Professional Documents
Culture Documents
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted
digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about
JSTOR, please contact support@jstor.org.
Wiley, Royal Economic Society are collaborating with JSTOR to digitize, preserve and extend access to
The Economic Journal
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
The Economic Journal, 103 (July), 975-991. ? Royal Economic Society 1993. Published by Blackwell
Publishers, io8 Cowley Road, Oxford OX4 iJF, UK and 238 Main Street, Cambridge, MA 02142, USA.
systems which have chaotic potential. The second law of thermodynamics (the
entropy law) is seen by some as the fundamental source of time irreversibility.
However, it is the relatively new area of non-equilibrium thermodynamics
which is of interest, rather than traditional equilibrium thermodynamics.
'Dissipative structures' are viewed as being able to offset the impact of the
entropy law by importing free energy and exporting entropy. The mechanisms
developed to do this are, in turn, viewed as being subject to a degree of time
irreversibility, so that change becomes, necessarily, evolutionary in character.
Over the past two decades, what has become known as the 'self-organisation'
persuasion, have been well aware of the time irreversible, nonlinear character
of economic processes for some time and, therefore, have avoided using models
based upon the conventional mechanical metaphor. However, the problem
with such a stance is that it often yields informal analysis of economic processes
* I am indebted to Geoff Harcourt, Geoff Hodgson and two anonymous referees for their valuable
comments on earlier versions of this paper. I would also like to thank Peter Burley and his colleagues at La
Trobe University for their very helpful discussions of a preliminary version of the paper at their
[ 975 ]
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
976
THE
ECONOMIC
JOURNAL
[JULY
and evidence which is historically descriptive. Economists who hold conventional views as to what constitutes science tend to reject such evidence and,
thus, it has little impact in the mainstream of the discipline. Consequently,
some economists have preferred to adopt a pragmatic approach whereby the
mechanical approach is retained, because of its usefulness in the construction
of formal models, but heavily qualified to allow for time irreversibility and
evolutionary change.
It is argued in this paper that an outstanding example of the latter was
Alfred Marshall, despite his textbook reputation as one of the founding fathers
economist of the past two and a half centuries. He, more than any of his
predecessors or successors, understood and lucidly articulated the inherent
tension between the use of the concept of stable equilibrium in economics
and the nonlinear, irreversible character of 'the conditions of real
th'e scientific agenda set out by Marshall has been limited to only the early
stages which he identified as achievable in his own time. The subsequent stages,
in Marshall's view, were to involve the emergence of evolutionary approaches
in economics, drawing upon evolutionary biology. However, here again, it will
must deal. To Marshall, the mechanical metaphor was a serviceable one to deal
with exogenous shocks and related homeostatic reactions in the short period,
but he saw evolutionary change as a logical implication of the presence of time
irreversibility in the long period. Over a century after the publication of the first
connection is explored and some assessment is made of the extent to which the
latter can help to offer the foundations of a new, post-Marshallian economic
science.
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
Much of what is regarded as economic science today stems directly from Alfred
Marshall's Principles. Milton Friedman, Paul Samuelson and, of course,
which dominated the political arena. This position was to have a considerable
influence on Keynes's economics and his view of the economist's role in society.
For Samuelson, at a much greater distance in time and space from Marshall,
this position was reduced to the simpler task of making economics more
scientific, in the sense that the term is used in the natural sciences. Undeterred
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
978
THE
ECONOMIC
JOURNAL
[JULY
in the first edition ... the titles of the books and chapters, a' well as the text
itself, follow the mathematical framework very closely. In later versions,
the connection became somewhat blurred by the author's restless quest
after realism and the increasing prominence given to the element of time
and to the absence of anything which can be properly be called a position
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
cost of production, demand and value is necessarily false' (p. 368, 8th edn).
Statical theory is so limited that 'there is a danger in throwing it into definite
form at all' (p. 46, 8th edn).
Apart from the more obvious quotations from the Principles concerning habits
and other time-dependent processes, it is little appreciated that, even when
explaining the determinants of demand, using the example of tea, he is careful
not to use timeless marginal utility theory. Utility is derived from the act of
purchasing tea not consuming it. Thus, utility is related intimately to the time
spent upon purchase, juxtaposed against alternative uses of time, not to the
utility yielded by future consumption: 'if, instead of buying it he makes the
thing himself, then its marginal utility is the utility of that part which he thinks
only just worthwhile to make' (Marshall, 7th edn, p. 93). If the unit in question
had been, say, a small packet of tea, the distinction between the utility of
purchase and that of future consumption could, perhaps, be overlooked.
