incentive to action (Marshall 1920: 15). The availability of a yardstick – money or anything else29 – to measure the force of motives, together with indifference towards their ethical contents, gives economics the opportunity to apply quantitative methods raising it to a prominent position among the moral sciences. Though ready to sever the historical links between utilitarianism and economics, Marshall appreciated the role of the former in promoting the latter and recognized its value as a first approximation to understanding human behaviour.30 He also credited utilitarianism with the noble ideals of its Millian version, against any ‘trivial’ reduction of it to pure egoism (M. P. Marshall 1947: 18–19).31 His commendation of the utilitarian concept of happiness, his endorsement of distributive justice and his pioneering interest in welfare economics leave few doubts as to his positive attitude towards utilitarian ethics.32 To his mind, the merits of utilitarianism consisted in its refusal to exorcize egoistic motives, whose strength and importance he was ready to acknowledge, and in its attempt to harmonize them with general happiness. In general, he found in utilitarianism a worldly, egalitarian ethics, evaluating actions by their consequences and therefore capable of development through experience. Its strong alliance with associationism opened the way to changes in ethical norms through a process of ‘trial and error’ and made the kernel of utilitarianism ready to be reshaped in an evolutionary framework. Indeed, such a process was already taking place, as stated earlier, in Bain’s third revised edition of The Emotions and the Will under the impulse given by Spencer’s evolutionary psychology. This move from utilitarian to evolutionary ethics was the equivalent in moral philosophy to that from pure empiricism to evolutionary epistemology. The utilitarian approach is sufficient for the study of wealth, but defective for the study of man. From this point of view, the mechanics of utility measurement is only the starting point of economics; if the economist aims to go further, he, ‘like every one else, must concern himself with the ultimate aims of man, and take account of differences in real value between gratifications that are equally powerful incentives to action and therefore have equal economic measures’ (Marshall 1920: 17). While in a static approach, the mechanics of forces

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can be studied without paying attention to motives, these are the carriers of those deep transformations that also affect economic quantities. As a pure mechanics of utility, economics does not distinguish between ‘love for virtue’ and ‘desire for agreeable food’ (Marshall 1920: 14), but in order to understand the performance and tendency of the economy, it cannot ignore the difference between expenditure on voluptuaries and on children’s education, or between raising the ‘standard of life’ with positive feed-back on economic activities and raising the ‘standard of comfort’ with mixed effects on these activities.33 No understanding of social evolution, even of strictly economic evolution, is possible without studying the influence of economic phenomena on the psychological and ethical nature of economic actors and vice versa. Economists must consider the ethical side of economic actions, its effects on economic quantities; they must study the relations between a changing human nature, through the evolution of character, and the consequent social results (growth and distribution of wealth included). These interrelations make it impossible to divorce economics from the study of ethical forces, especially as the time-period under analysis becomes longer. Like the shortcomings of mechanics, those of utilitarianism in dealing with evolutionary problems underline the inadequacy of single-level models. The kind of action embodied in ‘pure economics’, in both the utilitarian and the Paretian version, does not reflect the fact that human beings change while they engage in action, that they are self-made, auto-organized machines. In 1880, an obscure obiter dictum in a letter to Edgeworth brings up the connections between the limits of utilitarianism and those of the mechanical approach: I do not recollect what called forth your query about the meaning of the word dynamical: indeed my views on the subject are too immature to be formulated briefly: but a hint of my meaning is contained in the fact that I think there is room for question whether the Utilitarians are right in assuming that the end of action is the sum of the happiness of individuals rather than the vigorous life of the whole. (Whitaker 1996, vol. I: 125) This passage – echoed in late notes for the book on economic progress: ‘The ideal is not comfort but life, vigour’ (Marshall Papers: 5/9) – suggests that utilitarianmechanical patterns are unable to cope with the ethical problems of social evolution. The impression of inconsistency between the two strands of Marshall’s thought, which Parsons experienced,34 gave rise to the opinion, held by Harrison (1963: 422) and Petridis (1990: 167), that Marshall’s attitude underwent a change from separating to intermingling economics and ethics. Against this opinion, it must be said that his views of the difficult but complementary relationship between economic mechanics, embedded in the utilitarian tradition, and economic biology, interested in the evolution of human life, were formulated quite early on. What took place later in his life was a progressive shift of interest from the mechanical to the biological side of social science, the same shift which

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should have accompanied the transition from vol. I to vol. II of Principles and is reflected in Industry and Trade.

5.7 The evolutionary ethical creed As Pollock later recollected (Clifford 1886 [1879]: 24–5), in the late 1860s and early 1870s, Cambridge intellectual life was shaken by ‘a wave of Darwinian enthusiasm’ – easily grafted onto the influence exercised by Spencer’s ‘constructive science of psychology’ – which ‘carried away’ a group of young dons and graduates of which ‘Clifford was the leading spirit’: ‘natural selection was to be the master-key of the universe … Among other things, it was to give us a new system of ethics, combining the exactness of the utilitarians with the poetical ideals of the transcendentalists’. In 1871, in a letter to Marshall, Sidgwick expressed his disagreement with the new evolutionary fashion, which the addressee seemed inclined to follow (Whitaker 1996, vol. I: 13–14). By 1875, Marshall’s flirtation with evolutionary ethics had become more open: Such a discussion [i.e. discussion of the relation in which the industrial phenomena of a country stand to its ethical issues] may bring forth some casuistical difficulties which may divert the a priori philosopher, suggestions of deeper interest for the Utilitarian, and considerations of fundamental importance and vital concern for those who are working their way, as I am, towards the ethical creed which is according to the Doctrine of Evolution. (Whitaker 1975, vol. II: 377) Evolutionary ethics was expected to sweep away some unsolved problems of utilitarianism. Firstly, utilitarian ethics, like radical empiricist epistemology, was unable to explain any instinctive racial behaviour. Individual experience, however perfected by the utilitarian calculus, could give no reason for the existence of innate patterns followed by the human race independently of personal experience. The evolutionary solution provided by Spencer’s notion of a relative a priori, whose effectiveness in the theory of knowledge was examined in Part I of this book, also fitted moral philosophy. As in ‘Ye machine’, any action has a double value: it is both an act of ‘instantaneous morality’ under the sway of utilitarian motives, as Stephen (1882: 368) puts it, and an element of a changing character, a fragment of the evolutionary process that regulates individual acts in the future. Another two problems were specific to ethics. First, utilitarianism lacked a way of linking personal pleasure with general happiness, egoism with altruism. Second, Mill’s qualitative distinction between higher and lower pleasures, introduced to counter accusations of putting every action on the same footing, meant giving up any possibility of their measurement and scientific treatment. Marshall’s answers to these two problems highlight the manner in which evolutionism supplemented utilitarianism in shaping his ethical views. In evolutionary ethics, unlike intuitionist ethics, higher levels – like moral standards – are not the product of separate authorities but grow from within as clusters of past actions.

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This view of mental processes, besides blurring the distinction between innate and experimental knowledge, smoothes away the alternatives between egoism and altruism and lower and higher pleasures. The former is superseded by adding racial sympathy to the egoistic account of human motives, the latter by extending the gradation of pleasures along a continuous scale thanks to a process resembling that of period analysis in economics. Sympathy plays the same role in Marshall as it does in Bain and Spencer: it provides the missing link between personal and general pleasure. There is no absolute discontinuity between egoism and altruism and economists should avoid creating it artificially by their abstraction of the economic man. In an evolutionary perspective, as Marshall already stated in ‘Ye machine’, sympathy can be strengthened through the action of natural selection ‘in preserving those races in which the principle of sympathy was most powerful’. The evolution of sympathetic affections is the source of both the sense of duty and the need for social approval, the two checks on egoistic behaviour already pointed out by Smith – whose moral philosophy was then undergoing a revival of interest35 – and recast in the new evolutionary framework by Clifford (1886 [1875]: 290–3). Rather than dismissal of utilitarianism, this signified its completion, as is clear from Bain (1875).36 Moreover, with individual and social evolution, sympathy comes to be exercised more consciously and its automatic performances are replaced by voluntary acts: ‘gradually the unreasoning sympathy, of which there are germs in the lower animals, extends its area and gets to be deliberately adopted as a basis of action’ (Marshall 1920: 243).37 Similarly, Mill’s dichotomy between higher and lower pleasures also created an artificial, sharp line of separation where none existed. In Marshall’s evolutionary perspective, the ethical contents of human actions are not a yes-or-no property and can better be represented by a continuous gradation of motives, desires, or pleasures. Higher pleasures are associated with a wider time-horizon deriving from the ability to look further ahead. The value of actions is discussed by Marshall as if they could ideally be ranked along two scales, the one ranging from immediate gratification to ‘telescopic’ and provident efforts to raise one’s own standard of life, the other covering the field from personal self to the whole of humanity and passing through the family, the neighbourhood and the country. The two scales could be reduced to one, as the second likewise depends on a widening of the agent’s time-horizon, since wider human groups are progressively more lasting institutions (cf. Marshall 1920: 680). If it were possible to fix reliable standards for this ranking, evolutionism would have fulfilled its promise to yield ‘a new system of ethics’. Failing this powerful tool, economics is left with its old utilitarian calculus but with a new lively feeling of its limited value and an aspiration to overcome this disadvantage in order to better understand the evolution of social systems. Mill’s distinction of higher and lower pleasures shows a similar consciousness of the limits of ‘old dry Benthamism’ but is inadequate from an ethical perspective and dangerous if brought into economics right from the beginning, depriving it of the monetary yardstick which constitutes ‘the strength of economics’ (Marshall 1961: 135). In

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Principles, especially at the troublesome time of the first edition, Marshall was at pains to defend his professional tools: ‘what everybody is always doing everyday in ordinary life’ is simply estimating the incentives to actions without considering that they are harbingers of pleasures of different worth (Marshall 1920: 16). Even in cases in which the pain which would cause an earnest and good man to do deliberately a wrong action is so great that no pleasure can compensate for it; … it is not the quality of the pain, but its amount that hinders it from being measured: the pain is practically infinite. (Marshall 1961: 144 n.; cf. also Whitaker 1977: 165–6) In more usual circumstances, however, ‘nearly all actions of life are governed, at least in part, by desires the force of which can be measured by the sacrifice which people are willing to make in order to secure their gratification’ (Marshall 1961: 138). Marshall strove to preserve the mechanics of utility measurement while trying to improve on this tool by viewing economic actions from an evolutionary perspective, whence new ethical considerations entered into play, with their burden of still unsettled questions. This shift in the frontiers of ethical thought, from purely utilitarian to evolutionary issues, should not undermine access to the foundations of economics. In principle, the transition faces the same problems as any transition from mechanics to biology, but at the time they were less visible since a smooth shift from utilitarian to evolutionary ethics was in the air. Though Darwin and Spencer criticized the greatest happiness principle, utilitarianism and evolutionism went hand in hand and reinforced each other, as both schools often recognized.38 Marshall drew the same conclusion from his underlying conception of the working and progress of the human mind, constructed out of utilitarian–associationist material organized in accordance with evolutionary views. He envisaged the possibility that evolution could reward, and therefore reinforce, sympathy and altruism but shrank from optimistic conclusions and issued repeated warnings against trusting the moral value of whatever automatic evolution brings forth.

Concluding remarks

The last three chapters endeavoured to highlight how the evolutionary pattern innovation/standardization, first applied to mental phenomena, was carried over into Marshall’s economic and social thought. The dialectics of change and adaptation shaped his theory of knowledge, his ethics and even such apparently unrelated concepts as equilibrium and the ceteris paribus. It also inspired his opinions on industrial, social and political issues, guiding his exploration of the way in which various industrial and social systems evolve and their points of strength and weakness. But, while the analytical core of book V and related methodological issues tend to veil the main drift of Marshall’s thought and to divert the reader’s attention to controversial themes, his industrial economics makes his message crystal clear. This could explain why the ‘true’ Marshall is invisible to those who search for his identity in his methodological views but is easily detected by those who are mainly interested in his industrial economics. Thus, centring his analysis on the mechanics versus biology controversy, Hodgson comes to the conclusion that Marshall was unable to put economics on the right track because of his endorsement of Spencerian evolutionism and failure to understand the radical novelty of Darwin’s work.1 By contrast, focusing on issues of industrial organization and division of labour, which lay deeper in Marshall’s thought, Becattini and Loasby2 are favourably struck by his emphasis on the twofold, complementary trend of differentiation and integration. These two authors maintain that Marshall’s unorthodox economics was not destined to be overtaken by neoclassical thought because of internal inconsistencies, as Hodgson claims: rather, it opened up new routes of investigation that were lost by Marshall’s successors, unable to follow what promised to be a different trend of economic thought, that has only recently been rediscovered by industrial economists. Industry and Trade is sometimes considered a stillborn work, published when the industrial system had already diverged from that described in the book. However, perceptive readers did not fail to notice the presence of ideas which stand the test of time (Williams 1986: 228). Our interpretation aims to convey the notion that such ideas, far from being brilliant asides of a keen observer of the economic world, form part of a well-structured evolutionary theory. Marshall’s description of industrial phenomena is clearly outdated, but his reasoning is capable of ever new applications. In this perspective, the Darwin versus Spencer debate on hereditary transmission of acquired characters appears sterile. The kernel of Marshall’s evolutionism

104 The oeuvre is a Darwinian process of repetition and variation, the latter due to either chance or choice, giving rise to Spencerian processes of differentiation and integration. Differentiation can be produced consciously or accidentally and is soon codified in repetitive behaviour; integration may likewise be conscious or automatic. The role of freedom is not divergent from the function it assumed in Mill’s philosophy, which makes it doubtful that it implies the retention of ‘idealistic’ elements, but the question could be merely linguistic, ‘a striking instance of the dangers that arise from allowing ourselves to become the servants of words’, as Marshall feared could happen with discussions on the applicability of modern economic research to ancient societies (Marshall 1920: 71 n.). Perhaps, the idealistic flame of Marshall’s early philosophy still smouldered beneath the ashes; maybe, as I am led to believe, the breakthrough lay in his full acceptance of evolutionary ideas which made room for freedom, consciousness and other cornerstones of idealistic philosophy as modalities of human action, emerging from its complex structure. In any case, ‘Ye machine’ was not confined to the mechanical side on which a ruling mind had to be superimposed but described a process whereby the two elements, which idealism had severed, continuously intermingled and evolved in cooperation and conflict. Marshall’s readers are often frustrated by the large amount of Victorian commonplaces they find in his work, but any attempt to separate the grain from the chaff is bound to fail. It is certainly possible to select specific analytical concepts and import them into different theoretical frameworks, but this would obliterate any trace of Marshall’s project. All similar attempts downgrade Industry and Trade to applied economics, devoid of theoretical relevance. A less-invasive strategy would be to expunge some historical, political and moral remarks, but the remaining portion would be no less confusing than the entire text. The units of analysis fail to comply with the simplistic requirements of general equilibrium theory. Not only do individual agents fail to comply, but so do individual products: being themselves plural, interconnected, made up both of recursive and variable elements, they are points of multiple intersection between demand and supply, so much so that nobody can tell their authorship (Marshall 1919: 279 n.). The borders between industrial sectors are vague and continuously effaced by changes in supply and demand, which group processes and products in different ways, difficult to reconcile. Value theory itself maintains its meandering connections with time and always refers to whole processes, performed by evolving systems that are endowed with their changing stores of automatisms and cannot be reduced to indiscernible atomistic units engaged in the production or consumption of indiscernible atomistic goods. The evolutionary element of Marshall’s economics resists any attempt to divorce it from his works. What selection is unable to accomplish may be obtained by expansion and addition. The trouble with Marshall is not that he watered down his analytical apparatus but that he did not make explicit the generating pattern which the apparatus was unable fully to capture. It was not the mathematics that was concealed, for after all it found its place in the appendices, but the evolutionary scheme which lay behind the backbone of his economics. The consequences of this omission proved relevant soon after Marshall’s death, when overwhelming exogenous attacks on some of the pillars of his research programme forced its generous defenders to beat a retreat into one of its bastions, mistaking it for the dungeon.

Part III

The aftermath

6

Death and resurrection of a research programme

6.1 Rocks ahead When agreement emerged among economists that around 1870, a scientific revolution had taken place, along similar lines, in different countries, doubts arose as to whether Marshall, who published his findings much later, was one of the founding fathers or merely a second-comer. Whitaker’s edition of the early economic writings settled the issue proving that, however excessive was Marshall’s claim that his doctrines on value and distribution were forged between 1867 and 1870 (Whitaker 1996, vol. III: 183), he framed the structure of his system and elaborated ‘the essential notions of demand–supply analysis’ independently of Jevons and the other marginalists (Whitaker 1975, vol. I: 37–52). Another fundamental issue, more difficult to settle, was whether similarity of tools implied convergence of research programmes. With the spread of marginalist formalism, the question received a positive answer and economists strove to eliminate the provisos and warnings on account of which Marshall’s system remained uniquely open and problematic. Some of his analytical tools were pulled out of their apparently disposable container while the slow speed of this process was blamed for the backwardness of English economics in the inter-war period (Samuelson 1967). Marshall’s praise of classical political economy was patronizingly looked upon as a piece of rhetoric, excusable in the troublesome waters of the nineteenth century, but misleadingly hiding from view the break that had taken place in economics. Moreover, when physics regained its prominent position among the natural sciences, biological analogies went out of fashion and ‘positive economics’ replaced Marshall’s complex, evolutionary view of economic systems. In the enthusiasm for a newly acquired general consensus on methodological standards, little room was left for variation and diversity. Even Shove, who – conscious of its peculiar worth – tried to update the Marshallian tradition, did not refrain from noticing that the motto on the new Mecca ‘carrie[d] its date on its face’ and picked up the notion of character as the clearest sign of the Principles’ obsolescence. In his opinion, the frustrating consequence of Marshall’s evolutionary ideas was ‘the very restricted sphere (more restricted as time went on) which he assigned to the path-breaking ideas of an “equilibrium price” and an “equilibrium amount” ’ (Shove 1942: 312).

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The pervasiveness of the element of time in Marshall’s system aroused mixed feelings. On the one hand it seemed to provide analytical tools which could be made more and more tractable; on the other, it was held responsible for inconclusiveness and survival of ‘Ricardian’, objective traits of value theory which contrasted with the new mainstream. Soon after Marshall’s death, listing the introduction of time among his ‘most striking contributions to knowledge’, Keynes perceptively realized that ‘this is the quarter in which, in my opinion, the Marshall analysis is least complete and satisfactory, and where there remains most to do’ (Pigou 1925: 41 and 43). Under the heading of ‘time’, Keynes grouped the distinction between prime and supplementary costs, quasi-rents, the representative firm and increasing returns. Within a few years, the latter two concepts became the first casualties of the attacks launched by Robbins (1928) and Sraffa (1926). Before examining the debates raised by these articles, it is worth considering the role of the representative firm in Marshall’s system. Conscious of the complexity of value theory, he introduced the representative firm in order to make it less abstract and establish a link between the stationary state and the evolution of the industrial system. In the stationary state, according to Marshall’s meaning of the term, individual firms thrive and decline while industrial production is steady. The normal supply price does not coincide with the cost of the marginal firm (since there are firms that are unable to cover their overhead costs) and the supply schedule cannot be derived from ‘the integration of determinate supplies from each individual business’ (Andrews 1951: 149). Attention should focus on the long-run production costs of prospective new entrants who hazard a guess as to their likely destiny by exploring what seems to be happening to existing businesses and drawing in their mind’s eye a representative firm ‘whose size and opportunities might thus be taken as the target which attracts the efforts of newcomers’ (Andrews 1951: 146). If the production costs of such a firm are just enough to discourage an exceptional number of new entrants, without bringing about an exceptional number of exits (some movement in both directions is physiological, due to the normal life cycle of individual firms), it can be taken as the long-run equilibrium price of the industry, or its ‘normal supply price’, defined as ‘the price the expectation of which will just suffice to maintain the existing aggregate amount of production’ (Marshall 1920: 343). Depicting the stationary state through reference to the dynamic conditions which sustain it, the representative firm is meant ‘to provide an essential link in his chain of dynamic forces’ (Jenner 1964: 32), a link between mechanical and biological analogies. Indeed Marshall explicitly states that the concept ‘is biological rather than mechanical’ and that ‘its application in the theory of value is one mark of the gradual transition from the mechanical view of the composition of forces … to the biological notion of composite organic development’ (Marshall 1961: 70). But soon afterwards, summoning the representative firm to aid in conveying the meaning of ‘normal supply’ (Marshall 1920: 342), he takes the reader into a meandering world of mechanical metaphors. At first, he introduces the usual image of the pendulum (Marshall 1920: 345), but then adds some turbulence. As a second approximation, the string hangs ‘in the troubled waters of a

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mill-race’, sometimes flowing freely and sometimes partially cut off. Soon afterwards, the reader meets a new disquieting entry: ‘the person holding the string swings his hands with movements partly rhythmical and partly arbitrary’ (Marshall 1920: 346). These metaphors, that illustrate all the disturbances with which the economist and the merchant alike are forced to concern themselves (another instance of their kinship), make the concept of ‘normal’ elusive, depending on the chosen level of description. Since the object of Marshall’s research was the evolution of the economic system, he rejected a self-contained theory of value which would preclude any access to the main problems, dooming itself to hopeless irrelevance. His main interest did not lie in ‘the static equilibrium theory of the industrial business’, but in the equilibrium of a competitive industry, that is, an industry in which the long-run equilibrium price is determined by cost of production.1 For the industry to be competitive, firms do not have to face perfectly elastic demand curves and may be capable, as they usually are, to expand production at reduced costs (Andrews 1951: 143–5). In Marshall’s eyes, the representative firm was the device by which increasing returns – due to both external and internal economies and typical of the real world – were not cut off from the first analytical level of economic discourse. A philological–philosophical note on the term ‘representative’ can support these claims. Usually, the term is taken as synonymous with ‘normal’, ‘average’ or ‘typical’, a practice induced by Marshall’s own interweaving of the terms (Marshall 1920: 317–18 and 459). ‘Typical’, in particular, may seem to be quite appropriate, calling to mind Weber’s epistemology and the need to capture some historical element in the concepts employed by social scientists. Marchionatti (2001) resorts to it and Groenewegen (1995a: 168) points to similar conclusions when he perceptively hints at the influence of ‘Le Play’s unusual method of gathering facts’ in search of ‘an actual representative household’, thus suggesting that the representative firm answered to the need to aggregate historical phenomena without the constraints of statistical tractability. However, the term ‘representative’ is uniquely pregnant. Marshall was always very conscious and attentive, sometimes even meticulous, in his linguistic usages which reflect subtle semantic differences. The ‘representative firm’ was one of the terms – like supplementary cost, trade capital, internal and external economies – which he introduced to capture and clarify some mental processes which take place in the mind of both the economist and the businessman.2 The latter, who has to decide whether to invest in a new factory or machinery, has to bridge the logical-categorial gap between firm and industry. In order to make head or tail of the situation, he has to build up in his mind an image of the position he hopes to fill in the economic world. This task is performed by something close to the idea of the representative firm.3 Similarly the economist, engaged in devising a theory of value, must perform an analogous mental operation (because the concept of ‘marginal cost’ is of no avail, especially where increasing returns prevail, as is usually the case). If these are the loose coordinates of the representative firm, how can we hit the target? By ‘selecting’ a firm with certain well-known properties, Marshall argued (and selection is a mental process usually associated with ‘typical’ ideas).

