Applied Industrial Economics

Clearly, Marshall’s industrial economics formed the heartbeat of his evolutionary perspective on economics. This analysis was informed by detailed observations of contemporary industrial organisation, together with historical investigations into its development. It was Marshall’s intention that the theoretical analysis presented in the Principles be read in conjunction with historical and applied studies of industry. In this setting, Marshall’s Industry and Trade was originally promised as part of a ‘second volume’ to extend the general introduction to the study of economic science provided by the Principles; unfortunately it did not appear in print until 1919 when Marshall had reached 77 years of age.¹² Industry and Trade bears testimony to the enormous mass of industrial knowledge that Marshall had accumulated through time, augmenting and extending the practical examples and historical case studies found in the Principles. A prominent example of this is Marshall’s detailed references to the increasing prevalence of joint-stock companies which meant that the productive life of a representative producing business is likely to extend beyond the limits depicted in the life-cycle biological analogy portrayed in the Principles.

However, Marshall continued to argue that the competitive advantages did not lie wholly with large-scale business. As firms grew larger, limitations to effective management would be likely to develop, limitations arising, for example, from factors such as ‘excessive enlargement of scope’ and ‘mechanical methods of administration’ that may ‘repress elasticity and initiative’ (Marshall 1919: 321-324). Throughout, the importance of organisation within firms in influencing the efficiency of labour is highlighted, together with the prominence placed on the role of general education, as emphasised in the Principles. There is also extensive discussion on the nature and role of competition and potential government involvement in competitive processes. Marshall’s analysis of industry therefore highlighted the existence of a variety of conflicting tendencies, and his heavily qualified views on the reform of industrial organisation was premised on a call for human intervention to check that those tendencies that prevail bring long-term benefits to the social environment.

When read in isolation from the Principles, the content of Industry and Trade may appear to some readers to be mainly descriptive in nature, devoid of any specific theoretical content. However, when placed in the context of Marshall’s evolutionary account of industrial organisation and progress found throughout the Principles, it can be seen that Marshall’s applied industrial analysis plays the crucial role of providing the historical and institutional material that informs the analytical core of the Principles. Certainly, Marshall rejected the notion that ‘theory’ and ‘applied work’ could be developed independently from each other, a position which departed markedly from that advocated by his Cambridge successor, ^[1]

Pigou (1922). Perhaps the reason for the subsequent neglect, until recent decades, of Marshall’s applied industry studies was most aptly summarised by one of his most loyal disciples, P.W.S. Andrews:

His analysis of industrial equilibrium was proved to be inconsistent with a theory of the equilibrium of the individual business which evolved from the ‘Marshallian tradition’ and which was believed to be basic to Marshall’s own concept of competition. 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 (Andrews

1951: 140).^[2]

• [1] Mention again should also be made of the Marshalls’ first book, The Economics of Industry, published in1879 and co-authored with Mary Paley Marshall. As Groenewegen (2007: 58) remarked in his outline ofthe book’s central themes, several chapters in the book ‘are a splendid example of the way in whichMarshall enriched conventional classical doctrine by giving it a new interpretation in the light of changedindustrial circumstances of which his travels had made him aware’.
• [2] For further discussion of those who kept to Marshall’s vision of the role for applied industry studies, seeRaffaelli (2004). An earlier appreciation of the scope of Marshall’s industry economics can be found inO’Brien (1990).