ABSTRACT

Alfred Marshall and the General Theory of Evolutionary Economics

CRIC Discussion Paper No. 76

Stan Metcalfe

Alfred Marshall's writing on economic change, embodied in his two great works, Principles of Economics and Industry and Trade, locate him as a major figure in an unbroken thread of reasoning that explores the restless, dynamic nature of modern capitalism, a thread that begins with Adam Smith and leads on through Marx to Schumpeter and Hayek. Marshall's work, along with that of Schumpeter, provides a convincing structure in which to focus on the self transforming as well as the self organising nature of capitalism. My purpose is to point out the specific nature of his perspective on change, development and value. This fully merits the label of a general evolutionary economics. Not only does Marshall typically relate the evolution of a trade to its connection with capital and labour markets as well as its product markets and those of its suppliers, he is especially careful to locate the operation of markets within a penumbra of non market forms of organisation and integration of activities. It is the generality of Marshall's approach to the problem of organisation for coordination that is particularly striking in his work. I concentrate on three aspects of Marshall as evolutionist, namely the role of management in his theory of firm and industry, the role of innovation and novelty and, most challenging of all, the relation between the representative firm and the theory of value. Management and innovation connect directly to the variation/selection side of Marshallian though but they also connect to his organic, systems perspective through the discussion of the firm and the penumbra of activities that constitute its external environment and organisation. Two related themes are introduced as preliminaries to this discussion. These are, respectively, a brief exposition of the two notions of evolution, organic development and adaptive variation, which are interwoven in Marshall's thought, and, a short and very provisional account of the complementarities between the thought of Marshall and Schumpeter. Our evaluation of Marshall supports the conclusion that to understand the dynamics of capitalism we cannot separate our account of innovation from our account of value formation in markets; they stand in reciprocal relation to each other. The incentives to enterprise, the rewards to innovation, and the resources available to innovate are all dependent on the evolving structure of prices and quantities and the ordering processes that generate them. This Marshall knew well.

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