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But also by ‘imagining’ the representative firm (Marshall 1920: 459), wrote Marshall, and this verb was not used by chance. Imagination, and its derivatives, are sparingly present in Principles, though the methodological chapter of book I exalts the role of scientific imagination: The economist needs the three great intellectual faculties, perception, imagination and reason: and most of all he needs imagination, to put him on the track of those causes of visible events which are remote or lie below the surface, and of those effects of visible causes which are remote or lie below the surface. (Marshall 1920: 43) The role of imagination in scientific research was acknowledged by Buckle, whose famous pages the young Marshall transcribed in ‘Meditanda’ (Buckle 1857–61, vol. II: 502–5, in Marshall Papers: 4/1), but he had also direct access to other sources. In the late 1860s and early 1870s, he carefully studied Kant and Hamilton, who conceived of imagination as an intermediate faculty between sensation and perception on the one side and intellect, conception and reason on the other. For Kant, imagination (Einbildungskraft) is ‘the faculty of representing an object in the intuition’, even when the object is not present to the senses. And Hamilton, whose Lectures on Logic and Metaphysic Marshall annotated and often quoted in his early notebooks, devoted many pages to the issue, stating that ‘the Representative [Faculty] or Imagination proper … consists in the greater or less power of holding up an ideal object in the light of consciousness’ (Hamilton 1870–4 vol. IV: 130) and that ‘a vigorous power of representation is as indispensable a condition of success in the abstract sciences, as in the poetical or plastic arts’ (Hamilton 1870–4 vol. II: 265).4 In the light of this philosophical background, the choice of the term ‘representative’ was no product of chance. Discussing the relations between ‘normal’ and ‘average’, Marshall distinguishes the former, expressing a ‘law of tendency’, from the latter, which is only the product of statistical calculations. While ‘normal’ is connected to ‘law’ and is the product of reasoning, ‘average’ calls to mind the availability of statistical methods of fact-gathering. Certainly, ‘average’ is a polysemic term, since each phenomenon can be part of different series, giving rise to different ‘averages’, a concept which, moreover, is open to different mathematical definitions. The normal price itself is defined as a kind of average price, ‘the average value which economic forces would bring about if the general conditions of life were stationary for a run of time long enough to enable them all to work out their full effect’ (Marshall 1920: 347). ‘In a stationary state alone – Marshall repeats – … “average price” and “normal price” are convertible terms’. Since the firm he was looking for was a device that would help to grasp the concept of normal supply price in a stationary state, where average and normal are one and the same, there seems to be no need for a new term like ‘representative’, unless stationariness is taken as provisional. I think that precisely its openness, vagueness and irreducibility to lawful ‘normality’ or ‘statistical ‘average’, that were later to disturb the economic profession, were seen by Marshall as features

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apt to prevent any tight closure of value theory, even in a work on economic foundations.5 Introduced as a rule of thumb to make conjectures on the profitability of new business enterprises with reference to their life cycle, the representative firm provided a short-cut for dealing with other issues. Since firms normally have access to internal economies, profits and size are related and the representative firm is characterized by an expanding size which is prevented from leading to monopoly by the vicissitudes of its life cycle. This notion, mental and objective, analytical yet intractable, vague but essential, laid itself open to criticism by economists embracing neopositivist methodological standards and became one of the most vulnerable points of Marshall’s system.

6.2 The collapse The 1920s debates on increasing returns, competitive equilibrium and the representative firm are usually considered the turning point at which Marshall’s ambitious research programme failed to come to terms with the requirements of modern economic analysis and had to be abandoned. Even when different interpretations are considered, as in Backhouse (1985), the watershed is welcomed as an end to troublesome concerns with Marshall’s ambiguities, leaving economists free to build their discipline on more rigorous bases. On the supply side, the result was extraction and refinement of analysis of the individual firm’s equilibrium in different market conditions, a process which was completed by the early 1930s and is summarized in chapter 10 of Blaug (1968). In the meantime, the quarry of Industry and Trade, which Keynes suggested might usefully be perused ‘to search for buried treasure’ (Pigou 1925: 63), was closed for patent violation of neopositivist standards: ‘convicted of internal inconsistencies’, Marshall’s industrial analysis ‘disappeared into the gulf … opened up’ by Sraffa (Andrews 1951: 139–40). The first skirmish on ‘empty economic boxes’ was triggered by an attack against abstract value theory which, if successful, would have sunk general equilibrium theory even deeper than Marshall’s theory (Clapham 1922a,b). Having barely escaped from the criticism of Clapham’s empiricist epistemology, which questioned the possibility of finding any real industry fitting the theoretical concepts of increasing and decreasing returns, Marshall’s research programme soon had to face much more serious challenges, which provoked devastating effects. From their own divergent theoretical perspectives, Sraffa (1926) and Robbins (1928) waged war on specific Marshallian concepts and the Marshallians who tried to save his theory, accepting the epistemological criteria of the assailants, reduced the economic system to ‘one in which mechanical notions of static equilibrium had extinguished the forces of progress and history that had so complicated the construction of Marshall’s Principles’ (Hart forthcoming). Sraffa (1926) proved that varying costs were incompatible with the equilibrium of perfect competition and that firms in a perfectly competitive market could work under neither decreasing nor increasing returns. The strength of his argument lay in going beyond Marshall’s partial equilibrium analysis: ‘the most

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important aspect of Sraffa’s paper to a modern economist was his introduction of general equilibrium reasoning’ into the ‘extraordinarily narrow’ theoretical training in value theory of Cambridge economics (Newman 1960: 594–5).6 Though the criticism failed to gain acceptance for Sraffa’s alternative approach (Marcuzzo 2001: 97), it shook the foundations of Pigou’s research programme. Confronted with the logical inconsistencies of Marshall’s value theory that made it incapable of dealing with statical equilibrium under perfect competition, Pigou’s (1927) reaction was mainly concerned with saving the apparatus of welfare economics built on the concept of increasing returns, as he had already done when answering Clapham’s critique (Pigou 1922). He conceded that internal economies and competitive equilibrium were inconsistent, but found refuge in those external–internal economies (that is, external to the firm but internal to the industry) which did not subvert the whole economic system (Pigou 1927: 195–7) and which Sraffa (1926: 540) accepted, though playing down their importance. Thus, Sraffa’s view of the static equilibrium of perfect competition pushed Marshall into a Pigouvian corner, whence exit was possible only by means of external–internal economies, which could not support the weight attributed by Marshall to increasing returns. So far, the ‘representative firm’ was not involved in controversy, though its outspoken connection with internal economies (Marshall 1920: 317 and 341) was undermined and attention was shifting towards monopolistic phenomena, where the representative firm lost its grasp. It was left to Robbins (1928) to deal it the final blow, maintaining that it lacked both empirical contents – and was therefore, unable to realize ‘Marshall’s main intention’ of simplifying practical inquiry – and theoretical foundations (Robbins 1928: 390–1). Sticking to marginal explanations of entrepreneurial earnings, he stated ‘that there is no more need for us to assume a representative firm or representative producer, than there is for us to assume a representative piece of land, a representative machine, or a representative worker’ (Robbins 1928: 393).7 Only Marshall’s ‘curious predilection for biological analogies’ could have given birth to this misleading notion. Robbins went on to argue that the representative firm ‘cloaks the essential heterogeneity … of managerial ability’, erroneously suggests ‘a tendency of profits to equality’ and ‘is liable to veil from us the nature of economic growth’, which, as Young would explain in the following issue of the Economic Journal, implies continuous redrawing of sectorial borders, repeatedly emptying the representative firm of its meaning (Robbins 1928: 399, 403 and 402–3 n.). The latter criticism, though unfair to Marshall, drew attention to real dangers associated with the representative firm (Young 1928b: 537–8), but it was the simpler, straightforward marginalist account of value and distribution which carried the day. Marshall’s sophisticated view of the way in which equilibrium and change interact in the industrial world disappeared out of sight.8 However, by the time Robbins’s article was published, Pigou (1928) had already taken a decisive step away from Marshall, introducing the equilibrium firm as a logically consistent proxy of the representative firm. Besides internal economies, he dropped any reference to size since, for ‘his more limited purpose’ (Pigou 1928: 240, n. 1), the issue was irrelevant. From the standpoint of Marshall’s economics,

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Pigou’s simplification was a typological fallacy, due to the collapse of two distinct levels of discourse into one. Industrial life was replaced by the stillness of the equilibrium firm which, with its U-shaped curves, was soon to become ‘the exclusive subject of analysis in the conventional theory of the firm’ (Moss 1984: 312). Since he was Marshall’s direct pupil and welcome successor,9 Pigou’s retreat was even more damaging than Robbins’s attack. In Loasby’s words, the representative firm is the device by which Marshall seeks to preserve the continuity between a process theory of the firm and an equilibrium analysis of price. Pigou’s decision to replace it by an equilibrium firm – though it was still intended to be representative – destroyed the link (Pigou 1928: 239). Marshall’s achievement in having Pigou elected as his successor had consequences which he neither intended nor desired. With the link broken, the mathematical conceptions of continuity triumphed over the ideas of continuous evolution; the form of Marshall’s ideas triumphed over their substance. (Loasby 1990: 124) Such an outcome may have been anticipated by Marshall himself, as witnessed by his annotations to Pigou’s Wealth and Welfare: ‘I think he [Pigou] overrates the possibilities of the statical method’, ‘On the whole I incline to keep my[self] close to Pr[inciples] (especially as regards to the limitations of the statical method) in [Book] IV’ (Bharadwaj 1972: 33–4). Declaring his preference for appendix H of Principles when compared with Pigou’s approach to the issue (Bharadwaj 1972: 37), Marshall pointed out the locus classicus where he denounced the limits inherent in the statical method.10 Thus, from our point of view, Robbins’s attack was almost superfluous, since his target had already been removed. In the long run, Pigou’s equilibrium firm supported a regressive shift in the Cambridge research programme, hiding deeper problems than it helped to solve. Firstly, Pigou assumed ‘perfect competition’, whereas Marshall was at pains ‘to insist again that we do not assume that competition is perfect’ (Marshall 1920: 540), also because ‘perfect competition requires a perfect knowledge of the state of the market’, and this is, in many cases, ‘an altogether unreasonable assumption’. Not only did Marshall hold this opinion firmly, but he also made a point of passing it on to his students. Macgregor recollects that in his lectures he ‘always insisted that normal competition was not perfect competition’ (Macgregor’s introduction to the 1938 reprint of Macgregor 1906; cf. also Macgregor 1949: 39–40) and the young Keynes got a red pencil in 1905 for forgetting that a similar concept – automatic competition – ‘belongs to the mathematical world on the other side of the looking glass’ (Raffaelli 2000b: 143). Secondly, Pigou made internal economies shrink to those induced by increase in the size of the industry, whereas Marshall thought of them as available to the individual firm. Robertson’s (1930) passionate but inconclusive defence centred on two separate issues. The first half of the article was a reply to Robbins and ended with a suitable quotation from Principles to support the thesis that the normal earnings

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of a representative business are decisive in attracting supply and therefore enter into production costs.11 The second and better known half sought to respond to Sraffa’s criticism of the attempt to reconcile equilibrium of perfect competition with increasing returns by resorting to metaphors. This strategy laid him open to Sraffa’s ‘skilful pricking of his analogies’ (Andrews 1951: 157) till the debate was closed by the verdict that while ‘Mr. Robertson’s remedy is to discard mathematics’, ‘it is Marshall’s theory that should be discarded’ (Sraffa 1930b). Sraffa’s critique led the way to the economics of imperfect competition which others were to follow. Pigou, Kahn, Harrod and Joan Robinson pioneered efforts to build a formal apparatus which Joan Robinson (1933) refined and organized into a coherent whole. Her approach, while apparently developing Marshall’s themes – like the existence of ‘special’ markets – twisted his research programme beyond recognition. The statical equilibrium of individual firms replaced the shifting equilibrium of innovation and routine which characterized Marshall’s views of individual action and industrial evolution. The neoclassical paradigm of ‘situational analysis’, in which individual action is wholly determined, originally devised to handle perfect competition and pure monopoly, was applied to monopolistic and imperfect competition, while the subjectivist elements of Marshall’s analysis, having regard to knowledge, inclinations and variety, were forgotten.12 After Simon’s criticism of the paradigm, Latsis (1976: 27) pointed out its negative role in the monopolistic competition revolution, which triggered a degeneration of the Marshallian programme.

6.3 The resistance While both Sraffa and neoclassical economists, though from thoroughly diverging perspectives, shared the view that Marshall’s industrial analysis was superseded, scholars more sympathetic with his approach tried to rescue and update his evolutionary view of competitive industry. As already shown, Sraffa’s death sentence on Marshall’s economics met with scattered resistance. Andrews (1951), Becattini (1962), Loasby (1978), O’Brien (1990), Abouchar (1990), Prendergast (1992), and Marchionatti (2001) focused on the losses rather than the gains consequent on the abandonment of Marshall’s project to construct an equilibrium framework in which to analyse some elements of an economic system where evolutionary forces were considered to be pervasive (Hart forthcoming). Marchionatti (2001) aptly presents the inter-war debates as a false dialogue between economists who were pursuing different scientific strategies and could not avoid the crossroads of Marshall’s economics – increasing and decreasing returns, the representative firm and period analysis. In other words, as Hart (forthcoming) writes, ‘the debates had little to do with the analysis to be found in Marshall’s published writings. Rather these controversies illustrate clearly the extent to which Marshallian value theory had departed from that of Marshall’s Principles’. Shove’s research project, though no less personal and original than that of the other contenders, was to revise Marshall’s analysis without abandoning his dynamic perspective. Therefore, he continued to challenge the kind of theoretical

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refinement which was taking place. In his review of Robinson (1933), he labelled the book unsatisfactory and, ‘for a product of youth’, ‘surprisingly – to a rebel veteran, disappointingly – conservative’ (Shove 1933b: 657). The quarrel was not between abstraction and realism, with the Marshallian rearguard strenuously defending the latter, as Backhouse (1985) argues by quoting a passage from Shove (1933a: 121), but involved different ways of conceptualizing the problems of the modern economy. Shove’s fundamental dilemma was between ‘a degree of abstraction which renders the apparatus inapplicable to the actual phenomena we set out to explain’ and ‘a degree of complication which makes it cumbrous to use’. He aimed at making the latter alternative less cumbersome rather than the former more realistic, while Robinson (1933: 327), choosing the other horn of the dilemma, looked forward to ‘the far distant ideal of constructing an analysis which will be capable of solving the problems presented by the real world’. The dilemma is unavoidable and of current relevance since in the end abstractions must come to term with problems set by the real world, however indirect the link may be. Far from suggesting that the link ought to be easier or more direct, Shove (1933b: 660) simply noted that ‘Mrs. Robinson retreats rather than advances on the road towards her distant ideal. Indeed, after the pioneer work of Marshall, it was a retreat to assume that the whole industry’s equilibrium implied that each individual firm was in equilibrium’.13 This ‘makes diagrammatic treatment easier … but has not the time come when we must leave our diagrams behind?’ Whether new and more difficult economic problems were suitable for mathematical handling was an open question, but, after Marshall’s work, there was no doubt that plane curves were inadequate: it seems unlikely à priori that an instrument adapted to deal with functions of one variable only will prove supple and refined enough to be of much avail in tracing or displaying the immensely complicated network of mutually dependent influences which is encountered as we approach nearer to our real problems. (Shove 1933b: 661)14 Within a strategy opposite to Robinson’s (1933), Shove (1933a: 124) was looking for ‘an apparatus’, or ‘a technique capable of determining and forecasting the effects of change instead of elaborating the conditions required for stationary equilibrium’ (Shove 1933b: 661). From a purely theoretical point of view, his research programme, already outlined in Shove (1930), which brought to an end the Economic Journal symposium, was more ambitious than Robinson’s. In the 1930 article, Shove agreed to the relevance of the issues which prompted Marshall to forge the notion of the representative firm, but thought that they could be solved otherwise. Once the mental content of the notion was sidestepped by establishing a definite relation between expectations and results (see n. 11), everything else could be dealt with by a theory of the distribution of resources both within and between industries. Moreover, he called attention to two aspects of industrial life which tended to displace the representative firm from its prominent position. One

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of them had already been noticed by Marshall: ‘the great recent development of vast joint-stock companies, which often stagnate, but do not readily die’, a development which prompted him, in the sixth edition of Principles, to use the past tense for the ‘trees of the forest’ metaphor, which Robertson (1930) still accepted as up-to-date. The other was the continuous disintegration and reorganization of industrial borders described by Young, and already turned against the representative firm by Robbins. In the second part of his article,15 dealing with increasing returns, Shove tried to improve on the distinction between internal and external economies. He observed that the main purport of Marshall’s terminology was to distinguish those economies ‘which a firm derives from the efficient organisation’ of its own resources from those ‘which it derives from the organisation of outside resources, not in its own direct employment’. This distinction, reflecting the businessman’s point of view, though ‘important and fruitful’, is not ‘the most significant and illuminating’ for unravelling the relations between size and efficiency. For Shove, the right distinction for this purpose was that between ‘economies of large-scale industry’, ‘made possible or profitable by an increase in the total output of the industry as a whole’, and ‘economies of individual expansion’, ‘which an individual firm … would obtain by increasing its own output while that of the industry as a whole remains unchanged’. Reviving Pigou’s (1928: 242) distinction between marginal ‘substitute’ and ‘additive’ costs,16 he underlined the different problems individual businesses face when expanding production, according to whether the industry’s output expands or not. In equilibrium, individual firms have their share of internal economies; some exploit them while others find them offset by increasing costs of transport and marketing, but any different constellation of business size that could be brought about in the present state of knowledge would prove less efficient. Thus, economies of concentration are incompatible with equilibrium by definition, while economies of rationalization (see §6.5) – which would also produce increased efficiency through a different distribution of firms by size, but require a different degree of knowledge, intelligence and corporate spirit – are admissible. Some of Shove’s main tenets were Marshallian: the fundamental role of individual variety of aptitude and luck, the life cycle earnings of the firm as the target which attracts new resources and the distinction between equilibrium of the industry and that of each individual firm, not implied by the former. However, his concern with change aroused no regret that biological analogies were ‘fading out’ (Shove 1942: 324) but induced him to look for a different Mecca in dynamic economics. Though patently unsatisfactory, book V of Principles ought still to provide the compass, while no help was expected from Industry and Trade, ‘almost entirely historical and descriptive’ (Shove 1942: 320). Moreover, he found Marshall’s subjectivist approach unpalatable, as witnessed by his dismissal of the representative firm – whose place was taken by a population of firms showing statistical regularities – and his replacement of the pair internal/external economies with a terminology which, unlike Marshall’s, has not survived to our day. Shove’s project remained unfinished but he never bowed to the imperfect

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competition revolution. As late as 1942, conceding that Marshall’s analysis was limited, especially in the intermediate field between monopoly and competition, he denounced that ‘very little has been done … to fill that gap’, an assertion which is both a criticism of what others had done and a declaration of failure (Shove 1942: 321). However, his contributions were not wholly forgotten. His focus on the evolution of industries fostered the ongoing debate on rationalization and his refusal to jettison industrial analysis and cling to the equilibrium of the firm was later vindicated, when his stochastic theory of the distribution of firms by size was formalized as a proxy for the theory of the structure of industry (Newman 1960; Newman and Wolfe 1961). Shove and Robinson pursued different research programmes and the one which emerged triumphant might have sent economists astray. Robinson herself soon realized the weakness of her analysis and in the end conceded that, when alerted by Sraffa to the ‘inconsistency between the static base and the dynamic superstructure’ of Marshall’s theory, she took the wrong turning: ‘instead of abandoning the static analysis and trying to come to terms with Marshall’s theory of development, I followed Pigou and worked out the Economics of Imperfect Competition on static assumptions’ (Robinson 1951: vi–vii). In the very year when this self-criticism was published, Andrews (1951: 140), driven by one of Marshall’s pupils to study the theory of the firm within a heterodox, Marshallian perspective (Lee 1989) and encouraged by Hall and Hitch (1939) to reconsider the theories which emerged in the 1930s, gave a similar verdict: ‘the difficulty has been resolved by dropping industrial analysis and retaining the static equilibrium theory of the individual business. It would have been equally legitimate to have abandoned the latter’. In the attempt to build a new concept of equilibrium, where primacy stood with the industry rather than the firm, Andrews offered a well-thought-out reconstruction of Marshall’s shortcomings which subverted the orthodox view. Marshall went wrong precisely when, in the attempt to over-simplify his analysis, he focused on the corn and fish market, where firms work at full capacity and produce homogeneous goods at given prices. In such cases, it was easy to find the equilibrium position of the individual business through an ‘attractive’ method of analysis. Unfortunately, the method remained ‘at the back of his mind’ even when, turning to manufacturing goods, he was obliged to reason otherwise. The existence of long-run increasing returns (already relevant to fish supply, it may be noticed) ‘forced him to make other observations concerning such industries, and especially concerning their markets, which would themselves be inconsistent with the equilibrium theory that he would otherwise have erected’ (Andrews 1951: 150). The existence of particular markets, ‘goodwill’, unused capacity and short-run non-decreasing returns were all present to Marshall and ran counter his attempts ‘to make a formal statement of individual equilibrium’ (Andrews 1951: 153) which, however, continuously ‘got in the way’, preventing him ‘from achieving a clear statement of how industrial markets work’ (Andrews 1951: 150). Andrews’s positive reason why Marshall did not go farther is that ‘in his historical studies he was more concerned with industrial development’ than with ‘problems of individual businesses as such’ (Andrews 1951: 153).

