Marshall

Marshall’s economic theory was more dependent on psychological ideas than is sometimes recognised; in order to demonstrate how, the links between the two will be sketched. His early writing most obviously in the psychological vein was ‘Ye Machine’ from 1868 to 1870 (Cook 2009: 108; Raffaelli 2006: 26). It has been characterised as Marshall’s attempt to begin composing a prelude for a general theory of psychology (Groenewegen 1995). Although he never completed the project, the young Marshall studied the associationist psychology of Bain, from whom he derived some of his views, which were carried over into aspects of his economics. For example, in ‘Ye Machine’, Marshall presented a model of a machine with moving internal parts that he used to illustrate how experiences of the outer world impressed themselves onto the inner ‘brain’ of the machine through the mediating external part called the ‘body’. Explaining how ideas, sensations, expectations, desires, habits, and instincts developed, he posited that external inputs caused internal sensations in the brain, which produced associated ideas; these then induced ideas of action, which caused bodily actions (Marshall 1868-1870 [2004]: 116).

A key aspect was that the brain was structured into parts, the cerebellum and the cerebrum. In the cerebellum resided the mechanisms associated with ideas, sensations, and so on. Ideas in the cerebellum caused corresponding ideas in the cerebrum, which in turn acted on other parts of the cerebrum and also back onto the cerebellum. This process of multiple mechanical linkages was a chain of reasoning, which in turn produced deliberations, volitions, and determinations (ibid.: 121): these connections often operated automatically.

Some have judged that ‘no direct connection is proved’ between ‘Ye Machine’ and Marshall’s economic thought (Raffaelli 2006: 29), but an obvious link was provided through the concept of individual personality. Scope for brain individuality was allowed through the character of the machine, which was revealed in how it selected between choices in relation to its ability to think through the consequences of its actions. Character was directly linked to cognitive ability, as greater ‘long-run’ reasoning produced different choices than lesser reasoning capacity in this area (Marshall 1868-1870 [2004]: 130). As will be seen, individual personality had an important place in Marshall’s economics, and it was echoed in Myers’s industrial psychology.

Marshall’s model of the brain was a dualistic one in which mental phenomena had distinct physical correlates (Cook 2009: 120). This formed part of the ‘traditional dualism of Cambridge philosophy’ (Cook 2006), yet was different from Kant’s soul/body division. Even so, the fact that Marshall allowed for individual variation demonstrated that he was not content to reduce mental phenomena to unitary operations. ‘Character’ was constituted from various cognate capacities with mechanical correlates, but as two machines were unlikely to be identical in this respect, individuality was preserved. Marshall was, from early on in his life, interested in understanding the mental underpinnings of difference, even if this was initially explained mechanically.

He gave up on his early interest in psychology, it has reasonably been suggested, because he lacked the skill in experimental psychology that would have been necessary to take the next step in developing his psychological understanding (Groenewegen 1995). However, it is possible to argue that he did not abandon his interest in psychology; rather it was ‘displaced’ into his understanding of aspects of economics, as was evident from his most famous work in this field.

Marshall began his Principles of Economics by providing a definition of economics that portrayed it as in part a psychological science. Economics concerned itself ‘chiefly with those desires, aspirations and other affections of human nature, the outward manifestation of which appear as incentives to action’, or with ‘mental states’ observed indirectly through their effect, rather than in themselves (Marshall 1890 [1920]: 15). Economists should be involved with ‘measuring a mental state.. .by its motor force or the incentive which it affords to action’ (ibid.: 16). A Marshallian definition of economics could therefore be the indirect measurement of mental states through their effects on (and within) the ordinary business of life.

The key aspects of these mental states were wants and desires, which were large in number and various in kind: ‘[M]uch that is of chief interest in the s cience of wants, is borrowed from the science of efforts and activities’

(ibid.: 90). Underpinning these activities were psychological drives, for example, the need for sustenance, recreation, procreation, and so on. The economist

does not attempt to weigh the real value of the higher affectations of our nature against those of the lower ... He estimates the incentives to action by their effects ... [H]e does not ignore the mental and spiritual side of life ... [T]he economist.. .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 have therefore equal economic measures. A study of these measures is only the starting-point of economics: but it is the starting-point (ibid.: 16—17).

However, economists were not interested in motives considered individually, that is, in the motives of each person separately, which was the realm of psychology. Instead, they were concerned with motives as they were manifested in larger groups such as classes, nations, districts, trades, industries, and so on (ibid.: 26), that is, how motivations were combined within institutions to produce group behaviour.

