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Alfred Marshall’s Mecca: Reconciling the Theories of
Value and Development
CRIC Discussion Paper No. 78
This paper explores the evolutionary nature of Marshall’s theory
of value and its relation to his theory of growth and development.
For, the two theories are inextricably linked and the subsequent attempt
to separate them has not only marginalised Marshall’s rich analysis
but also made it impossible to appreciate the role he gave to innovation
and its corollary the growth of knowledge and organisation, in the
workings of a market economy (Loasby, 1989). To further this claim,
the paper will construct a Marshallian evolutionary model to help
understand and take seriously Marshall’s evolutionary credentials
in general and the concept of the representative firm in particular.
At its core is the relation between the growth of firms and the growth
of markets but this is not steady state growth theory rather it is
the differential, mutually determined and changing growth rates of
firms that is at the centre of attention. Indeed we might say that
one of Marshall’s definitive questions is ‘Why do firms
(activities) grow differently?’ The answer is closely connected
to, indeed indistinguishable from, Marshall’s managerial explanation
of firm differentiation and innovation and his claim that “Variation
is the chief source of progress” (P, V, 4, p355). Quite how
variation is linked to progress is the central topic of this essay.
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