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Industry and Trade could be brought in to confirm that the core of Marshall’s industrial analysis was not well represented by simple markets where individual output is determined by equating unambiguous marginal costs with given marginal revenues. Chapter 1 of book II reveals that Marshall’s abstractions in value theory do not follow traditional patterns. Value is not determined by equilibrium relationships of produced goods with utility on the one hand and cost of production on the other. The cost of production of a single thing ‘can seldom be isolated’, unless we ‘go far from the facts of life’ and select an ‘imaginary case’; in representative cases the cost of production ‘is the cost of a whole process’ (Marshall 1919: 181, 190–1).17 The same opinion was stated in chapter 6 of book V of Principles which cannot be relegated to the field of exceptions since it highlights some widespread problems of modern economies, in which production – as well as consumption – is always ‘in common’. Unlike in the world of general equilibrium theory, in Marshall’s world, inhabited by a population of evolving organized systems, each producer ‘has a plant, an organization and a business connection, which put him in a position of advantage for his special work’ (Marshall 1919: 196). Prominent in Marshall’s dealing with industrial organizations, this approach, rooted as it is in mental science and based on the idea of automatisms, also affects the individual. It would always be impossible to isolate the cost of a single performance, like a piece of backward skiing by an instructor, who may attempt it for the first time by combining a long established set of routines. The elements of the cost of production of backward skiing cannot be completely isolated from those of the skier’s overall training. Prime and supplementary costs, quasi-rents and increasing returns can be applied to this simple ‘system’ as well as to business firms. In the attempt to explain the turning-point that occurred in the 1920s, Andrews resorts to ‘pedagogic reasons’. ‘From a teaching point of view’, it was convenient to sharpen Marshall’s distinction between monopoly and competition and ‘argue in terms of the behaviour of individuals’ (Andrews 1951: 155). This made ‘the old concept of an “industry” ’ disappear from economic theory, together with the representative firm. Andrews’s analysis of this discredited Marshallian term is thorough and brilliant since, while pointing out the whole earnings of the firm’s life cycle as the new entrant’s target, he does not forget the subjective, mental features of the process (Andrews 1951: 146–7). He also comes close to resorting to a similar notion in the propositive part of his paper, devoted to outlining a theory of the individual firm compatible with Marshall’s industrial analysis (Andrews 1951: 166–7). But in the end the representative firm is dismissed because it fitted the old economic system in which competition was expected from new businesses while now ‘we must assume that a good deal of the latent competition will be from businesses which are already in existence, even if not producing the particular product’ (see n. 1). Even in this new situation, however, ‘representativeness is a real enough quality when we are concerned with empirical work’ (Andrews 1951: 171 and n.). Like Shove, but with fewer methodological constraints, Andrews aimed at building a theory of industrial equilibrium which did not stand in the way of a thorough understanding of industrial change, as Pigou’s theory did.18

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6.4 The dynamics of capitalism While nuclei of resistance to the demolition of Marshall’s system of thought lingered in economic analysis, Marshall’s overall view of economic evolution soon appeared to be wholly superseded. In the 1920s, two path-breaking papers on the dynamics of capitalism, without directly focusing on Marshall’s system, hit upon its kernel but either produced a new and original synthesis, stressing differences and ignoring similarities (Schumpeter 1928), or fell on deaf ears, eager to catch whatever invited to turn attention away from – rather than to – Marshall (Young 1928b). Properly speaking, Schumpeter (1928) does not belong to the debate on Marshall’s economics, being rather a restatement of the author’s views, already expressed in Theorie der wirtschaftlichen Entwicklung. But the article is worth examining since its leading ideas were clearly set in relief against a Marshallian background and contributed to displacing his system from the field where it could still find refuge, the theory of economic evolution. Schumpeter’s framework bears clear signs of family likeness with Marshall’s: both rely on the conceptual pair routine/innovation and lay emphasis on variation and change rather than allocation and equilibrium as the main advantages of competition. However, such resemblances, assuming they did not escape Schumpeter’s notice, easily hid behind the clash between the two authors’ evolutionary philosophies. Schumpeter (1928: 363) starts with the assertion that there is no fundamental difference between Marshall’s analysis and Walras’s since the former is as static as the latter (Schumpeter 1928: 368 and n.). From this statement, it follows that Marshall’s analytical devices which aimed at going beyond static analysis – such as increasing returns, the representative firm and external economies – were misplaced (Schumpeter 1928: 366 and 1941: 242). This biased reading of Marshall stems from Schumpeter’s dislike of Marshall’s evolutionary philosophy. The ways in which the pair routine/innovation works in the two systems are noticeably different19: whereas Marshall had in mind their continuous interaction, Schumpeter placed them into non-communicating tool-boxes. As he saw it, economics needs two separate conceptual sets, one capable of dealing with routines and automatisms, the other required to understand economic progress caused by creative innovation. A glance at their structure reveals that the two sets have no point in common, while in their chronological development today’s innovations become tomorrow’s routines, a view which Schumpeter (1928: 383) shares, perhaps unknowingly, with Marshall. Static equilibrium theory, especially in its Walrasian version, is able to capture the repetitive side of the economy, in which there is room for much movement and life, again in a Marshallian fashion, but becomes useless to deal with economic progress. Instead of the interwoven threads of Marshallian economics, here the reader meets with a sharp separation of warp and weft. Schumpeter (1928: 383) rejects all biological analogies, since they convey the idea of continuous organic growth, and insists on discontinuity – the main feature of his view of progress – brought about by entrepreneurial leadership.20 He draws the dividing line between routine

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movement – the ‘circuit flow of economic routine’ (Schumpeter 1928: 383) – and creative innovation according to whether change is produced by an act of individual will or not. External economies, he contends, imply that progress can ‘automatically’ follow on from growth and are therefore rejected (Schumpeter 1928: 369 n., 376, 377 n.). Now, if one recalls Marshall’s evolutionary view of the will, his notion of ‘semi-automatisms’, his positive attitude towards discovery by trial and error, his attention to the almost automatic processes of integration and differentiation caused by the division of labour, his refusal to separate static from dynamical considerations and his stress on external economies, it appears that he would have denied assent to Schumpeter’s drastically dichotomic economics. As already noted, Marshall was well aware of the role of consciousness, but not to the point of ignoring the driving force of unconscious, automatic trends. The success of Schumpeter’s view of progress, sometimes as a supplement but more often a replacement of general equilibrium theory, contrasts sharply with the oblivion into which Marshall’s vision sank, under the weight of Victorian ballast. Even those who set out to challenge general equilibrium theory, like Nelson and Winter (1982), bear witness to the different reception of the two theories. Though praising Marshall’s evolutionary economics much more than does currently prevailing opinion, as stated above, it is to Schumpeterian competition that they look for inspiration. They often seem to ignore how wholly Marshallian is their view of economic progress whenever they resort to biological analogies, blur the distinction between capabilities, which depend on routines, and deliberate choice (Nelson and Winter 1982: 70–1), point out the inevitable interconnection between replication and change (in chapter 5) or centre their analysis of change on economic organizations. All this can be termed ‘Schumpeterian competition’ only in its ‘trustified phase’ version, when ‘progress becomes “automatised”, increasingly impersonal and decreasingly a matter of leadership and individual initiative’ (Schumpeter 1928: 385). For Schumpeter, this phase subverts competitive capitalism, in which progress was driven by individual conscious efforts. Schumpeter’s scheme of the evolution of capitalism is much more discontinuous than Marshall’s and the former’s prediction of the inexorable outcome of the new phase, doomed thoroughly to displace competitive capitalism, does not compare favourably, in historical perspective, with the more mobile and less deterministic Marshallian picture of economic progress, in which consciousness and automatisms go on side by side and old types of creative competition always die and spring up again (Langlois 2001). While Schumpeter (1928) could but discourage any surviving interest in Marshallian evolutionary economics, it seems that Young (1928b) was a suitable candidate to breathe new air into Marshall’s theory of economic development. Starting with a warm tribute of praise to Smith’s theorem that the division of labour depends on the extent of the market – ‘one of the most illuminating and fruitful generalisations that can be found anywhere in the whole literature of economics’ (Young 1928b: 529) – he goes on to speak of a continuous ‘economic revolution’ in which the widening of the market is the driving force of change. Taken out of an equilibrium apparatus which denies access to the more general aspects of the phenomenon (Young 1928b: 527), increasing returns tend to pervade the whole process of industrial integration and differentiation (Young

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1928b: 537). Instead of static equilibrium, Young (1928b: 535) speaks of moving equilibrium, a concept banned by Schumpeter (1928: 369 n.). External economies are rehabilitated and play a major role in the ‘cumulative’ process of growth caused by ‘permanent characteristics’ (Young 1928b: 533) of market economies driven by the circular reinforcement of demand and supply. To put Young’s position in Schumpeterian terms, it is not so much the single act of invention which is relevant, but the mechanisms which make any improvement, whatever its origin, spread and multiply its effects throughout the whole economy. The process of cumulative economic growth can be triggered by mere increase in the supply of goods which enjoy increasing returns and elastic demand (Young 1928b: 533–4) and even by population growth (Young 1928b: 536). Grouping of economic forces under the headings of demand and supply is designed to lead to the study not of their equilibrium, but of the mechanisms through which change and growth take place. Like Marshall, but unlike Schumpeter, Young was also conscious that ‘large production’ did not involve ‘large-scale production’ (Young 1928b: 531) and that industries continuously split, giving rise to new specialized fields of production which make room for small and medium businesses. Young’s 1909 letter (Whitaker 1996, vol. III: 218–9) gives further evidence of Marshall’s influence, as does his inaugural lecture at the LSE, which set forth typically Marshallian methodological views (Young 1928a). But the Marshallian outlook of Young’s articles failed to impress their readers, who focused attention on more fashionable issues, such as rejection of the representative firm, precisely because of the continuous reshuffling of industrial borders (Young 1928b: 531; Robbins 1928: 402–3 n.), and scepticism about rationalization (Young 1928b: 538), which raised high hopes in Cambridge, but was strongly opposed at the LSE, where Young was then teaching. It may be concluded that Young’s provocative interventions were delivered at the wrong time and place to trigger a new wave of interest in Marshall’s evolutionary thought.

6.5 Underground developments While the main bulk of the literature examined so far is well known, Marshall’s pupils’ works on industrial analysis pass unnoticed by historians of economics, biased towards ‘pure theory’. Since Marshall did not share this bias, any investigation of the follow-up of his thought which ignores such developments would betray his research programme and confine it into the straitjacket of neoclassical thought. If the effort ‘to disentangle the interwoven effects of complex causes’ requires a combination of general reasoning and ‘wide and thorough study of facts’ (Whitaker 1996, vol. II: 393), separating these two sides is illegitimate (though their distinction does not vanish). The main contention of Part II of this book was that the kernel of Marshall’s economics consists of an evolutionary model, which, interacting with specific historical circumstances, explains the dialectics of economic systems. By contrast, economists who followed the mainstream were misled into thinking that works on industrial economics were devoid of any theoretical meaning. Coase (1988a: 24–5) blamed this bias, instanced by Robbins’s judgment on book IV of Marshall’s Principles, for the long-lasting neglect of his own 1937 article

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on the nature of the firm. The new view, arising in the 1970s after rediscovery of that seminal article, is that there was no theory before Coase’s discovery of transaction costs. This opinion is unfair, since the evolutionary framework of Industry and Trade and book IV of Principles provided a theoretical basis for application and development by Marshall’s pupils.21 Their works deserve a place in the history of economic thought, at least for those who do not share Machlup’s (1967: 29) prejudice against ‘designating organization theory as economics’. At the beginning of the century, Marshall’s best graduate students, already equipped with the ideas which were later to find place in his most delayed book,22 were encouraged to study the evolution of industrial systems. Chapman’s pioneering study of industrial districts, Lancashire Cotton Industry (1904), subtitled ‘A study in economic development’, focuses on the origin and evolution of the localized clusters of interconnected firms forming the Lancashire textile district. The book explains how mechanization helps to further mechanize (Chapman 1904: 83) and examines the forces, in particular the efficient use of mental energy, which bear on business size (Chapman 1904: 167–70). If Chapman’s book is the forerunner of recent studies on industrial districts, Macgregor (1906) shows some similarity with contemporary neoinstitutionalist analysis. Macgregor’s work examines economic forces leading towards industrial combination, considered the ‘representative’ method of modern business life and an extension of conscious intervention beyond the boundaries of the individual firm (Macgregor 1906: 52). Combination occurs when the representative firm has already harvested the advantages associated with size. This new form of integration in business life tends to internalize external economies (Macgregor 1906: 28), exploit the benefits of bargaining within the terms of a wider contract (Macgregor 1906: 67) and bring resources under the management of the organization (Macgregor 1906: 94). As time passed, Macgregor was increasingly seen as an old-fashioned Marshallian.23 Though he failed to complete his research programme, partly for biographical reasons, he was still able to influence Andrews into following the Marshallian tack (Lee 1989). After Marshall’s death, problems of localization, coordination, business size and rationalization were addressed by Lavington (1927), A. Robinson (1935 [1931] and 1934), Florence (1933, 1948 and 1953) and Macgregor (1934).24 Though their degree of ‘Marshallianism’ varies and in the case of Robinson and Florence it is indirect,25 the common element which distinguishes these Cambridge-trained economists from later researchers inspired by Coase (1937) is that the former focus on the firm and its strategic decisions to expand and contract, integrate and disintegrate while the latter seem to consider the firm-less market as the default. As Lee (1989: 37 and 28) noticed, Macgregor (1906) takes the firm as the basic unit of analysis and conceives of it as ‘an ongoing concern whose aims are survival and growth’. Market transactions – particularly when repetitive or requiring long-term connections – provide the environment which shapes the structure of its operations and influence its strategy, but are not taken as the fundamental explanatory unit of analysis, as happens with Coase (1937). Organized firms are no more the explanandum than market transactions are: there

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is no theoretical hierarchy between the two alternative ways of obtaining goods and services. In the light of modern methodological, philosophical and political tendencies, one of the merits of transaction costs economics is its market-oriented flavour, evidenced by Coase (1960), which called attention to his earlier, neglected article. ‘The Coasian world’ where transaction costs disappear, hypothetically introduced in his 1960 article, was such an instant success that Coase (1988b: 174) felt the need to warn of its purely fictional nature. The key concepts of the Marshallian tradition, traceable to Industry and Trade and sometimes reminiscent of the model of the mind set forth in ‘Ye machine’, were standardization, costs of coordination and power to innovate. They provided analytical tools to discriminate between different forms of integration – vertical, horizontal, lateral, diagonal – and different types of large scale activities – production, organization, operation –, all bearing on issues of business size and location. Lavington’s discussion of the negative effects of vertical integration, anticipating the need to stick to the ‘core business’ which reappears in modern literature, seems to spring directly from Marshall’s model of the brain: the most powerful economic influences affecting the character of the business unit in manufacture are the economies attainable from the application of the principle of concentrating human faculty on a narrowed range of task. …The narrowing of the range of tasks undertaken by the single business reduces the complexity of the problems which it presents to the management. It releases entrepreneurial ability. It enables that ability to be concentrated more intensely on a simpler task. (Lavington 1927: 27 and 29) These influences give rise to a powerful tendency to vertical and lateral disintegration, which Lavington, A. Robinson and Florence compared with counteracting forces. Their dynamic view of the economic system easily incorporated Young’s ideas, which they approvingly quoted (Robinson 1935 [1931]: 111; Florence 1933: 5). Robinson (1935 [1931]: 13) wrote that ‘industries as such have no identity’ and Florence added that ‘as firms give up old transactions and take on new, industries are continually changing in content and continually branching off into separate industries’, so much so that ‘the definition of any one industry is very blurred’ (Florence 1933: 11). In the long period, firms continually fall ‘into a new kaleidoscope of industries’ (Florence 1932: 69).26 When discussing the limits to the growth of firms, these economists focused on coordination costs, which, when compared with the economizing device of standardization, affect decisions to integrate or disintegrate processes of production. This is the point of view of the entrepreneur and finds its place in Coase’s theory under the heading of ‘costs of organizing’ transactions within the firm which are weighed against the costs ‘involved in carrying out the transaction in the open market’. The final result of such weighing determines make-or-buy decisions (Coase 1937: 394). For Robinson, as for Kaldor (1934), increasing coordination costs, due to the limited powers of coordination of the directive

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mind, are the most powerful factor limiting the growth of individual firms and bestow substantial advantage on small and medium businesses, especially where change and flexibility are required.27 In Florence’s approach (1948: 80), coordination accounts for the variable size of plants and the strength of the industrial district, where, according to Marshall, coordination is automatic. For this reason, the district provides an alternative to large integrated businesses (Florence 1948: 59). However, against excessive emphasis on coordination costs, Florence (1933, 1953) called attention to the ways in which coordination can be delegated and stressed the powerful impulse towards centralization exercised by standardization and likeness of function.28 As in Industry and Trade, standardization entails two opposing tendencies: it allows small firms to buy and sell more easily but also helps big businesses to economize on coordination costs. Against A. Robinson, Florence objected that there are no predetermined limits to the process of division of labour in management. The problem to be solved is the same as that faced by Marshall’s machine, namely how to balance the danger of ‘overloading top-level with decision making’ against that of ‘irrational traditional action’ taken by subordinate automatic devices. In this trade-off, some reliance on traditional action is unavoidable and gives a distinctive Marshallian flavour to Florence’s view of human action: Habit and rule of thumb and general principle are methods of relieving the top government from the strain in too much thinking – are methods of decentralizing nervous effort [italics added] – and occur frequently in business procedure. … Attention … must be focused on one particular problem: how, by organizing responsible sub- and sub-sub-structures and co-ordinating them, to relieve the load on the men in top government of a large organization, so that they may be free to concentrate their thought on high policy and the means to plan, command and check that policy efficiently with expert management and advice. (Florence 1953: 148) Far from being empirical generalizations, these are logical tools meant to guide field research. The titles of his books make it clear that Florence aims at The Logic of Industrial Organization and of British and American Industry (Florence 1933 and 1953). The framework for dealing with industrial evolution laid out in Industry and Trade and rooted in Marshall’s model of mental growth runs through the works of Cambridge-trained economists but never takes the centre stage in its own right. This gives the impression that such works, like Industry and Trade, are merely descriptive. However, theoretical considerations support their discriminating attitude towards different types of integration and their discussion of localization and the principles of organization. Inspired by Marshall’s concept of ‘particular’ standardization, Florence (1933: 15) did not overlook that easier transmission of information and more effective acquisition and dissemination of knowledge push towards increase in business size; he then resorted to historical, sociological and

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psychological elements to explain the discrepancy between what the unhampered logic of industrial organization would bring about and the ‘illogical’ organization of most industries of the real world. This discrepancy called for action to rationalize industrial production. Following Marshall’s opinion that human intervention could be better than natural selection (Robinson 1935 [1931]: 96; Macgregor 1934: 43), but also Pigou’s somewhat dogmatic approach to the rationale for public policies, the Cambridge economists supported the movement for rationalization. In the 1920s, the cotton industry underwent a long depression of trade which each firm met by curtailing production, working with excess capacity without covering full costs and waiting for recovery. Pigou’s distinction between marginal ‘substitute’ and ‘additive’ costs, developed by Shove, seemed to make room for conscious pooling of resources to concentrate production in the most efficient plants and reduce its costs. This was the plan for rationalization of the Lancashire cotton industry which Keynes unsuccessfully tried to work out (Marchionatti 1995).29 Involved in discussions on industrial organization – as can be inferred both from the literature quoted in his article and from his own recollections (Coase 1972b: 62) –, Coase devised an original approach to the issue which later inspired the neoinstitutionalist research programme. His discussion on method (see page 85) and his sceptical attitude towards the tendency to polarize economic analysis around the two extreme and unrealistic assumptions of pure monopoly and perfect competition bear evidence of his sympathy with Marshall’s style of economics. However, the breakthrough came by focusing on the interface between the firm and the market from a market-oriented perspective, whereas the Marshallians reasoned in terms of the firm’s strategic decisions in their struggle for survival and growth. The two perspectives could complement each other, but could also be at variance on many points, including the evaluation of conscious intervention in industrial policy. Coase shared the doubts then voiced at the LSE where his influential teacher, Arnold Plant, denounced the widespread desire ‘to plan and rationalise’ (Plant 1932: 57) and feared any interference with consumers’ sovereignty. The fact that Coase’s article was connected with this cultural background may have contributed to the recent success of his approach to industrial economics, tuned in to modern preconceptions. His original analysis of the way in which the third main character of the play, the law, interacts with firms and markets to shape the economic system was susceptible of various developments. The dominant one was Williamson’s transaction cost economics, which, independently of Coase’s intentions, conceived of the firm as the best answer to the need to counterbalance opportunistic behaviour, mainly due to asset specificity. In this perspective, there was little room for the Marshallian approach to the evolution of industrial organization, centred on the growth of intra- and inter-firm internal resources (consisting of routines) and the quest for novelty.