Marshall provided a clear account of the nature of the motives that economists should study. They came under two basic categories, egoistic and altruistic, and both were very important. Economists deal

not with an abstract or ‘economic’ man; but a man of flesh and blood.influ- enced by egoistic motives in his business life.but who is also neither above vanity and recklessness, nor below delight in doing his work well for its own sake, or in sacrificing himself for the good of his family, his neighbours, or his country; a man who is not below the love of a virtuous life for its own sake

(ibid.: 26-27).

As such, economists should attempt to understand, and then model and predict, how different egoistic and altruistic motivations interacted within and between the groups outlined previously, as members attempted to fulfil their economic requirements.

So far, the analysis presented has been on one level, that is, of mental states and their ‘external’ effects on behaviour. But Marshall delved more deeply into the ‘internal’ nature of mental states and brought his early work on psychology to bear more directly as follows:

The physiological basis of purely mental work is not yet well understood; but what little we do know of the growth of the brain structure seems to indicate that practice in any kind of thinking develops new connections between different parts of the brain ... The mind of the merchant, the lawyer, the physician, and the man of science, becomes gradually equipped with a store of knowledge and a faculty of intuition, which can be obtained in no other way than by the continual application of the best efforts of a powerful thinker for many years (ibid.: 251-252).

Thus, in their daily activities, merchants and entrepreneurs accumulated knowledge and intuition through experience, which was imprinted on brain physiology and revealed itself in practice by means of ‘psychological’ reflex habits, or ‘hunches’ and ‘feelings’, for example, in relation to the ‘search for best-practice technology’ (O’Brien 2006: 625). This idea of psychological habit had a direct equivalent in Ward.

In addition, Marshall demonstrated a good understanding of brain structure for the period:

It seems that the excise of nerve force under the immediate direction of the thinking power residing in the cerebrum has gradually built up a set of connections. between the nerves and nerve centres concerned; and these new connections may be regarded as a sort of capital of nerve force. There is probably something like an organized bureaucracy of the local nerve centres: the medulla, the spinal axis, and the larger ganglia generally acting the part of provincial authorities, and being able after a time to regulate the district and village authorities without troubling the supreme government (Marshall 1890 [1920]: 251, fn. 1).

Marshall characterised accumulated ability (e.g. merchant trading ability and entrepreneurial investment ability) as a form of neurological capital (‘capital of nerve force’), or a physiological development that has a physical basis in changes to brain chemistry brought about through experience and association. He applied the same principle to manual work, as physical dexterity was controlled by the brain and was similarly accumulated.

Here the analysis had parallels with that of Myers on task specialisation within factories and the importance of psychological intelligence to entrepreneurial capability. This emphasis on mental capacity was not limited to the Principles. In Industry and Trade, Marshall identified what he called the ‘business faculty’ that was needed in successful business leaders, the chief requisites of which were as follows:

(a) judgment, prudence, enterprise, and fortitude in undertaking and carrying risks: (b) an alert acquaintance with appropriate technique; and some power of initiating advance: (c) a high power of organization; in which system plays a great part, but ‘always as a servant, never as a master’: (d) a power of reading character in subordinates; together with resolution, tact, trust and sympathy in handling them: (e) prompt diligence in assigning to each the highest work of which he is capable, or can be made capable within a moderate time (Marshall 1919: 355).

Marshall explained that all these qualities were needed in the managerial head of a business ‘of even moderate size’. By implication, not everyone possessed the required ‘business faculty’ to be successful entrepreneurs.

Bringing the various threads of the analysis together, it is evident that obtaining an accurate understanding of the human mind was very important to Marshall’s economics. The mind was conceived of as ‘an organized system of connections, many of them developed over time through interactions between internal structure and external phenomena and events’ (Loasby 2006: 371). In addition, individual minds differed in important ways, partly in terms of their internal structures and partly through their experiences and associations, and various business functions could be understood (at least in part) through such mental differences. Marshall’s economics also contained a Myers-like concern for the role of industrial psychology: ‘[H]uman faculties are as important a means of production as any other kind of capital’ (Marshall 1890 [1920]: 229).

This emphasis on mental capacity within business connected to the approach of the Marshallian School of Economics more generally: ‘[T]he ideas of the school was industrial economics in the broad sense; that is, the... study of the phenomena of the organization of production in firms, grouped in industries or clustered in special districts’ (Becattini 2006: 615). In order to understand ‘the nature of the firm’, the mental qualities of the different actors within it (inventors/entrepreneurs, line managers, and workers) had to be understood, as well as how they interacted within the firm as an institution: these interactions were ultimately interactions of mind.