6.6 The Marshallian revival The neoinstitutionalist approach centred on the concept of transaction costs is generating an impressive flow of studies on patterns of change in organizations

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and institutions which is slowly shifting the bearings of the economic profession (including economic historians). The process is far from over and, as in any success story, continuous branching can be observed covering new areas and arousing some competition. Evolutionary game theoretical models are enjoying great acclaim and seem sufficiently flexible to deal with different sets of empirical premises. The economics of property rights also aims at analytical rigour but denies the almost exclusive role that transaction costs economics assigns to asset specificity and incentive in drawing the boundaries of the firm and abandons the idea of market trade as a default.30 The literature considering the step by step interrelations between social, institutional and economic factors in order to understand the evolution of economic organizations is moving away from general equilibrium theory and is bringing to the forefront Marshallian issues which are dealt with in his typical style of piecemeal analysis. But this would not be enough to prompt a revival of interest in his economics, where it not for the blossoming of yet another literature which seeks to explain the strategic behaviour of the firm by focusing on problems of coordination and growth of its set of routines. Penrose (1959: 24), who conceived of the firm as a collection of productive resources, did not become aware of her closeness to Marshall till much later (Loasby 1999c), but Richardson (1972: 888), who introduced the term ‘capabilities’, and Loasby (1976) were fully aware of their indebtedness to the Cambridge economist. Since transaction costs economics is approaching the status of a new recognizable paradigm, it is reasonable to take it as a term of comparison for assessing some features of this – consciously or unconsciously – Neo-Marshallian literature. The core idea of the firm as an ongoing bundle of capabilities, requiring coordination and improvement, is irreducible to transaction costs economics (Foss 1993; Langlois and Foss 1997; Kay 1999; Ravix 1999). To put it briefly, the latter centres on make-or-buy decisions, which forge the boundaries of firms and markets in response to monetary incentives, but take production costs as given. As Langlois and Foss (1997: 10) pointed out, Coase, bringing the firm back into economic theory, ‘was reasserting Marshall against Pigou’, but, refraining from challenging ‘the assumption of firm-asproduction-function’, he stated his case ‘in a way already circumscribed and defined by Pigouvian price theory’. Though Coase ‘did not neglect the issue of coordination’ and the task of running a business – and although in other articles he focused on entrepreneurial decisions in the face of uncertainty (Arena 1999) –, his followers reduced his contribution to the discovery of a second set of costs besides those embodied in traditional price theory. Kay (1999) sees the limits of transaction costs economics in its attempt to reduce the firm’s decisions to those of a calculating machine, only slightly more complex than ordinary economic man. By contrast, the capabilities approach proposes to look inside the firm and examine the way it builds on its own asset of resources, coordinating them in order to enhance its chances of survival and growth. This is precisely Marshall’s evolutionary view of industrial organization, whose echoes survived in the neglected works of his disciples. What really matters is the firm’s attempt to project itself into the future, to build an environment favourable to its growth. This is the

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approach shared by modern evolutionary economics: many contemporary works, both theoretical and historical, on modularity, flexible specialization, outsourcing and organizational learning can easily be likened to the Marshallian perspective described in the previous chapters.31 Nelson (1995) reviews the different fields in which the pair innovative variation/routine selection displays its evolutionary strength. Technological change, product innovation, business organization, knowledge, institutions and legislation obey the evolutionary pattern characterized by variation on the one hand and ‘mechanisms that systematically winnow on that variation’ on the other (Nelson 1995: 54). These common features, which allow for differences, hint at the possibility that a new paradigm, in Kuhn’s sense, is about to replace the traditional maximizing paradigm, based on economic man (Dosi 2000). At present, when faced with the costs of obtaining information or transacting in the open market, economists are tempted to explain new phenomena simply by adding new epicycles to the old core, which therefore loses simplicity and elegance. Williamson himself, while borrowing Simon’s ideas concerning limitations to rational behaviour, dwells upon ‘bounded rationality’, which does not ban maximization and steers clear of the hurdle of competence-based rationality, which does ban the model of human action still prevailing in economic theorizing. But at a certain point, instead of making the conditions under which maximization takes place more and more complex, it may be worthwhile switching to a different model of human behaviour. The quest for this new model opens the way to rehabilitating the discredited Marshallian Mecca, whose pioneering value Nelson (1995) acknowledges, though overlooking that it relied on the crucial pair. Another current of research inspired by Marshall’s work was opened up in Italy with the flowering of studies on industrial districts.32 While Italian standard economics assumed big businesses as the essential feature of mature industrial systems and lamented their absence outside Northwestern Italy, Fuà, Becattini, Brusco and other economists and sociologists called attention to the vitality of areas characterized by the presence of a multitude of small and medium businesses, engaged in related and integrated activities, such as textiles, clothing, tanning, shoes, furniture, tiles, etc. Reference to Marshall’s industrial district was not the result of search for noble ancestors, but an indication of the genuine, direct source of inspiration (Becattini 1979, 1989, 1990a; Bellandi 1989; Brusco 1986). At the beginning, this provocative challenge met with widespread scepticism, but the unfolding of economic events, which greatly changed the industrial panorama of the 1950s and 1960s, overcame resistance and made industrial districts into one of the most popular concepts of Italian economic discourse. In the 1980s and 1990s, the Italian experience was brought to the attention of the international scientific community, mainly – but not exclusively (Brusco 1982; Goodman and Banford 1989) – thanks to the efforts of the International Labour Organization (Pyke et al. 1990; Cossentino et al. 1996), which also promoted comparative studies in various countries (Pyke and Sengenberger 1992). Meanwhile, Porter’s (1989) analysis of world commerce brought to light the existence of localized clusters of small businesses (especially in Italy) which helped to explain the competitive advantage of areas apparently penalized by high labour costs and absence

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of industrial giants. The author’s prestige, and the almost inevitable convergence between his clusters and Marshallian industrial districts (Porter 1999), opened the way to acceptance of the concept by the economic profession. Furthermore, the loss of relevance of national boundaries, partly as a consequence of globalization but also emphasized in Europe by monetary union, revived Marshall’s doubts concerning the meaning of ‘economic nations’ and the most suitable territorial units of economic and social science (see page 75). The main theme connecting district studies with the capability approach, and revealing their Marshallian matrix, is the process of subdivision of functions that takes place when the market expands. But there is a further dimension to district studies, which emerged in a fruitful open discussion between different Italian schools and gave rise to a progressive shift of the original concept, from industrial districts to local systems.33 The new concept focuses on the human, economic and social resources whose potentialities are reflected by the productive performance of certain areas. Underlining the role of elements of the local culture such as social credit, social capital and social bonds and the existence of common interests that help to regulate internal conflicts, this approach brings economics back into contact with other human and social sciences. Or, according to the motivation of the prize-committee of the Swedish Foundation for Small Business Research which appointed Becattini for the 2002 International Award, it ‘introduces the idea of embeddedness as a key analytical concept in understanding industrial districts’.34 District studies easily spread into related fields, for instance economic sociology, economic geography, agrarian economics and economic history, giving rise to a fruitful interdisciplinary dialogue.35 Thus, various tendencies of modern economic research seem to vindicate Marshall’s view of the provisional nature of any division in the human and social sciences.

7

Keynes’s Marshallian heritage

7.1 The Keynesians’s struggle to dispose of Marshall While Marshall’s industrial economics fell into neglect, to be revived much later, his monetary economics was displaced by the Keynesian revolution. In the late 1960s and early 1970s, which marked the climax of Keynesian hegemony in economic policy, the main controversy was between defenders of the radical nature of the revolution, later betrayed by ‘bastard Keynesians’ (Robinson 1979: 121), and supporters of the need for its micro-foundations, in order to reconcile it with the hard core of the Neo-Walrasian research programme, even at the cost of dropping uncertainty (Weintraub 1975). Only a few economists, Leijonhufvud in particular, continued to stress that Keynes’s work should be placed in a Marshallian framework. Of the many threads supporting this link – process versus equilibrium analysis, partial versus general equilibrium, quantities versus prices adjustment – the most relevant to our subject is Marshall’s scepticism concerning optima and maxima. Leijonhufvud (1976: 105–7) blamed the Neo-Walrasian ‘maximizing behaviour postulate’ for diverting attention from the main features of Keynes’s theory and trying to constrain it into an unfriendly environment. Discussing ‘whether the decline of Marshallian economics was avoidable’, he rescued Marshall’s theory of behaviour, which, not insisting on representing all acts as parts of an optimal plan’, ‘provides escape from most of the embarrassing riddles of time and ignorance met with in current “neoclassical” (growth) models’. The return to Marshall was the only way to remove the obstacles which the Neo-Walrasian programme interposed to the proper understanding of Keynes. In a similar vein, Clower (1995 [1975]: 250) pointed out ‘the contrast between the Marshallian conception of economic activity and that underlying the Neo-Walrasian literature’: ‘in Marshallian analysis, economic agents are conceived to be not so much rational as reasonable. Individuals fumble and grope rather than optimize’ and economic rationality cannot be taken for granted. Marshall’s view of human behaviour is similar to Keynes’s and helps to explain why individuals tend to adjust to current opinion. Both Clower and Leijonhufvud drew a parallel between their reading of the two Cambridge economists and Simon’s concepts of procedural rationality and satisficing behaviour, which are called to mind almost inevitably, as shown in Chapter 2, on reading ‘Ye machine’. Kregel (1976) also made an attempt to reclaim Keynes from the foreign Walrasian context and restore

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him to the familiar Marshallian fold. However, these suggestions failed to mature into fully developed analytical results: indeed, the attempt was probably doomed from the start, since the Marshall apparatus itself, as shown in Part II, was unable to cope with his underlying evolutionary views. Unfortunately, instead of delving into Keynes’s Marshallian background and focusing on its unsolved problems, the trend of Keynesian scholarship erected fences to protect what it conjectured to be his original creed. In the wave of general retreat from state intervention and full employment policies, a retreat which began to take place in the late 1970s and early 1980s, the mix of partial equilibrium analysis (usually integrated in the anti-Keynesian paradigm), piecemeal reforms and outdated Victorian ethics that appeared to characterize Marshall’s thought was considered to be more of a hindrance than a help for updating Keynesian theories and policies. With the decline of ‘hydraulic’ Keynesianism, assistance seemed to come from the ‘fundamentalist’ approach (Coddington 1976: 1259) which, inspired by Shackle (1972 and 1974), but overlooking his Marshallian sympathies, called attention to the notion of radical uncertainty of chapter 12 of the General Theory. In this intellectual climate, ‘unswerving’ Keynesians turned to Keynes’s philosophical background in the hope of reinvigorating their vanishing paradigm. In this context, his early ethical essays and the Treatise on Probability – up to then almost forgotten – became the sign-posts of his originality, capable of revealing the source of his unique view of the economy which was later misinterpreted and betrayed by his followers. Contributions on the subject are so numerous that it is impossible even to give a hint of the debates between defenders of the true faith and their assailants. The strongest thesis, argued by Carabelli (1988), is that for Keynes, both in youth and his later years, human action is so intrinsically complex and uncertain that it defies the rationalistic tools of standard economics and its reliance on the mathematical calculus. Carabelli maintains that Keynes reached this conclusion quite early on and clearly expressed it in the Treatise on Probability, where he resorted to common sense knowledge, embedded in ordinary language, to understand human action. The book, in Carabelli’s interpretation, embodies a veritable breakthrough in nineteenth century philosophy and is the forerunner of Wittgenstein’s Philosophische Untersuchungen and recent anti-rationalistic tendencies. Carabelli does not even feel the need to compare Keynes’s view of human action with Marshall’s. In her book, On Keynes’s Method, Marshall is referred to only in a footnote, where the author concedes that he may conceivably have anticipated Keynes’s criticism of excessive reliance on statistical and mathematical reasoning, but leaves the final verdict hanging (Carabelli 1988: 295–6). A no less radical stance on the presumed continuity between Keynes’s early essays, A Treatise on Probability and The General Theory were put forward in 1982 by O’Donnell, in a dissertation which was later revised and published. In as much as it offers a broader analysis of the development of Keynes’s thought, the book makes more room for Marshall’s influence, but more or less confines it to economics. Though less grudgingly acknowledging the impact of Marshall’s views on the limited role of mathematics, O’Donnell maintains that Keynes’s core

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ideas were formed during his early philosophical reflections, before he met Marshall and on subjects concerning which Marshall appears to have nothing to say (O’Donnell 1989: 203–4). Knowledge of previously unpublished material encouraged attempts to put Keynes in a new historical perspective, giving rise to a vast and flourishing literature – impossible even to summarize here – on his relations with Moore, Wittgenstein and Ramsey, the possible influence of Freud, the role of vagueness, organicism and complexity and other issues. Whatever the respective authors’ answers to any of these problems, it almost always seemed to be a foregone conclusion that Marshall had no influence on Keynes’s non-economic ideas. He had been left shunted into a siding, wherefrom Keynes took his economic technique, while the philosophical and methodological problems, which concerned Keynes throughout his life and characterized his economics, were assumed to stem from other sources. If the previous chapters of this book succeeded in performing the task I set myself, readers should already be able to challenge this assumption by themselves. Research into Keynes’s early philosophical tenets had a great impact on the two major biographies which were then under way. Moggridge (1992: 623) fully endorsed Carabelli’s reconstruction, while a few years earlier, perusing the same unpublished material, Skidelsky (1983) drew a brilliant picture of the young Keynes’s struggle to vindicate individual judgment against the pretensions of conventional rules, notwithstanding intrinsic uncertainty about the distant future. The second volume of his biography (Skidelsky 1992: 84) and Skidelsky (1991) show that he agreed with O’Donnell on key points. Though assenting to the common view that the rationalistic solution of the Treatise on Probability was later rejected by Keynes himself, Skidelsky convincingly argues that Keynes turned the question over and over in his mind. It is amazing to see that the economic agent of the General Theory faces the same problematic structure singled out by Keynes thirty years earlier in his discussion of Moore’s ethics and Burke’s political writings: the issue at stake is always whether individual judgment can flout conventional rules on rational grounds, given that long-term outcomes are unpredictable. To defy the excessive conservatism of Moore and Burke, which gave prominence to traditional, conventional rules, Keynes’s strategy was to assign greater ‘weight’ to the immediate future, whose probabilistic knowledge is within human capacity, and sterilize ignorance of the distant future by ‘the principle of indifference’.1 Both terms in inverted commas are given a technical meaning in A Treatise on Probability, which attempted to vindicate human rationality by switching from a frequency to a logical theory of probability. If probability is not a judgment about the frequency of outcomes, a frequency whose validity in the future cannot be known, but is instead a logical relationship between the agent’s knowledge and its probabilistic implications, then each action can be rationally justified in itself, whatever the outcome in the distant future. As Skidelsky points out, criticising Carabelli’s view, it is at any rate improbable that Keynes would have championed probability as a guide of life had he thought that probabilities were generally unaccessible,

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The aftermath because then his position would, in practice, have been the same as Moore’s, and the whole labour in vain. Skidelsky (1992: 82)

As shown by Bateman (1990 and 1996a), Dardi (1991), Cottrell (1993) and others, Keynes had come to doubt the existence of logical relations of probability by 1931, when he wrote the article on Ramsey’s philosophy which paved the way for the psychology-based economics of the General Theory. In this book, classical rationality, even in its probabilistic version, is rejected and the stabilizing factor, capable of sterilizing ignorance of the distant future, is convention, something reminiscent of Mill’s and Marshall’s custom, but whose foundations are more shaky and therefore subject to sudden breakdowns. For our limited purpose, what is striking in this bird’s eye reconstruction of prevailing views of the evolution of Keynes’s thought on the foundations of human action is that it is wholly Marshall-free.2 The underlying scheme is that there are two separate sources of his thought, one concerning economics (theories, techniques, applications) and the other relating to philosophy (ethics, epistemology, method). Once this scheme is accepted, Keynes’s philosophical and ethical ideas are isolated from his Marshallian economic training. This line of reasoning overlooks the rich and complex philosophical contents of Marshall’s economics, reducing it to the asides of Victorian morality which Keynes and his generation heartily disliked. Thus the next sections aim to demonstrate the existence of biographical evidence and theoretical support for extending the thesis of continuity in the relationship between Marshall and Keynes to non-economic issues of philosophical relevance.

7.2 The Marshallian imprint It is not surprising that Marshall’s biographer reacted unfavourably to the way in which Keynes’s two main recent biographers failed to seize the many threads connecting the two Cambridge economists on methodological, political and ethical issues. Groenewegen (1993 and 1995b) shows that Keynes’s attendance at Marshall’s 1905 Michaelmas lectures marked the beginning of an intense personal relationship which lasted till the master’s death. He then points out two other phases of ‘considerable contact’ between the two: 1908–14, when Keynes was an active lecturer in the Cambridge Economics Tripos, and the First World War, when Marshall gave advice on war finances. To these three periods, he rightly adds a fourth, posthumous one, 1924–6, when Keynes experienced a full reimmersion in Marshall’s thought to write the magnificent obituary, help Pigou in preparing Memorials and edit Official Papers. Some of this historical evidence is worth reviewing in order to redress the balance resulting from the Marshall-free perspective on Keynes’s non-economic views. The starting point is constituted by the 15 exercise papers written by Keynes during October–November 1905, which, with Marshall’s 180 or so red ink annotations,3 reveal the existence of an intense dialogue between master and pupil.

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The papers, whose detailed analysis is to be found in Raffaelli (2000b), deal with business methods, trusts, railways, price discrimination policies, financial speculation, index numbers and the definition of social capital, but Marshall’s comments bear on wider issues such as the scope and aim of economic research, the relations between scientific and ordinary language and the use of mathematics. They provide a glimpse of his non-dogmatic approach to social research and impatience with abstract problems of no practical avail. The overall impression is that Marshall was busy curbing his pupil’s excessive reliance on logic and mathematics and leading him to accept the inevitable load of vagueness of ordinary language and practical solutions. For instance, confronted with his pupil’s criticism that his definition of social capital ‘lacks precision’, Marshall defends it on practical grounds, as that adopted by ‘Income Tax Commissioners, legal courts and businessmen’: it is ‘a matter not of logic but of practical experience’ in which some vagueness has to be tolerated and ‘ordinary usage’ respected as explained in Distribution and Exchange (Raffaelli 2000b: 130–4; Marshall 1961: 229–31).4 Commenting on another paper, he rebukes Keynes’s excessive reliance on mathematics. What really matters, Marshall argues, is the right statement of the problem, then the ‘mathematical machine, if set in work, would do its duty’ (Raffaelli 2000b: 145). In general, Keynes appears to be the reluctant follower of Marshall’s lead in setting limits to the use of mathematics and devoting attention to ordinary language. By contrast, the young Keynes is already conscious that commensurability between different aspects of the same problem may be impossible, an issue which was to restrict the range of applications of the probability calculus in Treatise on Probability (Carabelli 1988). Though agreeing with Keynes on this point, Marshall endeavours to work out some ‘vague’ principles for the purpose of practical comparison between different national railways services, all composed of two separate services – passengers and freight – which have to be assessed independently of each other (Raffaelli 2000b: 141). Agreement extends to the similar problem of constructing index numbers, which involves delicate issues of weighing. This gives rise to a prolonged discussion on one of the subjects that contributed to sparking Keynes’s interest in probability theory. It is plausible that Keynes’s appraisal of Marshall’s pragmatic ‘chain method of compiling index numbers’, which found expression in the 1909 Smith prize essay and later in the obituary (Pigou 1925: 31), originated in these discussions (Raffaelli 2000b: 135–9). In his comments, though complaining that sometimes Keynes’s propositions are ‘too unconditional’, so that if he tried to apply them in practice, he ‘would come to grief’, Marshall acknowledges that he is striving ‘to take account of realities; and comparatively seldom lash[es] into “the world behind the looking glass” ’ (Raffaelli 2000b: 143). Keynes’s qualities, which were nurtured during that period under the master’s watchful eye, induced Marshall to try to persuade him to join the University economic staff, a goal which he temporarily achieved in 1908. Appointed to lecture on money, Keynes relied on his own notes of Marshall’s lectures. With the enthusiasm of a newcomer, he was then, and for many years to come, ‘a fanatical believer in the Quantity Theory’, paying no attention to Marshall’s ‘cautious and

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ambivalent’ attitude (Kahn 1985: 41). However, he became well acquainted with the Cambridge oral tradition which based the quantity theory on psychological motives for holding ‘ready command over commodities’ rather than the ‘awkward conception of rapidity of circulation’ (Pigou 1925: 27–30; cf. Whitaker 1975, vol. I: 164–77). Calling attention to the ‘balancing of advantages’ upon which individuals decide on how much money to hold, Marshall established a tradition in monetary theory which influenced the Cambridge school’s developments, and persisted right up to Keynes’s ‘liquidity preference’ (Laidler 1990: 69; cf. also Kahn 1985: 41–59). In the same period, the harsh controversy with Pearson reveals Marshall’s and Keynes’s irritation over rough conclusions deduced from ill-digested statistical data. This attitude can be detected both in Marshall’s criticism of Moore’s Laws of Wages and in Keynes’s 1939 severe rebuttal of Tinbergen’s econometric models (Groenewegen 1995b: 142–3). Keynes’s intimate acquaintance with Marshall was consciously re-elaborated in 1924, when, writing the obituary, he almost unreservedly accepted Marshall’s views on the nature, scope and method of economics. Readers should call to mind Marshall’s methodological views and compare them with those stated by Keynes in the obituary: the analytical apparatus as ‘bare bone’, a ‘shorthand record of our results’ (Pigou 1925: 25–6), or, in Marshall’s own words, ‘machinery of universal application … an engine for the discovery of truth’ (Pigou 1925: 34),5 the need to investigate ‘the actual facts of industry and trade’, which are ‘constantly and rapidly changing’ (Pigou 1925: 33), and to restrain from playing with the ‘toy bricks’ of technical mathematics (Pigou 1925: 24–5) and the idea – of Millian origin – that the master-economist must be more than an economist (Pigou 1925: 12). All these converge into an indistinguishable blend of Marshallian and Keynesian opinions, which time gradually welded into an indissoluble bond. The evolution of Keynes’s thoughts on method, from 1905 onwards, can be described as a return to Marshall, culminating in the correspondence with Harrod about Tinbergen’s work, where Keynes described the scope of economics along Marshallian lines. Economics ‘deals with introspection and values … with motives, expectations, psychological uncertainties’ and is ‘a moral science’, whose subject, unlike that of the natural sciences, is ‘not homogeneous through time’. Reflections on method are also Marshallian: ‘it seems to me that economics is a branch of logic, a way of thinking’. Progress in economic analysis consists ‘in devising new and improved models’ which, like Marshall’s machinery of thought, ‘segregate the semipermanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter’. Besides ability in devising models, the economist must seek ‘intimate and messy acquaintance with the facts to which [the] model has to be applied’, since ‘economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world’ (Keynes 1973b, vol. II: 295–301). Both in correspondence with Harrod and in the obituary, Keynes charged Marshall with excessive realism (see page 83), but the two economists seem to agree on principle, differing only on the proper mix of realism and modelling, though the former was a crux for Keynes no less than for Marshall. Lack of

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realism in the assumptions of the classical theory was one of the main targets of criticism of the General Theory where ‘practical intuition (which can take account of a more detailed complex of facts than can be treated on general principles)’ performed the task Marshall attributed to ‘common sense’ and ‘the sense of proportion’, namely that of keeping the economist in touch with real problems (Keynes 1973a [1936]: 249). Keynes’s brilliant and provocative style disposed many a reader to spot signs of a breakthrough in methodology where he was repeating in effect Marshall’s views, either because of direct influence or as a result of common origin in the British tradition. Enthusiasm for his praise of common sense, ordinary language and vagueness (Coates 1996) and his downgrading of mathematics are anything but new to careful readers of Marshall.6 Writing the obituary and editing Marshall’s papers also brought to light Keynes’s agreement with Marshall’s political philosophy. The End of Laissezfaire, written in the same period, is full of remarks taken almost world for world from Marshall: that Smith was right in being suspicious of government intervention, because corruption was then widespread, but that matters had later improved (Pigou 1925: 334–5; Keynes 1926: 395; Keynes 1972 [1926]: 275), that untrammelled laissez-faire was professed by no serious economist but only by popularizers of economic doctrines, such as Mrs Trimmer and Mrs Marcet (Pigou 1925: 296; Keynes 1972 [1926]: 279–80), that the State should concentrate attention on work that none but Government could do (Pigou 1925: 336; Keynes 1972 [1926]: 291). Likewise inspired by Marshall are Keynes’s ideas that money motives can be weakened and to some extent replaced, economic stability promoted by spreading information and controlling the currency and dangers of excessive bureaucracy avoided by decentralization. Indeed, Marshall anticipated Keynes when he gave ‘a new emphasis to the watchword laissez-faire’ and suggested that it ought to be translated into ‘let the State be up and doing’ (Pigou 1925: 336). Macgregor (1949: 69) was not wide of the mark when he wrote that ‘this idea was endorsed by Keynes in 1926, under the title of “The end of laissez-faire” ’. After surveying this wide ground of agreement on general issues, it is time to turn to some of the more specific themes of the General Theory.

7.3 Confidence, custom and convention: the short and the long view In the introduction to the General Theory, Keynes referred to its composition as ‘a struggle of escape from habitual modes of thought and expression’. To subvert current opinion on the working of market economies he felt the need to stress discontinuity with what had been taught for decades. Marshall’s economics was inevitably one of the main targets, because of its unparalleled weight in shaping British economic thought in the interwar years. Though Keynes’s attack on Marshall hurt Pigou and Robertson (Groenewegen 1993: 32), it was not so strong and direct as one might have expected, given his master’s repeated encouragement to go beyond received doctrines,7 in accordance with the view that scientific progress makes old books obsolete (see page 15). Moreover, the attack was soon

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mitigated in the introduction to the German and Japanese translations, where the blame for ignoring the causes which determine the level of output fell on the Marshallians rather than Marshall himself (Groenewegen 1993: 32–3). Keynes had already acknowledged that Marshall’s opinions on the subject were undogmatic – ‘cautious and evasive’ – and that Marshall’s statement that saving is another way of spending was qualified by adding that ‘though men have the power to purchase, they may not choose to use it’ (Keynes 1973a [1936]: 19–20, quote from Economics of Industry). Unlike Marshall, Keynes liked to cast his ideas in high relief, but even on issues where his originality is unquestionable – as is the case when he deals with confidence, the unavoidable dangers of uncertainty and the precarious stability of conventional actions – Marshall’s imprint, far from being a hindrance, seems to have provided a generous source of inspiration. Keynes’s views of human action called for stability and confidence, which indeed were recurrent Marshallian themes. As Eshag (1963: 139–40) writes, ‘Marshall’s concern with price stability … largely explains his antipathy towards the mechanical and automatic gold standard system’. Remedies for Fluctuations of General Prices bear witness to the importance Marshall attached to lack of confidence as a factor jeopardizing price stability: ‘for a long time prices fall because prices have fallen’ (Pigou 1925: 191). Acceptance of the quantity theory of money is qualified by acknowledging the influence exercised on prices by ‘the state of commercial and political confidence, enterprise and credit’, ‘the most powerful in practice, and the most troublesome in theory, of all the causes which may affect general prices’ which therefore can be said to be ‘the creatures of opinion’ (Groenewegen 1996: 75).8 Conscious of the dangers associated with the element of speculation ‘unnecessarily introduced into life’ (Pigou 1925: 190), Marshall looked for a ‘good standard of value’, launched the idea of indexed loans and called for a continuous and reliable flow of statistical information by public authorities. For actions to be effective, some stable ground is required since, when all foundations are shaken and absolute uncertainty prevails, behaviour becomes unpredictable and erratic. Normal types of behaviour break down when confidence vanishes, rupturing connections which were taken for granted. Confidence and expectations figure as powerful causes of disarray in Marshall’s theory of the cycle, so much so that commercial disorganization ‘could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production’ (Marshall and Marshall 1879: 154–5; Marshall 1920: 711). Bateman (1996a) argues that the whole Cambridge school of economics, under Marshall’s influence, believed that the state of confidence was essential to any explanation of the trade cycle. Far from being the first economist to single out the state of confidence as the main cause of economic depressions, as Skidelsky (1992: 322–5) writes, Keynes, abandoning the tradition in which he had been brought up, changed his mind quite early on and for some years tended to undervalue, perhaps even to disregard completely, the state of confidence in favour of ‘scientific’ explanations of the cycle, based on objective data, such as interest rates and international constraints. This objectivist line of reasoning led to the

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fundamental equations of A Treatise on Money and the mechanistic proposals to overcome the depression by pump-priming policies. Backed by evidence previously examined by Clarke (1988), Bateman shows Keynes, at the beginning of the 1930s, busy exorcizing ‘the state of confidence’ that his main opponents were using as a powerful weapon against his proposals of huge public works. Giving evidence to the Macmillan Committee, Pigou objected to Keynes’s trust in monetary policy, pointing out that reductions in interest rates could be frustrated because what is fundamental is ‘the state of mind of the business man. The business man might be in such a state that he would not borrow money or use money at zero per cent’ (Bateman 1996a: 108). When Keynes realized the role played by expectations in driving the pound out of the gold standard and deepening the depression, he changed his mind and reverted to the Cambridge tradition, turning his weapons against the other, complementary tenet of Marshall’s economics, the idea that fluctuations caused by lack of confidence were like tides altering the sea-level. This metaphor was replaced by the famous one of ‘casino capitalism’ (Keynes 1973a [1936]: 159) in which there is no objective level towards which expectations should converge. As evidenced by his draft on speculation, Marshall too was conscious of the disruptive effects caused by professional speculators preying on the amateurs: such ‘malignant’ speculation ‘could lead to the systematic distortion of the relationship between the movement of prices and the evolution of market fundamentals’ (Dardi and Gallegati 1992: 578). In denouncing this danger, he adopted a terminology close to that made popular by Keynes in the General Theory: [speculators] govern their action not by their own forecasts of the distant future, but by their forecasts of the forecasts that will be made by less competent people … by far the larger part of the attention even of the leading operators is given not to the distant future but to the immediate future … Sometimes he [the ordinary professional speculator] does not care so much to anticipate coming events, as coming popular opinion as to coming events. (Dardi and Gallegati 1992: 589–92)9 However, Marshall believed in the reality of objective economic trends, whose fundamentals were accessible to the ‘constructive’ forecasts of competent industrial businessmen, an idea which Keynes openly rejected. This radical difference drives a wedge between the two authors, which is an instance of the wedge distancing nineteenth century philosophy of history, aiming at evolutionary progress, from the disenchanted short-term perspective prevailing in the following period. Marshall’s concern with telescopic vision (Raffaelli et al. 1995: 3–23) sharply contrasts with Keynes’s proverbial motto that ‘in the long run we are all dead’, which well conveys his attitude towards the distant future.10 Keynes’s main aim is always to find the way out of bottlenecks – be it the Treaty of Versailles, revaluation of the pound, the gold standard, unemployment – which hinder human activities and enterprise; Marshall is always worried about the long-term effects of current decisions.

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I feel these contrasting perspectives explain most of their divergencies, within a similar view of economics. For both scholars, it was a moral science, dealing with human motives, will and expectations, it was part of the social game whose outcome it could change by virtue of its power of persuasion.11 Both rejected the economic man and indeed when Keynes baldly stated that in many a situation ‘we fall back … on motives … which are not “rational” in the sense of being concerned with the evaluation of consequences, but are decided by habit, instinct, preference, desire, will, etc.’, that ‘all this is just true of the non-economic as of the economic man’ and that ‘when we remember all this, we have to abate somewhat from the traditional picture of the latter’ (Keynes 1979: 294), he was reviving and radicalizing Marshall’s lesson.12 Where they parted company was in the meaning they attached to such words as ‘habit’ and ‘custom’. Keynes played down the ability of habit and custom to grow and improve, like Marshallian automatisms do in the human mind, thanks to the imprimatur conferred on them by evolution. When convention is added to the picture, the non-objective, self-referential basis of human action becomes more evident. Conventions replace each other in a zero-sum game, while Marshall’s habits and custom build on habits and custom and enhance the effectiveness of human performance. Whereas Marshall dared to aim at ‘the decade, the generation, the century’, as he wrote in ‘Ye route to ordered progress towards Utopia’ (Marshall Papers: 5/7), Keynes’s outlook was drastically curtailed: five years at most, as he once wrote, beyond that, the future is misty (Keynes (1980 [1946]: 446). He had no ‘principle of continuity’ to rely on since ‘the inevitable never happens, it is the unexpected always’ (Moggridge 1992: 614). Like Schumpeter’s critique of Marshall, Keynes’s account hid the existence of common ground behind his divergent perspective on long-term evolution. Discontinuity in the history of economic ideas was fostered by – and dependent on – rejection of Marshall’s belief in continuity.

Concluding remarks

Marshall’s outstanding place in the history of economic thought is beyond dispute, but rests on his technical achievements more than his system of thought. His legacy was long established on this restricted basis and for some time he ran the risk of becoming a dead dog, to borrow a famous Marxian phrase on the prevailing assessment of Hegel in 1867. Marshall’s general views on the social system soon appeared outdated, doomed to follow the fate of Spencer’s. Thus, when economic methodology became fashionable, in the heyday of Neopositivism, his obiter dicta, classified as ‘eclectic’ and ‘conciliatory’ (Blaug 1980: 56 and 82), were dismissed as devoid of the systematic coherence that was the bread and butter of Neopositivist epistemology. Highly respected for his cautious statements, which made it difficult to nail him down to any definite and extreme position, he gained this appreciation only at the cost of appearing to decline to put forward any systematic conception of economics. This feature might speak in his favour in the heyday of Postmodernism, but it would be too much for self-appointed subversives to claim this typical Victorian as their forerunner.1 It is doubtful whether, from this limited perspective, he matches the requirement he set for an author to be labelled classical: to have ‘stated or indicated architectonic ideas … which, once created, can never die but are an existing yeast ceaselessly working in the Cosmos’ (Whitaker 1996, vol. II: 236). The evolutionary model sketched in the first part of the book and already envisaged by leading industrial economists certainly fulfils the requirement within a different theoretical perspective and points towards some of his less explored influences, partly traced in the last two chapters.2 Among the causes which prevented earlier appreciation of Marshall’s evolutionary thought, I would give prominence to his conception of continuous time, which soon appeared obsolete and unrealistic, especially from 1914 onwards, when a new cultural atmosphere prevailed and the certainties of the Victorian era were lost. The principle of continuity branded his thought as irremediably wrong in the eyes of the new generations and drove a wedge between him and authors like Schumpeter and Keynes. Moreover, stress on continuity helped to conceal his evolutionary model, which is better represented by a dialectical succession of continuous and discontinuous movements. Or rather, this is the impression one has when reflecting on ‘Ye machine’, where the slow speed of growth of the whole system is accompanied by the frenzied leaps of its inner energy while

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the continuous build-up of automatisms can be dissected into its component parts. The path of industrial progress is similar. Where continuity rules supreme in Marshall’s system is in the overall pattern of social change and this typically Victorian bias – though no less reasonable than the contrasting vision which later came to prevail – could not stand the test of two devastating world wars. Another reason why his core ideas fell into neglect was Marshall’s inability fully to think out his evolutionary model, which always remained behind the scenes. During his lifetime, events consistently seemed to conspire against its triumphant entry on the stage. Biology became the venue for quarrel on a specific issue – inheritance of acquired characters – which widened the gulf between natural and social science; cybernetics, which had only just taken its first steps in Babbage’s time, was in full retreat and economics followed different paths which led it to prize Marshall’s equilibrium analysis, onto which, given the mathematics at his disposal, he had found it impossible to graft the evolutionary model. It was mainly in industrial economics that the model survived, but its detection proved difficult and it was almost buried by the time evolutionary economics gained new momentum, spurred by developments in mathematics, artificial intelligence and biology. Thus, when Baumol was asked to assess what we know that ‘Marshall didn’t know’, he cited a model akin to Marshall’s evolutionary model as one of the main novelties (Baumol 2000: 14)! Marshall’s style of writing is also to be blamed. As Keynes (Pigou 1925: 48) pointed out, he delighted in veiling the novelty of his thought, ‘until what is most novel can appear as trite’. The reader is allowed ‘to pass too easily through’ as ‘the author furnishes his idea with no labels of salesmanship and few hooks for them to hang by in the wardrobe of his mind’. In the end, ‘like a duck leaving water’, the reader ‘can escape from this douche of ideas with scarce a wetting’. Keynes’s judgment refers to Principles, but can easily be extended to Industry and Trade. I cannot understand how, on my first reading of this work, I failed to realize that the interplay between variation and routine, which shapes the evolution of the machine’s brain, is also the leading idea of the book. In my experience, this is, and will probably remain, the clearest instance of the proverbial saying that ‘it’s all in Marshall’ (Groenewegen 1995a: 758) but also of Robbins’s remark that to detect what is there ‘takes a great deal of perceiving’ (Robbins 1949: 97). The new vision which the present book aims to convey is striking in its simplicity, it is up to readers to decide whether it is convincing, open to discussion or outright wrong. Before they return their verdict, I ask them to have the patience to go back in their mind to the main outlines of the argument. The history begins with Marshall’s Gedanken Experiment in the dawning field of artificial intelligence. Similar experiments, which are the product of scientific imagination, play a major role in many theoretical disputes, as instanced by that between Einstein and Bohr on the foundations of quantum mechanics (Bohr 1949). Marshall was seeking to discover how far the evolution of the most complex living organism, the human brain, could be reproduced by means of mechanical devices. He realized that the process could be pushed very far, but could neither reach its completion nor map its boundaries. This issue was to trouble him for many years,

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finding expression in the difficult coexistence of mechanical and biological metaphors. Was the evolving character of economics forces reducible to mechanical magnitudes? Two slightly different statements (page 94) suggest that the answer turned negative, a fact which is probably at the origin of his decision to head for the biological Mecca. As he pondered this problem, devising the mechanical tools of economics for which he is now famous and attracting criticism for his half-baked biological tools, he worked out the implications of another leading idea which, without dissecting each single step to examine its composition, clearly grasped the functioning of evolutionary processes. The seminal idea of a repeated succession of innovation and routine, embodied in ‘Ye machine’, readily spread through the fertile soil of research on industrial leadership, business organization, technological and social change. This idea is now shared by many economists, who have derived it from different and independent sources. Marshall himself could have come across the idea independently of his early studies in evolutionary mental philosophy, but for once the controversial ‘law of parcimony’ may be trusted and the origin of the model can be attributed to his studies in mental science, at least until new evidence suggests a better explanation. The clear formulation of the growth of mental routines in crucial parts of his work seems unequivocal and, what is even more telling, his evaluation of evolutionary processes is mainly oriented towards their dependence on the mind and the effect they exert on its growth. He constantly scrutinizes how technological, organizational and social change is influenced by human knowledge, activities and (above all) creativity and vice versa. This evolutionary model enabled most of his pupils to reject the narrow idea of the economic man, allowing them to recognize the role of institutions and organizations and nurturing in their mind an unorthodox view of the economist’s work. Such is the picture emerging from the historical account, which has directed attention to many of the gems which lay buried in Marshall’s writings, but I would also suggest that his route, springing from a branch of mental science, turned out to be the best route to the leading idea of evolution by innovation and routinization. All things considered, maybe he was closer to the Mecca than he himself was able to realize.

Notes

1 Marshall’s mental philosophy 1 For Jevons’s Pareto-like attitude see Black (1990: 14), Maloney (1985: 10) and Collini et al. (1983: 312 and 319); for a comparison with Marshall, see Shove (1942: 308). 2 The quotation is from Mill (1974 [1843]: 901). Cf. also Pigou (1925: 126). Marshall’s praise of Mill’s saying is connected with the role of money measurement in economics and extends back in time to Bentham and Smith (see Chapter 5, §5.6). 3 Cf. also Matthews and Supple (1991) and Collini et al. (1983: 336 and 311). 4 See page 77. References to general constant aspects of human nature are also present in the third book of Industry and Trade: ‘in the modern age human nature remains very much as it was in former times’, ‘human nature is relatively constant’ though ‘composite’ (Marshall 1919: 400, 537 and 482). The common features of human nature are: the instinct of self-defence, the tendency to experiment, the inclination to exaggerate the injury to the public from foreign competition and to apply any power of control to antisocial uses (Marshall 1919: 400, 425, 519 and 553). These features, reminiscent of Smith, call for regulation of monopolies. It may be concluded that while from the theoretical point of view of Principles human nature is not constant, in practice it changes very slowly. Jensen (1994) overemphasizes the contrast between a Benthamite kernel and the surrounding evolutionary elements in Marshall’s view of human nature. 5 This is Marshall’s conception from the beginning (Whitaker 1975, vol. II: 354) to the very end of his life (cf. the draft ‘Ideals’, written in 1922. Marshall Papers: 5/6). 6 Mill’s evolutionary view of character is also revealed by one of his letters to the physiologist Benjamin Carpenter (Mill 1972, vol. IV: 1868–9). For Carpenter, see page 22. 7 These two middle stations appear to be either interchangeable or closely associated: ‘he found metaphysics powerful in destruction, but disappointing on the constructive side … he went on towards psychology and ethics’ (from the ‘Eckstein’ autobiographical account in the third person now in Collard 1972); ‘soon after [1867], I drifted away from metaphysics towards psychology’ (Whitaker 1996, vol. II: 285); ‘I had come into economics out of ethics’ (Pigou 1925: 360). Scott (1924: 448) and Guillebaud (Marshall 1961: 4) placed both psychology and ethics along the road towards Marshall’s final destination, but did not inquire any further. 8 ‘If I had to live my life over again I should have devoted it to psychology. Economics has too little to do with ideals’ (Pigou 1925: 37). The remark was made on Christmas day, 1923 (Groenewegen 1995a: 127). Once again, psychology and ethics seem to cover similar ground. 9 Unsatisfied with these conclusions, he urged Cristiano Camporesi and later on the author of this book to pursue the subject. 10 Moreover, endorsing James’s distorting criticisms, Soffer did not do justice to Clifford’s active view of the human mind (Hollinger 1997). As Stephen puts it in the

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entry ‘Clifford’ for the DNB, ‘Clifford attaches supreme importance to freedom, since all progress implies variation’. Firstly, at the Florence Centenary Conference, in December 1990 (Raffaelli 1991; Butler 1991), where a pre-print of Raffaelli (1994a) was circulated. Schabas (1994) also made independent use of some of the papers. Cf. also Herschel: ‘The history of science is the history of the mind’ (Ashworth 1996: 645). Since the old spelling, used by all the philosophers of the period, is found in the title to Marshall’s first paper, it has been left unchanged throughout the chapter. The date is usually given as 27 March (Whitaker 1975; Raffaelli 1994a) but it seems more plausible that it was 14 March (Raffaelli 1996a: 56). On Mansel’s unwillingness to be associated with such unorthodox conclusions, see Marcucci (1969). ‘I had begun to read philosophy seriously towards the end of 1865, and had been teaching mathematics all the while’ (Raffaelli 1996a: 52). For more information on the Club see Groenewegen (1995a) and Raffaelli (1994a and 1996a). For Marshall’s opinion on Clifford and Moulton, see Mary’s notes written after her husband’s death: ‘Clifford cared most for his ideas, Moulton for getting on in the world. Alfred had a profound admiration for Clifford’ (Marshall Papers: 9/13/1) This tough demand for empirical evidence could be related to Marshall’s physical studies. His Professor of Mathematics, Optics and Hydrostatics, George Gabriel Stokes, was later to criticize Darwinian conclusions about the origin of the human mind and maintain that available biological evidence, ‘when scrutinized by the standards of advanced modern physics’, could not prove the universal validity of evolutionary explanations (Wilson 1984: 94). In the 1870s, interest in sympathy marked a revival of attention to Smith’s moral theory and social psychology, especially the key role of the desire for social approval (see Chapter 5, n. 35). This controversy on the source of knowledge was clearly stated in Mill’s review of Coleridge’s work (Westminster Review, March 1840). Darwin’s comments on the review reveal that he was reinterpreting innatism on lines similar to Spencer’s (Calabi 2001: 283–4). As Campbell (1974: 443) notices, the evolutionary interpretation of innatism ‘can be achieved from a Lamarckian point of view, as well as from the natural selection model’. The sentence is one of most outspoken statements of Grote’s ‘dualistic philosophy’. For the diffusion of similar positions, see Chapter 2, §2.2, n. 7. On the dualistic approach of nineteenth century neurophysiology, see Young (1970). It cannot be excluded that all the papers were revised after their presentation, since they are perfectly written, with few corrections and additions. At the end of the first paper, Marshall praises Mansel’s classification ‘of the mental powers which alone are consistent with self-consciousness’, but criticizes him for his failure to discuss such powers in relation to the doctrine of evolution. This relates to Marshall’s later doubts on the immortality of the soul (Pigou 1925: 64; see pages 30–1). An interesting list of quotations on the issue ‘Man and beast’ in Marshall’s early notebook is now in Raffaelli (1994a: 88, n. 34). Most of the quotations come from Hobbes’s Leviathan, whose first edition Marshall owned and annotated (the copy is now in the University of Cambridge Library).

2 An amazing machine 1 Following Marshall’s intention to distinguish the machine’s parts and operations from their human analogues, an asterisk is apposed to these mechanical proxies of concepts relating to human beings (Raffaelli 1994a: 130, n. 1).

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2 The idea of a lower type of volition is to be found in Bain (1865, 1875), but not in Spencer (1855, 1870–2); cf. Raffaelli (1994a: 131, n. 11). 3 This again is similar to the associationist and evolutionary explanation of pleasure as an increase in potential energy, which Marshall had already endorsed by way of hypothesis in ‘Ferrier’s proposition one’ (Raffaelli 1994a: 113). 4 Marshall’s interest in the fortuitous formation of habits is proved by this quotation in his notebook: ‘contrivance in connexion with instinct. As by bees in [anomalous?] hive. How far connected with the fact that contrivance of this kind may be due to fortuitous association’ (Raffaelli 1994a: 90, n. 72). 5 Two asterisks are introduced to distinguish the elements of the second level from those of the first, as Marshall does using a similar notation (Raffaelli 1994a: 131, n. 17). It is noticeable that not only actions and sensations but also pleasure, pain and their derivatives are not subjected to this differentiation: whether they belong to ideas of the lower or the upper level they have always only one asterisk. As we shall see in Chapter 5, §5.6, this is consistent with – indeed a necessary premise for – applying the monetary yardstick. 6 Though purely hypothetical, this localization runs counter to neurophysiological findings of the period relating to the cerebellum and seems to find support only in the second edition of Spencer’s Principles of Psychology. The book was published by instalments and the first part, which could have influenced Marshall, was issued in June 1868 (cf. Raffaelli 1994a: 77). 7 Prof. Stokes held similar views (Wilson 1984). 8 Marshall’s idea of volition** is quite similar to Spencer’s idea of the will as the power of representing the consequences of ‘ideal actions’ (Spencer 1855: 614–15). In a like manner determination** (also called resolve**) is analogous to Bain’s ‘resolution’, which ‘means the preliminary volition for ascertaining when to enter upon a series of actions necessarily deferred’ (Bain 1865: 429). 9 The problem was already stated by John Herschel and Charles Babbage in Memoirs of the Analytical Society: ‘powerful indeed, must be that mind, which can simultaneously carry on two processes, each of which requires the most concentrated attention’ (Ashworth 1996: 645). 10 In a late passage, Marshall compared prediction in economics to prediction in games at chess (Pigou 1925: 360). Both are hypothetical because no expert can predict the others’ moves and ‘if either side [in a game of chess] make one move ever so little different from what he has expected, all the following moves will be altered’. A similar concept is expressed in Marshall (1920: 29) (see Chapter 5, §5.2, n. 7). Chess games also afford an instance of the balancing of motives which, as happens with economic measurement (see Chapter 5, §5.6), places heterogeneous things on the same footing (Pigou 1925: 302). 11 This third level, the sum of the individual characters of a nation, marks the ‘spirit of the age’. Its relationship with individual characters is similar to that between the latter and individual actions. 12 For instances of this double meaning of human actions see Whitaker (1975, vol. II: 163) and Marshall (1923: 351). For some strictly economic consequences of the phenomenon, see pages 44–5 and 85 and Chapter 3, §3.3. 13 After Marshall’s death his wife recalled that ‘at one time he would have liked to devote himself to the subject of “attention”, on which depends the power of “concentration” ’ (Groenewegen 1995a: 127). 14 That ‘the propensity to variation … is the principle of progress’ was also stated by Bagehot, whom Marshall approvingly quotes (Marshall 1919: 92 n.). 15 This is precisely what Marshall would later say of economists, compared with socialist thinkers (Pigou 1925: 156; Marshall 1920: 763). 16 The paper’s closing sentence, hinting at the machine’s acquisition of a sixth sense, touches upon a subject which formed part of the Club’s interests (Raffaelli 1996a: 62–3).

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17 The second edition was published in two volumes, the first of which came out in 1870. As already stated (see above, n. 6) the book was first published by instalments from June 1868 onwards. 18 Marshall’s occasional reference to ‘the central plan, as it were, of the Divine government of the world’ (Pigou 1925: 165; Marshall 1961: 761), later slightly changed into ‘the Divine Principle of which [the evolution of man’s moral and social life] is an embodiment’ (Marshall 1920: 768), does not seem enough to be taken as a profession of faith. 19 It may be interesting to contrast Marshall’s views with Jevons’s whose theory of knowledge was unaffected by the discovery of non-Euclidean geometries, as proved by his reaction to Helmholtz (1870) (see Jevons 1871). 20 Marshall must have given up the task quite early, since in later years he asked his wife to read articles and books in German. An early sign of his effort to learn German is a quotation from Kant’s Kritik in the margin of section II – ‘Of the origin of ideas’ – of Hume’s Enquiry concerning Human Understanding (copy in the Marshall Library). 21 He even boasted that he himself would be able to reconstruct most of the modern scientific appliances, if they were destroyed but the books and articles which explained their structure and functioning had survived (Marshall Papers: 9/13/1). Concluding remarks 1 ‘He [Hegel] has done more to explain Greek thought than all other writers put together’ (Jowett 1924 [1892], vol. IV: 338). 2 As Jowett maintained, though ‘many ideas of development, evolution … may be traced to his [Hegel’s] speculations’ and ‘no other thinker has ever dissected the human mind with equal patience and minuteness’, the same processes could be considered from other perspectives: ‘there may be an evolution by degrees as well as by opposites. The word “continuity” suggests the possibility of resolving all differences into differences of quantity’ (Jowett 1924 [1892], vol. IV: 326–8). On the issue of continuity, see Chapter 5, §5.3 and 5.4. 3 For instance, Marshall’s admiration for Goethe calls to mind the latter’s view of continuous evolution, his stress on ‘das Werden’ rather than ‘das Sein’ (Raffaelli 1994a: 150). 3 From evolutionary psychology to evolutionary economics 1 In 1896, Marshall remarked on the change that had taken place: ‘economic science as I first knew it, just thirty years ago, was more confident than now: partly because it was less active’ (Pigou 1925: 295; cf. also Shove 1942: 309–10). 2 For the connections between socio-ethical and methodological problems, see Ingram’s Presidential Address (Ingram 1878). For the Comtist attack, see Adelman (1971). The standard orthodox answer to this attack is Cairnes (1870). 3 He was second wrangler in 1865 and for a time thought of further pursuing the study of mathematics and physics under Prof. Stokes (Groenewegen 1995a: 98). 4 Shortly afterwards, Mill’s theory of foreign trade was also amended since it represented, as Marshall wrote, ‘one of the few instances in which careful study has failed to convince me that Mill’s work is right as far as he goes’ (Whitaker 1975, vol. II: 144). Such instances may be few, but Marshall’s opinion of Mill as an economist was not very high (Pigou 1925: 99; Marshall 1920: 252 n.). 5 Groenewegen (1995a) gives a broad and precise overview of Marshall’s interests and achievements. Bharadwaj (1978) merely assesses the relevance of the essay ‘On value’ as instancing Marshall’s ‘subversion’ of the Ricardian theory of value by shifting economics towards demand/supply analysis.

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6 ‘Normal does not mean Competitive. Market prices and Normal prices are alike brought about by a multitude of influences of which some rest on a moral basis and some on a physical basis; of which some are competitive and some are not’ (Marshall 1920: 347–8). 7 ‘We have in this book to examine Normal Values. For: That condition which would be brought about by the undisturbed action of free competition is called its Normal Condition’ (Marshall and Marshall 1879: 66). Marshall’s change of opinion is explicitly stated in a letter to Clark (Whitaker 1996, vol. II: 413) and its relevance is confirmed by his annotation in the margin of his own copy of the 1886 edition of the earlier book: ‘be careful to strike out everything which implies that normal value  competitive value’ (Whitaker 1975, vol. I: 73, n. 21). 8 ‘The ‘classical’ economists knew their facts’ (Whitaker 1996, vol. I: 294); ‘the knowledge of realities possessed by Adam Smith and even Ricardo and Malthus was extensive and thorough’ (Whitaker 1996, vol. III: 270); ‘most of them were practical men with a wide and direct personal knowledge of business affairs’ and even Ricardo’s unfortunate choice of ‘strong’ cases ‘corresponded very closely to the actual facts of his time’ (Pigou 1925: 153 and 162). Marshall’s early reading of vol. I of Das Kapital is documented by Worrall (Groenewegen 1995a: 578 n.). 9 From this perspective, it can be said that if Ricardo sent economic theory on the wrong track (Jevons 1905: 61), Jevons did not fare much better. 10 Deep disappointment with Sidgwick’s decision to omit this chapter when publishing the manuscript was expressed in 1881 in a letter to Edgeworth (Whitaker 1996, vol. I: 136) and later repeated to Seligman: ‘the second part began with an introductory chapter on my favourite theme – the One in the Many, the Many in the One – and showed how with modifications in detail the pure theory of foreign trade was applicable to many industrial and other problems’ (Whitaker 1996, vol. II: 277). In the same letter, the published version was disparaged as ‘toy’ (Whitaker 1996, vol. II: 277; cf. also 280). On ‘mathematical toys’ and the ‘favourite theme’, see Chapter 5, §5.1 and 5.2. 11 Thornton (1870: 79) had already hinted at the possibility of classifying expectations according to their time-horizon: ‘Prospective supply and demand, when spoken of generally, or with reference to an unlimited future, are indeed … indefinite quantities between which no ratio is possible. But if the future over which the prospect extends be confined between specified bounds of time, they no doubt become at once definite quantities admitting of exact comparison’. 12 Though apparently ‘more cautious’ in the application of evolutionary doctrine to economics (Groenewegen 2001: 58), the book is even more evolutionary than Principles, as will be shown later. Unfortunately, literature specifically devoted to the book is scanty and can be listed in a footnote (Liebhafsky 1955; Gonce 1982 and Williams 1986; to which may be added Nishizawa 2001). 13 Cf. also ‘the man in the train’ story (Pigou 1925: 312) and his attack on Comte’s division between statics and dynamics since ‘an explanation of structure must deal with the forces that brought that structure into existence; and therefore it must be in the physical sense of the term “dynamical”. The existing structure and order are the outcome of progress in the past’ (Marshall 1961: 48). 14 As Gee (1983) noticed, even short-period equilibrium cannot be fully separated from its long-period effects, since the former is only a phase in the latter. 15 Cf. also the example of the ‘watch-shaped aneroid barometers’ where the long-term effects of the new fashion can be analysed without consideration of the ups and downs of market prices (Marshall 1920: 455 and 1961: 520). 16 The concept of levels of reality was so deep-rooted in Marshall’s mind that in his view, even the poet should confine himself to one single level of human actions: ‘he must make up his mind to go to a certain level and to work that level … he must not bother himself to go below this floor’. The poet faces the same problems and limitations

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which compel the scientist to adopt the ceteris paribus clause! (Raffaelli 1994a: 150–1). In 1873, when lecturing to Cambridge female students, he said that ‘in all sciences there is one method and only one; which when asked how to treat a complicated problem, simply answers “don’t treat it at all”. It is absolutely necessary to break such a problem into small portions’. It may look ‘somewhat paradoxical’, but ‘there is nothing peculiar to science’ (Raffaelli et al. 1995: 87). For Marshall’s distrust of ‘poetic imagination’ in practical life see Pigou (1925: 228). On the essential role of imagination in science, see the discussion concerning the representative firm (Chapter 6, §6.1). Cf. this autobiographical note: ‘now, at the end of nearly a half century of almost exclusive study of it [political economy], I am conscious of more ignorance of it than I was at the beginning of the study’ (Pigou 1925: 10; cf. also Pigou 1925: 368). For Marshall’s firm rebuttal of ‘the suggestion’ that he tried to ‘compromise’ between different schools, see his letter to J. B. Clark (Whitaker 1996, vol. III: 184). Of some interest for Marshall’s circular, anti-reductionist view of individuals is his appraisal of Häckel’s ‘brilliant paper’ (Marshall 1920: 241 n.) in which the German biologist dealt with siphonores, whose ‘individual’ organisms are actually ‘colonies’. Veblen was able to make room for plasticity thanks to the general, unspecific character of the instincts he listed and the variety of their possible combinations. For the bearing this view had on Marshall’s thought on medieval history and India, see page 77. Originally in the main text, the neurophysiological description of the process was transferred to a footnote in the 2nd edition. Guillebaud’s variorum does not list the change. The relations of economics to physiology were the subject of other Marshallian reflections, as in the following late fragment: ‘economics does not deal with inanimate matter, but is rather akin to physiology’ (Marshall Papers: 5/8). Babbage’s views on the division of labour are outlined by Corsi (1991), who drives a wedge between Babbage’s dynamic approach, centring on the role of innovation and technical change, and what she considers Marshall’s static approach, substituting adaptation towards partial equilibrium for the classical view that ‘economic progress consists of a cumulative and self-perpetuating process of change’ (Corsi 1991: 57). My reading of Marshall is diametrically opposite and suggests that his work was a powerful extension of Smith’s and Babbage’s intuitions. Far from concentrating on equilibrium, Marshall was looking for innovation and change. Hayek was influenced by Mach, whose evolutionary approach was similar to Clifford’s. This establishes a significant connection between Hayek and Marshall. Their polemics against state socialism are also similar (see page 79). The same task faces the scientist who has to apply the ‘economic organon’. This calls to mind the similarity between scientific, material and social machinery. Cf. also this other draft note: ‘Machinery, material, intellectual and social, gives power; and can be made conducive to life; but the use of machinery tends to make man himself mechanical, and is so far destructive of life’ (Marshall Papers: 5/9). The two words are used on purpose. Marshall made use of the term ‘constructive’ to qualify mental work (Marshall 1920: 300 n.; Whitaker 1996, vol. III: 305), imagination (Marshall 1920: 719), cooperation (Marshall 1919: 518–20), competition (Marshall 1919: 396), advertising (Marshall 1919: 306 n.), price discrimination policies (Marshall 1919: 417) and even speculation (Marshall 1919: 252–4). Constructive is contrasted with ‘merely critical’, ‘combative’, ‘strategic’, ‘militant’, ‘ungenerous’, ‘unscrupulous’ and, of course, ‘destructive’ (cf. also Marshall 1919: 653– 4) and in general with ‘the dyslogistic sense’ which can be associated with the same concepts (Marshall 1919: 100; Raffaelli 2000b: 143). Defining the term ‘constructive’ would be

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no less difficult than defining what is meant by ‘progress’. Though fearful of such terms, we have not ceased to work with regulatory ideas of better and worse. A modern disguised instance is precisely the diffusion of the word ‘modernization’, which is no less value-laden than old-fashioned ‘progress’. 30 For the wording of the first ed. cf. Marshall (1961: 324). The same concept is stated elsewhere (Marshall 1920: 596–7 and 1919: 175). 31 On the uses of these concepts in the social sciences, see Simon (1981: 53–6), Minsky (1985: 14.6) and Elster (1979: chapter 1). Cf. also Nelson (1995: 58). 4 Patterns of evolution at work 1 Cf. MacWilliams Tullberg (1990b, 1995) on women’s education, Groenewegen (1988) on the establishment of the new Tripos, Kadish (1989, 1991) and Maloney (1985, 1990) on the education of businessmen and the professionalization of economics. Recently, Cook (2001) has devoted great attention to Marshall’s education policy, relating it to his early philosophical writings. 2 Or, to put the same concept the other way round, ‘capital consists in a great part of knowledge and organization … knowledge is our most powerful engine of production’ (Marshall 1961: 138). 3 ‘He never gave routine lectures to make the path easier. Under some blanket title, he talked, with complete discontinuity between one lecture and another, on any matter of economic interest that had occurred to him on the way to his class, or that the morning paper had suggested’ (Macgregor 1942: 313). 4 Benians (Pigou 1925: 80) confirms that Marshall’s style of lecturing was ‘always stimulating’ and Macgregor (1942: 313) writes that Marshall ‘thought the purpose of a lecture was to stimulate the interest’ of the students. On Marshall’s teaching style, cf. also Groenewegen (1995a: chapter 10), Raffaelli (2000b) and MacWilliams Tullberg (1993). 5 The comparison had a twofold consequence: while pointing out the dangers of the modern industrial system, it also implied that the rigidity of the Indian castes was less absolute than some of Marshall’s early reflections would lead us to believe (see page 77). 6 Marshall’s interest in Taylor’s methods derives from his recognition of their deep connection with ‘philosophical’ problems: ‘a movement making for large change is seldom both entirely new, and very important. It is not likely to be very important unless it has roots in broad principles of human or material nature… One of the chief ideas of Scientific Management was worked out a considerable way by Babbage’. (Marshall 1919: 376). On Marshall’s attitude towards scientific management, see Whitaker (1999). 7 The same reference, almost fifty years later, in Marshall (1919: 790 n.). 8 When this does not happen and the head of a big business ‘is very busy’, ‘it is a sign of something wrong’ (quoted from Bagehot; Marshall 1920: 601). 9 For this concept, cf. Marshall (1920: 287, 374, 458–9 and 501) and Marshall (1919: 182). The existence of special markets hinders the exploitation of internal economies and rules out perfectly competitive price policies (cf. Hague 1958). 10 Marshall (1919: 247, 350–4 and book III, chapter 14, §4.8); Marshall (1920: 247–8). Cf. also Chasse (1984: 390–1). 11 Cf. Cooke Taylor (1841) and some parliamentary inquiries. On Hearn (1863), see Pesciarelli (1998). 12 ‘Because it combines high aspirations with calm and strenuous action, and because it sets itself to develop the spontaneous energies of the individual while training him to collective action by the aid of collective resources, and for the attainment of collective ends’ (Pigou 1925: 227).

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13 The relevance of the spread of information and growth of knowledge through the intercommunication of many minds is also stressed by Jenner (1964), which provides an interesting discussion of the role of external economies. 14 For the second half of the political simile cf. Marshall (1919: 406 and also 441). 15 On Marshall’s personal contacts with Vinogradoff, see M. P. Marshall (1949: 38–9). 16 Cf. his early lecture on American industry in Whitaker (1975, vol. II: 352–77). 17 The principle is no less instructive the other way round. Readers may be reminded that in the 1990s it proved much easier to dismantle planned economies than to replace them with working market economies, which, according to conventional economists, were expected to arise spontaneously. For a brief discussion of the issue, see Williamson (2000: 608–10). For Marshall’s lack of enthusiasm for sweeping changes, cf. Pigou (1925: 346). 18 Cf. this remark: ‘The English had combined order with freedom, and therefore, had lived strenuous lives longer than any other nation, unless it was the Dutch’ (Marshall 1904: 95). 19 Besides Principles, cf. also ‘Water as an element of national wealth’, in Pigou (1925). The influence of Hegel’s Philosophy of History is nowhere better felt than in Marshall’s high opinion of the Greek ‘burst of life’. 20 Cf. also Marshall’s disappointment when Layton decided to accept the job of Chairman of the Iron and Steel Federation (Whitaker 1996, vol. III: 361–2). 5 Some methodological issues 1 Marshall’s economic analysis corresponds so closely to the formal models of contemporary economics that one of his figures – figure 8 of The Pure Theory of Foreign Trade (Whitaker 1975, vol. II: 155, reproduced as figure 20 in Marshall 1923: 353) – was chosen as the logo for the International Conference on ‘Formal models and economic theory’ organized in 1999 by the Association Charles Gide at the University of Paris I. 2 The reasons why he transposed the axes were probably the need to emphasize consumers’ surplus and other concepts relating to welfare economics (Gordon 1982; Groenewegen 1995a: 150 n.), but also to give prominence to the producer’s ‘real life’ point of view (Marshall 1920: 457 n.): the dynamic, long-term perspective of the producer is concerned ‘with the costs at which a given amount of the commodity can be produced on good notice’ (Marshall 1919: 188 n.). 3 The dangers of losing sight of the real world also apply to statistical research which ‘must be kept subordinate to general considerations … since many of the chief of these causes [the causes of any event] have either no statistical side at all, or no statistical side that is accessible practically for common use’ (Whitaker 1996, vol. III: 145). Focusing on the metaphor of the tides (Marshall 1920: 32), Sutton (2000) draws Marshall within the field of confident model-builders but he fails to notice that his own worries about ‘variables that we cannot measure, proxy, or control for, but which exert a large and systematic influence on outcomes’ (Sutton 2000: 23) are wholly Marshallian. 4 Dardi and Gay (1991) endeavour to update some of Marshall’s ideas about economic processes by the use of modern mathematical tools. 5 For another instance of Marshall’s realization that outdated mathematical knowledge could hinder the study of economic problems, see Whitaker (1996, vol. II: 307). 6 Cf. also Whitaker (1996, vol. II: 280 and vol. III: 269) and Marshall (1919: 7). 7 The corresponding sentence of Principles (substantially dating from the first edition) is: ‘there is not any one method of investigation which can properly be called the method of economics; but every method must be made serviceable in its proper place, either singly or in combination with others. And as the number of combinations that

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can be made on the chess-board, is so great that probably no two games exactly alike were ever played; so no two games which the student plays with nature to wrest from her hidden truths, which were worth playing at all, ever made use of quite the same methods in quite the same way’ (Marshall 1920: 29). Chess games always provide Marshall with a standard of reference for repetition, change and prediction (see Chapter 2, n. 10). Cf. also his draft notes for the 1878 Bristol Inaugural Lecture, ‘Some aspects of modern industrial life’: ‘Men have constantly to forecast the future working out difficulties and complex changes in their head as the chessplayer works out in his head distant moves on the board’ (Marshall Papers: 3/7). Jowett did almost the same in his comment on one of Plato’s most relevant passages: ‘The world of knowledge is always dividing more and more; every truth is at first the enemy of every other truth. Yet without this division there can be no truth; nor any complete truth without the reunion of the parts into a whole. The law of contradiction is … displaced by another law, which asserts the coexistence of contradictories as imperfect and divided elements of the truth’ (Jowett 1924 [1892], vol. IV: 527). In the same period, Marshall resorted to this motto to clarify his ideas in letters to Seligman (see Chapter 3, n. 10) and Bowley (Whitaker 1996, vol. II: 302 and 307). The ‘sense of proportion’ seems to have been taken seriously at the LSE, since the concept lingered for some decades in the School’s inaugural lectures (Young 1928a: 7, Robbins 1949: 97). ‘I am the dull mean man, who holds Economics to be an organic whole, and has as little respect for pure theory (otherwise than as a branch of mathematics or the pure science of numbers) as for that crude collection and interpretation of facts without the aid of high analysis which sometimes claims to be a part of economic history’ (Whitaker 1996, vol. II: 256). This contrasts with the more optimistic emphasis on exactness of this early passage: ‘The function of a pure theory is to deduce definite conclusions from definite hypothetical premises. The premises should approximate as closely as possible to the facts with which the corresponding applied theory has to deal. But the terms used in the pure theory must be capable of exact interpretation, and the hypotheses on which it is based must be simple and easily handled’ (Whitaker 1975, vol. II: 129). This is particularly relevant when one tries to draw practical conclusions from science alone since in dealing ‘with social problems as a whole’, ‘for the present and for a long time to come [the judgment of common sense] must be the final arbiter’ (Pigou 1925: 164). Clifford was praised by Peirce, whom he probably met either in Cambridge or Catania (Peirce 1984: xxxiv), as one of the leading thinkers on continuity. The word ‘hypothesis’ means that for Clifford, continuity cannot be demonstrated: the wheel of life, where discrete perceptions are fused together into a continuous whole, shows that our consciousness of motion is compatible with the fact that ‘it [the aggregate] is too fine-grained for us to perceive its discontinuity’ (Clifford 1886 [1873]: 228). Marshall’s early annotation on waterflow is probably related to similar issues: ‘water was flowing steadily out of a pipe (that connecting ye Johnian and Trinity ditches). Two boys age about 12 were looking at it. One of them remarked: “I should think a bucketful came out each time”. The other assented’ (Marshall Papers: 4/1; referred to by Groenewegen 1995a: 123 n.). Cf. Pareto’s opinion that ‘Marshall has not yet managed to form an idea of economic equilibrium’ and that for his ‘imperfect’ reasoning he would not even need the little mathematics he uses (Pareto 1960, vol. I: 417–18). This conception is confirmed by Marshall’s reaction to Fetter’s critique of the Principles’ ‘loose’ distinction between capital and land, a distinction blurred by the use of qualifying clauses (‘chiefly’, ‘in many cases’, ‘the chief of the properties’) which ‘give vagueness at the outset’ (Fetter 1901: 425). Marshall took this as a compliment: ‘This is true. There is an element of vagueness here as in all applied science and the

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special feature of R[ent] is Natura non facit saltum: There are no hard and sharp lines: see Preface to ed. I’ (Marshall’s annotated copy of Fetter 1901, Marshall Library). I owe this piece of information to Dr Katia Caldari). It goes without saying that in subsequent editions of Principles he did not alter a single word of the criticized passages (Marshall 1920: 144–7). In the first editions the principle was called ‘law of substitution’. Its dependence on the principle of continuity calls to mind Leibniz’s notion of this principle, which Marshall could have taken from Kant (Scott 1924). The latter only for short periods, Marshall (1919: 188 n.). See for instance, recent long-run explanations of the different economic performance of Eastern European countries, or the different ability of underdeveloped countries to profit from globalization, or, to remain in the proximity of Marshallian issues, explanations of the burst of entrepreneurship in some Italian regions. Bateson himself did not come to terms with all the implications of chromosome theory (Coleman: 1970). A more sympathetic appraisal of Marshall’s evolutionary perspective is given by Nelson and Winter (1982: 45), who claim that their ‘evolutionary theory is closer to the original Marshallian doctrine than is contemporary economics’. They also make it clear that their theory of the business firm espouses some aspects of Lamarckism (Nelson and Winter 1982: 10–11). For a recent appraisal of the similarities between organic development and Darwinian evolution see Nelson (1995: 55–6). Darwin’s indebtedness to Smith was probably direct, but, given the controversial nature of political economy (Schweber 1980), he decided to refer to Milne-Edwards, whose authority contributed to making the connection more palatable: ‘La nature, toujours économe dans les moyens qu’elle emploie pour arriver à un but quelquonque, a donc suivi dans le perfectionnement des êtres le principe si bien développé par les économistes modernes, et c’est dans ses ouvres aussi bien que dans les productions de l’art, que l’on voit les avantages immenses qui résultent de la division du travail’ (Milne-Edwards 1827: 534). For an interesting account of the reception of Marshall’s Principles by ‘ethicist’ philosophers, see Henderson (1990). On the diffusion of historicist and institutionalist ideas in England see Kadish (1989). Marshall’s moralizing attitudes have usually been a target for criticism. Keynes regretted that ‘the piercing eyes and ranging wings of an eagle were often called back to earth to do the bidding of a moraliser’ (Pigou 1925: 12) and Schumpeter (1941: 245) found Marshall’s ‘mid-Victorian morality, seasoned by Benthamism’ ‘irritating’. Marshall’s conventional morality was also criticized by Parsons (1931, 1932) and more recently by Visker (1988). More sympathetic opinions were held by Becattini (1975), Whitaker (1975, 1977), Collini et al. (1983), Maloney (1985), Black (1990) and Coats (1990). The substitution is anticipated in Marshall (1893: 389), where he clearly states that ‘economics was then not utilitarian nor intuitional; she left such questions to be decided by her mistress, Ethics’. A similar distinction was stated in 1874: ‘Direct decisions on questions of moral principles she [political economy] must leave to her sister, the Science of Ethics’ (Raffaelli et al. 1995: 193). For other instances of this attitude, see Maloney (1985: 197–8). ‘The almost exclusive use of money as a measure of motives is, so to speak, an accident, and perhaps an accident that is not to be found in other worlds than ours’ where ‘different and transferable’ measures could take its place. (Marshall 1920: 782–3; Pigou 1925: 158–9). On this, cf. Black (1990: 13). Cf. also Keynes: ‘Marshall never departed explicitly from the Utilitarian ideas which dominated the generation of economists who preceded him’ (Pigou 1925: 9). By contrast, Marshall’s distance from utilitarianism is maintained by Shove (1942: 305–6), Whitaker (1977: 195, but see also 165–6 and 183) and Matthews (1990: 26).

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31 An interesting confirmation comes from Marshall’s early annotations to his copy of Grote’s Examination of the Utilitarian Philosophy. ‘Grote has set up the dummy Utilitarianism in order to knock it down’ (Marshall’s annotated copy of Grote 1870: 252). The author’s criticisms of John Mill’s and Bentham’s opinions are qualified by Marshall as ‘scarcely honest’ (19), ‘unfair’ (40 and 235), due to ‘misunderstanding’ (96) and ‘misrepresentation’ (131). 32 See Jensen (1990b: 23) and Maloney (1985: 167–72 and 183–4). 33 The importance of this distinction has been stressed by both Parsons (1931) and Chasse (1984). It should be remembered, however, that Marshallian causation is circular and that wants play their role in the process. Marshall’s insistence on Octavia Hill’s ‘noble sources of joy’ (Raffaelli et al. 1995: 127) and in general on ‘amenities of life’ (Pigou 1925: 344) shows that the way out of ‘the Residuum’ needs a hope-nourishing environment. 34 As Whitaker (1977: 175) noticed, Parsons ‘failed to come to grips with their logical consistency and interrelations’. 35 Darwin (1981 [1871]: 81, n. 17) referred to Smith’s Theory of Moral Sentiments as a precursor of some aspects of evolutionary ethics in deriving moral behaviour from sympathy. Bain’s third edition of The Emotions and the Will cited the book in a footnote of the chapter on sympathy (Bain 1875: 120). Marshall read Smith’s book quite early, as proved by his notebooks and comments on Hume’s Enquiry concerning the Principles of Morals. All this makes Whitaker’s connection of Marshall and Smith less strange than it appears at a first glance and relevant for Marshall’s explanation of the businessman’s motives to act (Whitaker 1977: 197, n. 87; Raffaelli 1996b: 102, n. 58). 36 This was also Marshall’s view: cf. his undated statement that ‘ethically it [evolutionism] is the successor of so-called Utilitarianism’ (Maloney 1985: 200). 37 The ‘indefinite’ borders between selfish and altruistic behaviour, instanced by family affections, were also noticed by John Grote and this induced Marshall to express for once his unqualified approval: ‘this is very characteristic and approaches nearly to grounding altruistic ethics in the instincts of sympathy. Hobbes would approve of it’ (Marshall’s annotations to Grote 1870: 254). 38 For criticisms of the greatest happiness principle, see Darwin (1981 [1871]: 97–8) and Spencer (1851: 1–3 and 1879). For the tendency to graft evolutionism onto utilitarianism and for Sidgwick’s negative reaction, see Schneewind (1977: 384–90). Concluding remarks 1 Cf. also Schabas (1994). Though more attentive to the specific role of routines in Marshall’s thought, Pratten (1998: 160) concurs in the opinion that Marshall reached a ‘stalemate’, blaming this failure more on his presumed empiricist conception of science than on Spencerian influences. 2 For an insightful criticism of Hodgson’s theoretical perspective when compared with Loasby’s, cf. Moss (1994). Moss’s reading of Marshall’s evolutionary economics, however, appears to be closer to Hodgson’s than to Loasby’s (Moss 1990). 6 Death and resurrection of a research programme 1 According to this definition, ‘competitive’ does not imply that the market is open to brand-new entrants but that monopolistic power tends to be eroded by other producers: when entry by new producers is ruled out, or at least particularly difficult, the role of new entrants may be performed by existing businesses ready to embark on expansion of their production appliances. In such cases, strictly speaking, there is no ‘representative firm’ but value is still governed by cost of production, provided competition is at work between existing firms.

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2 Intolerant of abstract inquiries about definitions, Marshall set great store by appropriate terminology (cf. the pages listed under the entry ‘definition and classification’ of the index to Whitaker 1996, vol. III: 468). 3 For the businessman’s recourse to the ‘representative firm’, cf. Marshall (1960: 377 and 460). Becattini (1962), developing Andrews (1951), provides a penetrating analysis of the subjective side of the issue. 4 This quote reminds us almost literally of Robertson’s (1930: 87) ‘violent effort of the imagination’ called forth by the ‘trees of the forest’ metaphor. 5 Reasons for this linguistic choice are implicitly reaffirmed in a late letter to the Indian economist, Sinha: ‘I prefer my own definition of “Representative firm”: but “average firm” may serve for rough uses’ (Whitaker 1996, vol. III: 377). 6 Robinson (1951: vii) described Sraffa’s teaching as ‘penetrating our insularity’. 7 Robbins was unaware that Marshall was scared neither by the idea of ‘representative worker’, which he explicitly considered – ‘I think the notion of “representative firm” is capable of extension to labour and I have had some idea of introducing that into my discussion of standard of wages’ (Whitaker 1996, vol. II: 382, already in Memorials; for an application of this concept, see Marshall 1920: 516) – nor by that of ‘representative consumer’ or any other ‘representative agent’ (Groenewegen 1995a: 168). It goes without saying that the hyper-rational ‘representative agent’ of modern macroeconomics has nothing to do with Marshall’s notion of representativeness. 8 Some recent critics dismiss the representative firm because they feel it betrays Marshall’s biological Mecca. Hodgson (1993b) took the representative firm as the clearest example of Marshall’s ‘shyness’ in his attempt at biologizing economics. Limoges and Menard (1994) attack the notion as a retreat from the biological atmosphere of book IV towards the mechanical equilibrium of supply and demand that characterizes book V, but Langlois and Foss (1997: 9) rightly notice that the representative firm implies variety and reflects the characteristics of the population of firms as a whole. 9 On the troubled succession to Marshall’s chair, see Coase (1972a), Coats (1972) and Groenewegen (1995a: 622–7). 10 The main idea of the appendix – to show the limits of the statical method – was originally placed in book V, then it became a note at the end of the same book (4th edition) and finally was relegated into the appendixes (5th edition). This decision smoothed the reading of book V, but induced readers to skirt one of its more difficult and relevant problems. 11 Robertson also noticed that people tend to overrate their chances. This is a classic Enlightenment theme, widely discussed by Smith. Shove (1930: 95 n.) sought to overcome the problem by suggesting a ‘definite relation’ between subjective expectations and objective prospects. This would make expectations irrelevant to theoretical analysis, as later happened with ‘rational expectations’ theory, after Keynes’s notion of ‘animal spirits’ and his view of the casual and uncertain connection between expectations and objective results had brought the issue back into economics. 12 Dardi (2001) suggests that Sraffa might have abandoned the subject of imperfect competition as soon as he realized that deprecated subjectivist intrusions into the field were unavoidable. 13 Another ‘heroic assumption’ – hinted at, but not analysed by Shove – was that each firm produces only one commodity. 14 Backhouse (1985) also argues that discovery of the interaction between demand and supply displaced Marshallian analysis, based on their absolute separation, and strengthened the new tendency to make output dependent on the elasticity of demand (when markets are imperfect). It is fair to notice that in his 1933 articles – 1933a in particular – it was Shove who criticized Robinson for ignoring deeper interconnections between supply and demand and insisting on the classical intersection of two curves. On the one hand, he pointed out that ‘the cost of an output is not uniquely determined

154

15

16 17 18 19 20 21 22

23

24 25

26

Notes

by its size, but depends also on the character of the demand’, not only on its elasticity but also on the causes which make it change; on the other hand, he also argued that ‘demand is not simply a datum’ since it is ‘in a large measure, created and moulded by the producers’ (Shove 1933a: 124). It might be said that there is a third part (§§12 and 13), in which Shove assumes perfect competition in order to complete his analysis of Robertson’s problem of why a firm with internal economies (like Marshall’s representative firm) is unable to expand. This exercise is presented by Shove in a way that is reminiscent of the ‘toys’ disparaged by Marshall: ‘we are no longer being asked to explain what happens in the real world, but to solve a purely abstract and hypothetical problem’. Shove’s solution of the problem is that expansion takes time and this adds a new dimension to the usual representation by prices and quantities. The former is the firm’s marginal cost when production cannot expand except by diverting custom from its competitors; the latter is its marginal cost when the market for the whole industry is widening. Cf. O’Brien (1990: 69–72) for an expansion of this view. For a detailed discussion of later works which took up the Marshallian challenge, see Nightingale (1993). Schumpeter later wrote that he could not ‘be suspected of harboring much sympathy’ for Marshall’s theory of evolution and labelled it unsatisfactory (Schumpeter 1941: 247 and 243). For a comparison with Marshall’s notion of entrepreneur, see Loasby (1982). Schumpeter was one of the few to praise Industry and Trade for its blend of theory and fact (Williams 1986: 227). If many years were spent on the first edition of Principles, the composition of Industry and Trade took even longer, since it surveyed part of the territory reserved for the aborted second volume of Principles. Conceived as a separate volume in 1903, almost completed before the First World War, the book was not issued until 1919 (Whitaker 1990: 203–14). He defended the practical utility of the representative firm, which had sunk into such deep oblivion that examinees protested against being expected to know a ‘new’ terminology’ (Macgregor 1942: 314), and confessed that he was ‘unable to accept the argument about the instability of competition under decreasing cost’ (Macgregor 1942: 322) when competition is taken in the Marshallian meaning (Macgregor 1942: 320). Cf. also Macgregor (1949: 31–53). Walter Layton, who lectured on problems of industry and labour before the War, did not write on the subject. He and Keynes left traces of their Marshallian background in Britain’s Industrial Future (1928). In particular, Whitaker called to my attention that the extent of Marshall’s influence on Florence is problematic. The entry in New Palgrave presents Florence as an odd figure, one who walked a solitary route. Collard (1990: 170–1) barely mentions him as a Cambridge laureate and sometime member of the Tripos staff. Loasby (personal communication) recollects that when he went to Birmingham, in 1958, Florence had already retired but was still ‘a very influential background figure’. Not knowing of his Cantabrigian past, Loasby ‘thought of him as a characteristic member of Ashley’s “Birmingham school”’. Becattini (1990b: 306 n.) does not hesitate to consider him a follower of Marshall’s industrial economics who, together with Chapman and Macgregor, disseminated his master’s views outside Cambridge. I would argue that Florence’s open references to Marshall, and in particular to Industry and Trade, are conspicuous and provide sufficient evidence of weighty influence. These uncertain and shifting boundaries affect the very idea of a ‘commodity’, which ‘is by no means easy to define’ (Robinson 1935 [1931]: 135), as Marshall (1920: 100 n.) had already noticed. The implications for the theory of value, and the importance of industry as an analytical category even for ‘imperfect’ competition, form the core of

Notes

27

28

29 30

31

32 33 34

35

155

Becattini (1962). Shackle (1967: 65–6) praises J. Robinson (1933) for preserving the concept of industry, though in her analysis it ‘vanished along with the supply curve’. Kaldor (1934: 72 n.) envisages a situation in which the function of decision-making is eliminated and there is neither innovation nor change. In such a world there would be no limit to the growth of firms since coordination costs would be ‘completely eliminated’. The ‘world of Kaldor’ appears to be the reverse of the ‘world of Coase’. Like Florence (1953), Penrose’s (1959) evolutionist approach paid attention to those organizational modifications – some of which already pointed out by Marshall (1919) – which can counterbalance the restraining effect of coordination costs on the growth of firms. In the 1938 introduction to the second edition of Macgregor (1906), the author pointed out that his analysis of the forces leading to industrial combination was the forerunner of the 1920s and 1930s discussion on rationalization. For a comparison of these approaches from the point of view of transaction cost economics, see Williamson (2000). For an attempt to show differences and similarities between the transaction cost and property rights approaches and move towards a ‘broader view of the firm’, see Hölmstrom and Roberts (1998). The literature and research projects on these subjects are growing at considerable speed. To form a general idea, see Foss (1997), Dow and Earl (1999), Foss and Knudsen (1996) and Foss and Loasby (1998). Cf. also Chandler (1992) for applications to economic history. The following part of this section is greatly indebted to Becattini (2002). As witnessed by the birth of the new journal Sviluppo locale (Local Development). Marshall finds his place in the motivation as Becattini is said to be ‘the most prominent of the Italian economists who have revitalized and elaborated Alfred Marshall’s century-old ideas of the advantages of the geographical agglomeration of specialized small firms in so called Industrial Districts’. An instance of this cross-fertilization is to be found in Trigilia’s handbook of economic sociology (Trigilia 1998, chapter 11).

7 Keynes’s Marshallian heritage 1 Of the many possible influences on Keynes, MacTaggart’s is rarely mentioned, though he sanctioned the same strategy: ‘the tendency of the human race is to consider the immediate future with immensely more regard than the distant future’ (Keynes’s lectures notes on MacTaggart’s Lent Term course on Metaphysics, 1903, Keynes Papers: UA/1). Although before deciding to devote himself to philosophy MacTaggart was one of Marshall’s most promising students, it would be inexpedient to think of the latter’s influence on this opinion since Marshall’s praise of telescopic sight is the opposite of MacTaggart’s preference for more reliable short-term predictions! A view similar to MacTaggart’s is stated by Simon (1981: 157): ‘if our decisions depended equally upon their remote and their proximate consequences, we could never act but would be forever lost in thought’. 2 Dardi (1991) must be singled out as it is fully aware of Keynes’s Marshallian matrix. 3 On Marshall’s habit of annotating his pupils’ papers, with comments ‘as long as the student’s answer’, full of ‘humorous criticism, generous praise, sweeping censure’ and ‘devastating’ attacks, see Pigou and Benians in Pigou (1925: 87 and 80) and Lynda Greer’s notes in MacWilliams Tullberg (1993). In the obituary, Keynes vividly recorded the episode: ‘I have papers which I wrote for him on which his red ink comments and criticisms occupy almost as much space as my answers’ (Pigou 1925: 51 n.). 4 In The General Theory, Keynes explicitly followed Marshall’s usage of defining income according to ‘the practice of the Income Tax Commissioners’ (Keynes 1973a [1936]: 59; Groenewegen 1993: 32).

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5 In the general introduction to the Cambridge Economic Handbooks (1922), Keynes had already stated that ‘the theory of economics … is a method rather than a doctrine, an apparatus of the mind, a technique of thinking’. 6 Now it seems to be Marshall’s turn to be praised for his vagueness (Comim 2000). 7 In a letter to Keynes, dealing with the Annexe to the Indian Currency Report, Marshall confessed that it went beyond his knowledge, called it ‘a prodigy of constructive work’ and concluded: ‘Verily we old men will have to hang ourselves, if young people can cut their way so straight & with such apparent ease through such great difficulties’ (Whitaker 1996, vol. III: 305). Nine years later, in 1923, he wrote prophetic words after reading the Tract on Monetary Reform: ‘I have appointed myself amateur currency-mediciner: but I cannot give myself even a tolerably good testimonial in that capacity. And I am soon to go away: but, if I have opportunity, I shall ask new-comers to the celestial regions whether you have succeeded in finding a remedy for currency-maladies’ (Whitaker 1996, vol. III: 395). 8 The quantity theory is ‘almost a truism’ for its failure to ‘indicate what are the “other things” which must be assumed to be equal in order to justify the proposition’ (Marshall 1923: 48). Not all the applications of ceteris paribus give rise to useful ‘machinery of thought’. 9 While Dardi and Gallegati stress the novelty of the draft, Bateman (1996b) points out that it does not contradict Marshall’s published writings. The issue seems to be rather of emphasis than substance. 10 See the two quotes in Moggridge (1992: 611 and 666). 11 ‘Persuasion’ is a Keynesian theme, but Marshall likewise often insisted that economists should take into account the different points of view of social actors (Raffaelli et al. 1995: 6–7). 12 For a recent critical evaluation of the model of the economic man see Thaler (2000). Concluding remarks 1 His well-known anti-feminist biases did not contribute to enhance his reputation. 2 It might also be added that his influence on two of the main sociologists of the past century left its mark on this discipline too (Parsons 1931 and 1932; T. H. Marshall 1950). The earlier episode is well known, but also the later one deserves attention: it was certainly by chance that T. H. Marshall’s seminal work ‘Citizenship and social class’ was delivered as a ‘Marshall lecture’, but the author’s choice to start his lecture with a detailed analysis of ‘The future of the working classes’ appears to be something more than pure homage paid for the occasion.

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Index

Abouchar, A. 114 adaptation 47–8, 93; ‘local’ 60; perfect 28, 33, 96 Adelman, P. 145 Aged Poor Commission 78, 81–2 aggregation 91 Alborn, T. L. 90 altruism: evolutionary explanation of 28, 100–2 analogy 11, 47; biological 36, 94–5, 107–8, 116, 119–20; mechanical 36, 91, 94, 108; neurophysiological 70 Andrews, P. W. S. 108–9, 111, 114, 117–18, 122, 153 anti-state-socialism 79 ‘a priori’ 10, 31–4; relative 13, 100 Arena, R. 126 Argyrous, G. 49 artificial intelligence 17, 53, 140 Ashworth, W. J. 26, 143, 144 associationism 9, 12, 14, 97–8 associationist psychology 5, 17–18, 23, 29, 36 attention 27, 69, 72–3, 79, 144 attention-focusing 54 automatisms 18, 21–2, 26–8, 30, 46, 52–4, 57, 62, 72–4, 119–20, 138 Babbage, C. 9, 25–6, 35, 52, 79, 140, 144, 147–8 Backhouse, R. 111, 115, 153 Bagehot, W. 90, 144, 148 Bain, A. 4, 9–12, 14–17, 19–23, 28–9, 98, 144; on sympathy 12, 101, 152 Banford, J. 127 Bateman, B. W. 132, 136–7, 156 Bateson, W. 94, 151 Bateson, G. 47 Baumol, W. J. 140 Becattini, G. ix–x, xii, 3–4, 8, 51, 65, 72, 80, 103, 114, 151, 153–5; on evolution of Marshall’s thought 41, 43–4; on industrial districts 127–8, 155 Bellandi, M. 127 Benians, E. A. 148, 155 Bentham, J. 9, 97, 142, 152

Berry, A. W. 84 Bharadwaj, K. 113, 145 biological and mechanical: see analogy metaphors Black, R. D. C. 8, 142, 151 ‘blackboard economics’ 85 Blaug, M. 111, 139 Bochner, S. 90 body–mind relationship 35 body–soul relationship 13, 22 Bohr, N. 140 Boland, L. A. 92 Booth, C. 82 Bosanquet, B. 82 Bowler, P. 95 Bowley, A. L. 84, 150 Bowman, R. S. 61 ‘box of tools’ 42 Bradley, A. C. 8 Brems, H. 85 ‘bricolage’: evolution as 49 Brusco, S. 127 Buckle, H. T. 110 bureaucracy 52–3, 71, 78, 135 Burke, E. 131 business concentration 69–72, 122–4; dangers of vertical 69, 123 business size 67–72, 111–12, 116–17, 122–4; big 68–75, 79, 124, 127; small 66, 69–72, 121, 124, 127, 155 Butler, R. 143 Cairnes, J. E. 40, 145 Calabi, L. 143 Caldari, K. 30, 151 Campbell, D. T. 143 Camporesi, C. 10, 87, 142 Cannan, E. 87–8 capabilities approach 126, 128 capital 56, 148; accumulation 42–3; of nerve force 54 Carabelli, A. 130–1, 133 Carlyle, T. 34 Carpenter, W. B. 21–2, 142

174

Index

Casarosa, C. 42 caste system 65 Cerina, F. 46 ceteris paribus clause 45–8, 91–2, 147, 156 chains of reasoning 23, 25; ‘short’ 85 chance variation/natural selection 21, 57, 95 Chandler, A. D. Jr. 155 Chapman, S. J. 72, 122, 154 character 3–8, 25–30, 80, 107, 142; measure of 26, 28; as a second level property 6–7, 27 Charity Organization Society 82 Chasse, J. D. 148, 152 chess automaton 25–7 chess game 25, 144, 150 Clapham, J. H. 111 Clark, J. B. 45, 146–7 Clarke, P. 137 classical economics 40–3 classical economists 5, 67, 82, 146 Clifford, W. K. 8, 11, 16, 18, 47, 142–3, 147; on continuity 90–1, 150; early influence on Marshall 28–32, 100–1 Clower, R. W. 129 Coase, R. H. xi, 85–6, 121–3, 125–6, 153 Coasian world 123, 155 Coates, J. 135 Coats, A. W. 8, 86, 151, 153 Coddington, A. 130 Coleman, W. 151 Coleridge, S. T. 143 Collard, D. A. 32, 142, 154 collective agreements 71, 79 Collini, S. 142, 151 Comim, F. 156 commodity 154 common sense 81, 89–90, 130, 135 competence-based rationality 127 competition 4, 46, 58–9, 67, 73 118, 154; imperfect 114, 153–4; perfect 111–14, 154; Schumpeterian 120 competitive industry 109, 114 ‘competitive’ market 152 Comte, A. 6, 34, 49, 146 confidence 136–7 consciousness: see self-consciousness Constant, E. xii constructive: Marshall’s uses of the term 58, 147 continuity 89–95, 113, 138–40, 145, 150 contrivance 18, 20–5, 49, 54–7, 73–4, 76, 144 convention 132, 138 Cook, S. 148 Cooke, T. W. 148 cooperation 79–80; inter-firm 72–3 coordination 70, 72–4, 122–4, 126; automatic 72, 74, 124 coordination costs 123–4, 155

Corsi, M. 147 Cosmides, L. 50 Cossentino, F. 127 cost of production 108–9, 118, 126, 152 costs: additive 116, 125; substitute 116, 125 Cottrell, A. 132 creativity 28, 49, 53, 63 cumulative routinization 55 Cunningham, W. 4, 51, 77 custom 46, 56–8, 73, 77–8, 132, 138; economic explanation of 51; fixity of 77 custom-cum-automatic competition 58 Cuvier’s principle of the correlation of parts 92 Dardi, M. x, xii, 3, 40, 74, 85, 132, 137, 149, 153, 155–6; on evolution of Marshall’s thought 41–4; on partial equilibrium analysis 45, 47 Darwin, C. 9, 11, 29, 59, 89–90, 95–6, 102–3, 143, 151–2 deductive method 86–7 Descartes, R. 90 differentiation 58, 103–4 discontinuity 91, 119 divergence of characters 96 division of labour 52, 65–6, 96, 120, 147, 151; in management 68, 124 Dosi, G. 127 Dow, S. C. x, 155 dynamics 45, 94, 146 Earl, P. E. x, 155 economic biology 58, 94, 99 economic evolution: limits of mechanical explanations 94 economic man 4, 8, 25–6, 40, 96–7, 101, 126–7, 138, 141, 156; Marshall’s rejection 50 economic models 43–4, 50, 83–6, 134, 149 ‘economic nation’ 43–4, 75, 128 economics: scope and method 3–6, 27, 51, 85–8, 91–2, 96–102, 115, 119, 128, 134, 138–40, 149–50, 156 economies of scale 67, 70–1, 80 Edelman, G. M. 35 Edgeworth, F. Y. 84, 88, 96, 99, 146 education 28, 61–4, 148; general and specialized 62, 69; liberal 17, 61–2 elasticity 92; of the mind 64, 71 Elster, J. 148 Emerson, R. W. 32, 34 empiricism 8, 31, 98, 100, 111; Marshall’s criticism 12–15, 89 equilibrium 41–6, 112, 114; of the firm 111, 114, 116–17; of industries 109, 116–17; Marshall’s concept of 45–7, 146; mechanical 44, 93–4, 153; moving 121; of perfect competition 111–12, 114; static 112, 114, 121

Index 175 equilibrium firm 112–13 Eshag, E. 136 ethics 96–102, 151–2; autonomy of 97–8; and economics 26, 99, 151 Euclidean geometry 32, 34 evolutionary economics 39, 54, 58, 85, 127, 140 evolutionary epistemology 31–3, 89, 98 evolutionary ethics: see ethics evolutionary physiology 22, 33 evolutionary psychology 17–18, 29, 35, 39, 98 evolutionism 8, 27, 90, 100–3, 152 expectation 19–20, 43, 136–7, 146, 153 external economies 68, 116, 119–22; localized 72, 75 external–internal economies 112 ‘felicific calculus’ 96 Ferrier, J. F. 9, 14–6 Fetter, F. A. 150 Feyerabend, P. K. 87 firm, the: equilibrium of 111, 114–17; theory 117–18, 122–6; life cycle 108, 111; size: see business size; see also equilibrium firm flexibility 69, 124 Florence, P. S. 122–4, 154–5 foresight 24–6, 30, 35, 58, 96; imperfect 27 Foss, N. J. x, 126, 153, 155 Foster, J. x, 85 freedom 5–6, 35–6, 58, 66, 104, 143, 149 Freud, S. 131 Fuà, G. 127 Gallegati, M. 137, 156 Gay, A. 149 Gee, J. M. E. 146 general equilibrium theory 27, 41, 47, 50, 54, 86, 91, 104, 120, 126 German historicism 6, 40 Glassburner, B. 93 Goethe, J. W. 34, 145 Gonce, R. A. 146 Goodman, E. 127 Gordon, S. 149 Gould, J. S. 59 greatest happiness principle 102 Green, T. H. 8, 34 Groenewegen, P. D. xii, 9, 21, 34, 39, 61, 64, 77, 80, 95, 109, 140, 142–6, 148–50, 153; on Keynes and Marshall 132, 134–6, 155; (ed.) 61, 78–9, 136 Grote Club 10–16, 143–4 Grote, J. 9–10, 13–14, 22, 35, 97, 143, 152 Guillebaud, C. W. 142 habit 21, 138, 144 Häckel, E. H. 147 Hague, D. C. 148 Hall, R. L. 117 Hamilton, W. 9–11, 14–15, 22, 110

Harrison, F. 40 Harrison, R. 99 Harrod, R. 114, 134 Hart, N. 111, 114 Hartley, D. 21 Hayek, F. A. x, 53, 79, 147 Hearn, W. E. 148 Hebb’s synapse 18 Hegel, F. W. 6–7, 34, 87, 90, 145, 149 Heiner, R. A. 27 Helmholtz, H. 145 Henderson, J. P. 151 hereditary transmission of: acquired behaviour 21, 94; acquired characters 95, 103 Herschel, J. 143–4 Hewins, W. A. S. 87 Hicks, J. R. 42 higher and lower pleasures 100–2 Hill, O. 152 Hitch, C. J. 117 Hobbes, T. 143, 152 Hobson, J. A. 92 Hodgson, G. M. xi, 58, 85, 95, 103, 152–3 Hollander, S. 42 Hollinger, D. A. 142 Hölmstrom, B. 155 human capital formation 61 human nature 4–5, 42, 97, 142; friction on change 93 Hume, D. 145, 152 Huxley, A. 35 hysteresis 85 idiosyncrasy 27, 55 imagination 49, 89, 110, 147 imitation 64 increasing returns 109, 111–12, 114, 116, 118, 120–1 India 77, 148 inductive method 86–7 ‘industrial atmosphere’ 73 industrial districts 64, 72–5, 80–1, 122, 127, 155 industrial economics 44, 103, 129, 140 industrial leadership 75–7 industrial organization 57–8, 67–72, 95–6, 124–6 Ingram, J. K. 40, 145 initiative 55–6, 63 innatism 143 innovation 52–4, 57, 69–70, 73, 76, 119 innovation/standardization 103 innovative variation/routine selection 127 instinct 18, 20–2, 50, 144 integration 58, 80, 103–4; of businesses: see business concentration internal diseconomies 68 internal economies 112–14, 116, 148

176

Index

James, W. 8 Jenner, R. A. 108, 149 Jensen, H. E. 8, 142, 152 Jevons, W. S. 27, 42, 96–7, 107, 142, 145–6 joint stock companies 70, 116 Jones, R. 40 Jowett, B. 6, 84, 87, 145, 150 Kadish, A. 148, 151 Kahn, R. F. 114, 134 Kaldor, N. 123, 155 Kant, I. 6, 8–9, 13, 31–4, 110, 145, 151 Kay, N. M. 126 Keynes, J. M. x–xi, 113, 125, 129, 129–39 passim, 153–6; on Marshall 6–7, 30, 64, 83, 108, 111, 134, 140, 151, 155; (ed.) 77–8, 81–2, 135 Keynes, J. N. 6, 86–7, 98 Keynes’s view of human action 130, 136, 138 Kidd, B. 78 knowledge: as accumulated capital 55–6, 61, 63; growth of 33, 47–9, 52, 72, 96; as machinery 48 Knudsen, C. 155 Kregel, J. A. 129 Kuhn, T. 127 labour market 43 Laidler, D. E. W. 134 laissez-faire 135 Langlois, R. N. 120, 126, 153 latent faculties 59, 62, 70, 74 Latsis, S. J. 114 Lavington, F. 122–3 law of parcimony 10–12, 15, 141 Layton, W. 149, 154 Lee, F. 117, 122 Le Play, P. G. F. 109 ‘legal fiction’ 77 Leibniz, G. 151 Leijonhufvud, A. 129 Leslie, T. E. C. 40, 43 levels: of actions 6–7; of brain structure 22–5, 30, 52–3; and complexity 57; of equilibrium 43, 46–7; in ethics 99–100; interdependence 53, 91; and meaning of normal 109; in organizations 72, 124; in poetry 146 Liebhafsky, H. H. 146 Limoges, C. 70, 153 Loasby, B. J. x, xii, 9, 27, 47, 67, 74, 92, 103, 113–14, 126, 152, 154–5 local systems 128 Locke, J. 13, 33 long-run equilibrium price 108–9 Lyell, C. 90 Maas, H. 27 Macgregor, D. H. 113, 122, 125, 135, 148, 154–5 Mach, E. 147

machinery of thought 49, 56, 86, 134, 156 machinery: public 82; scientific 85, 147; social 147; see also material machinery machines: make man mechanical 66 Machlup, F. 122 Mackenzie, J. and N. 71 MacTaggart, J. E. 155 MacWilliams, T. R. 78, 148, 155 Maine, H. S. 77, 90 Maloney, J. 142, 148, 151–2 Mansel, H. L. 7, 9–10, 14–15, 31, 143 Marcet, J. 135 Marchionatti, R. 109, 114, 125 Marcucci, S. 143 Marcuzzo, C. 112 margin, concept of 92 marginal firm 108 Marshall, M. P. 3–4, 52, 74, 136; on Alfred 6, 97–8, 143, 149 Marshall’s evolutionary economics 44, 51, 67, 103, 120, 152 Marshall’s industrial analysis 111, 114, 118 Marshall’s machine 35–6, 48, 64, 124, 140, 143–4; character 25–8; education 28–9; general view 17–18, 30; lower level 17–21; power of calculation 25–6, 29; upper level 22–5; see also ‘Ye machine’ Marshall, T. H. 156 Marx, K. 42, 67 material machinery 49, 56, 147 mathematical toys 134, 146 mathematics 83–5, 104, 130, 133–5, 140 Matthews, R. C. O. 142, 151 Maudsley, H. 32 Maurice, F. D. 10–11 maximizing behaviour 127, 129 Mayor, J. B. 10 measurement: economic 96–9, 102, 144 mechanical and biological: see analogy metaphors mechanization 55, 75, 122 Menard, C. 70, 153 Mendel, G. 92 Mendelism 58, 94–5 metaphors 91, 93–4, 116, 137, 149, 153; mechanical 108–9 methodological individualism 50 Mill, J. 10 Mill, J. S. 3–6, 9–12, 27, 40–3, 61, 78, 94, 142–3; empiricism 12, 15, 31–2; ethics 97, 100–1, 152 Milne-Edwards, H. 151 Minsky, M. 53, 148 Moggridge, D. E. 131, 138, 156 monetary yardstick 98, 101, 144 money 135, 137; as measure of motives 98, 142, 151; see also quantity theory Moore, G. E. 131

Index 177 Moore, H. L. 47, 134 Moss, L. S. 8, 93, 95, 152 Moss, S. 113 Moulton, J. F. 11, 143 Mozley, J. R. 10 ‘natural selection’ 11, 21, 28, 35, 59, 67, 100–1, 125 Nelson, R. R. x, 27–8, 54–5, 57, 64, 85, 120, 127, 148, 151 Newman, P. 112, 117 Nightingale, J. 154 Niman, N. B. 8 Nishizawa, T. 146 non-Euclidean geometries 32, 145 normal, concept of 41, 109, 146 normal supply price 47, 108, 110 O’Brien, D. P. 114, 154 O’Donnell, R. M. 130–1 ‘opposing forces’ 18 optimization 27 order 53, 56–7, 63, 65, 78, 149 ordinary language 85, 89–90, 130, 133, 135 organization: automatic 73–4; contrived 79; general properties of 52–5; hierarchical 52; Marshall’s view of 28, 72 organon 49–50, 81, 83, 147 parasitism 59 Pareto, V. 4, 96, 150 Parsons, T. 4, 7, 99, 151–2, 156 partial equilibrium analysis 41, 44–5, 91, 111 path-dependency 46, 53 Pearson, J. B. 10 Pearson, K. 95, 134 Peirce, C. S. 90, 150 Penrose, E. T. 126, 155 persuasion 156 Pesciarelli, E. 76, 148 Petridis, A. 99 Pietrangeli, G. xiii Pigou, A. C. 112–14, 116–17, 125, 135, 137, 155; (ed.) x, 5–7, 30, 39–40, 42, 45, 49, 51, 54–5, 59, 64, 66, 70–1, 74, 78–83, 89–91, 94, 97, 108, 111, 133–6, 140–8, 150–2, 155 Plant, A. 125 plasticity 27, 69 Plato 150 pleasure 20, 23–5, 57, 97, 100, 144; and pain 17–19, 21 pleasure–pain selection 21 Polanyi, M. 64 political economy 4, 81 Pollock, F. 100 Popper, K. R. 33 Porter, M. 127–8 Potts, J. 57 ‘practice makes perfect’ 52 Pratten, S. xi, 47, 152

Prendergast, R. 114 principle of continuity 89–95, 138–9, 151 ‘principle of substitution’ 70, 92, 151 probability 131–3 progress 54, 59, 67, 74, 82, 94–5, 140; definition of 147–8; economic 142, 119–20; scientific 49, 134–5; and variation 28, 70, 72, 144 Prony, G. F. 52–3 public opinion 81 public relief: standardized methods of 82 ‘pure economics’ 51, 99 ‘pure theory’ 42, 86–8, 121, 150 Pyke, F. 127 quantity theory of money 133–4, 136 Quinton, A. 9 Raffaelli, T. x, xii, 9, 11–32 passim, 36, 49, 56, 71, 79, 113, 133, 143–5, 147–8, 152; (et al. eds) 3, 48, 61, 67, 79, 81, 97, 137, 147, 151–2, 156 Ramsey, F. P. 131–2 rationalization 74, 116–17, 121–2, 125, 155 Ravix, J. T. 126 reformist approach 66 Reisman, D. 8 ‘representative firm’ 70, 108–12, 115–16, 118, 121–2, 152–4 Ricardo, D. 3, 40, 146 Richardson, G. B. 126 Rizzello, S. 54, 79 Robbins, L. 108, 111–13, 116, 121, 140, 150, 153 Roberts, J. 155 Robertson, D. H. 113–14, 116, 135, 153–4 Robinson, A. 122–5, 154 Robinson, J. V. 114–15, 117, 129, 153, 155 routine/innovation 119 routines 20, 27–8, 46, 52, 57, 80, 119; like institutions 27 Samuelson, P. 107 Schabas, M. 143, 152 Schlicht, E. 92 Schneewind, J. B. 152 Schumpeter, J. A. 119–21, 138–9, 151, 154 Schweber, S. S. 151 science: big and small 72; ‘capitalistic’ 55; see also knowledge scientific management 65, 74, 148 Scott, W. R. 6–7, 142, 151 Scottish idealism 9–10, 13–15, 87; Marshall’s criticism 15 ‘secondarily automatic’ habits 21 self-consciousness 9–10, 12–16, 22, 30 Seligman, E. R. A. 146, 150 Sengenberger, W. 127 sense of proportion 88–9, 135, 150

178

Index

Sforzi, F. 72 Shackle, G. L. S. 130, 155 Shove, G. F. 107, 114–17, 125, 153–4; on Marshall 142, 145, 151 Sidgwick, H. 6, 9–10, 84, 97, 100, 146, 152 Simon, H. A. x, 53, 79, 127, 129, 148, 155 single-level models: inadequacy of 99 Sinha, J. C. 153 Skidelsky, R. 131–2, 136 Smiles, S. 26 Smith, A. x, 3, 52, 77, 79, 97, 101, 120, 135, 142–3, 147, 151–3 Smith, B. 54 social capital: definition of 133 social evolution 4, 34; ‘short-sighted’ 60, 66 socialism 78 Soffer, R. N. 8, 36, 142 specialization 65, 80 ‘special market’ 69, 114, 148 speculation 137 Spencer, H. 6–10, 12–18, 22–3, 28–34, 90, 94–6, 100–3, 139, 143–4, 152 spontaneity 63 spontaneous institutions 79 Sraffa, P. 108, 111–12, 114, 117, 153 stability 27, 30, 136 stagnation 77 standard of comfort 7, 99 standard of life 7, 99, 101 standardization 35, 49, 54–7, 62, 69, 76, 123–4; particular 54–5, 124 statical method 47–8, 113, 153 static equilibrium theory 119 statics 45, 146 stationary state 46, 108, 110 Stephen, L. 100, 142 Stewart, D. 9 Stigler, G. J. x, 81 Stokes, G. G. 26, 143–5 struggle for survival 29, 58–9 successive approximations: method of 48 Supple, B. 142 ‘survival of the fittest’ 59, 92, 95 Sutton, J. 149 sympathy 12, 28, 143, 152; evolutionary explanation of 101–2 Taylor, F. W. 65, 148 ‘telescopic’ sight 101, 137, 155 Thaler, R. H. 156 ‘thinking machine’ 55 Thomas, B. 8, 58, 85 Thornton, W. T. 40, 146 time-period analysis 43, 47, 101 Tinbergen, J. 134 Tocqueville, A. de 93

Todhunter, L. 31 Tooby, J. 50 Trade Unions 79 transaction costs 122–3, 125–6, 155 transcendental idealism 31 ‘trial and error’ 17, 21, 27, 30, 33, 98 Trigilia, C. 155 Trimmer, J. 135 uncertainty 27, 53, 129–31, 136 utilitarian ethics see ethics utilitarianism 96–102, 151–2; and associationism 97–8 vagueness 89–90, 133, 135, 150, 156 value: competitive and normal 41, 146 value theory 42, 74, 104, 108–9, 111–12, 118, 145, 154 variation 35–6, 57, 96; and progress 28, 70, 72, 144 Veblen, T. 51, 93, 147 Venn, J. 10 Vinogradoff, P. G. 77, 149 Visker, R. 151 Walras, A. 41, 91, 119 Ward, J. 7, 9 Webb, B. P. 71 Weber, M. 109 Weintraub, E. R. 129 Weismann’s barrier 47 Whewell, W. 31 Whitaker, J. K. xii, 4, 7–9, 34, 46, 74, 98, 102, 148, 151–2, 154; on evolution of Marshall’s thought 41, 43–4; (ed.) (1975) 7, 40–3, 45, 48, 74, 79, 83–5, 94, 97, 100, 107, 134, 142, 145–6, 149–50; (ed.) (1996) 9, 11, 32, 39, 41–2, 45, 47, 61, 77–81, 84–8, 97, 99–100, 107, 121, 139, 142–3, 146–7, 149–50, 153, 156 White, M. 27 Wicksell, K. 85 Williams, P. L. 103, 146, 154 Williamson, O. E. 127, 149, 155 Wilson, D. B. 143–4 Winter, S. G. x, 28, 54–5, 64, 85, 120, 151 Wissler, W. 65 Wittgenstein, L. 90, 130–1 Wolfe, J. N. 117 Worrall, B. 146 ‘Ye machine’ 28–30, 44–6, 50, 52, 55, 57, 72, 94, 97, 100–1, 104, 123, 129, 139, 141; see also Marshall’s machine Young, A. 112, 116, 119–21, 123, 150 Young, R. M. 143