However, Marshall deliberately selects the decision to buy annually, so his
demand curve is for a stock, not a flow (see, for example, the Principles, 4th edn,
pp. i69-72) and, in essence, involves a timing decision: 'The total utility of a
thing to anyone ... increases with every increase in his stock of it, but not as fast
as his stock increases' (Marshall, 7th edn, p. 93).
It is, of course, necessary for there to have been a past preference for a flow
of tea consumption per unit of time, the sum of which helps determine annual
stock demand, but Marshall proposes a very large range of stock demands at
different prices which would be very unlikely to be mirrored in everyday acts
of consumption. What he describes is a speculative decision within a process
which is occurring 'in' time, where a high price invokes a decision to buy a
small amount to 'get by' in the immediate future and, when prices are low,
stockpiling occurs. Notions of 'normal', historically determined, prices and
quantities loom large in such decision-making, as they do throughout the
K Royal Economic Society 1993
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
980
THE
ECONOMIC
JOURNAL
[JULY
Principles. Thus, even at the very heart of his treatment of demand, we see the
'careful imprecision' of Marshall, noted by Loasby (I978), at work to keep
historical time in his analysis. Marshall's desire to distance himself fromJevons
is well known and neoclassical economists can only turn legitimately to J. B.
Clark for theoretical support for flow demand analysis derived formally from
marginal utility theory.
Despite what has been said, the neoclassical economist can point to the fact
that Marshall did apply marginalism in the context of the firm's decisions.
However, Marshall did not apply marginalism in the conventional textbook
sense. Instead, he applied it in an evolutionary manner in his 'principle of
substitution ' which resulted in a ' tendency to variation [which] is a chief cause
of progress' (Marshall, 7th edn, p. 355). On p. 356, Marshall gave conventional
marginalism only a partial role to play. Nevertheless, because of the difficulties
in operationalising the principle, he retained conventional marginalism and
attempted to deal with the problem of time irreversibility and evolutionary
change by breaking up historical time into appropriate periods. Currie and
Steedman (I990) rally together convincing evidence that Marshall did not
define the neoclassical short run in terms of fixity of capital, as most textbooks
imply, rather he was attempting to deal with general decision problems faced
in actual historical periods. 'Bygones are bygones' because of time irreversibility. Fixity need not occur automatically in the short period, even
though limited scope for adaptation is a dominating feature of that period.
Furthermore, Currie and Steedman (i99o) go on to argue that Marshall did
not confine the problem of time irreversibility to the short period. They remind
us ofJoseph Schumpeter's assessment, made four decades ago, that Marshall's
falling long-run supply curves are not theoretical but, rather, historical
constructions which:
dealt with an irreversible process and are not at all like the ordinary
supply curves on which the firm can travel back and forth. They depict
historical processes in a generalised form (Schumpeter, I 954, p. 995, n. 9).
Marshall could not draw upon any coherent treatment of time irreversibility
in the natural sciences of his time so he adapted what was at his disposal,
namely, field force equilibrium. However, his depiction of the equilibration
process is concerned with the adjustment of variables to their 'normal' levels
and, therefore, deals with homeostasis rather than statics. This is the case
because the normal level of a variable is viewed as historically determined and,
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
1993]
MARSHALL
AND
SELF-ORGANISATION
98I
economic principles, suitably calibrated for particular historical circumstances, provided a more scientific approach to understanding economic coordination. The longer sweep of history must be analysed in evolutionary
terms. Describing and interpreting the minutiae of economic history was not
for Marshall. Interestingly, Veblen (I990) had a similar position with regard
to historicism to Marshall:
K Royal Economic Society I993
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
982
THE
ECONOMIC
JOURNAL
[JULY
(Thomas, I99I). However, Marshall was all too aware that no evolutionary
economics could be possible until time irreversibility was properly understood.
It can be argued that Marshall's vision of an economic science which could deal
with time irreversibility and evolutionary change did not really begin to
materialise until Nicholas Georgescu-Roegen's (I97I; 1976) consideration of
economic processes in thermodynamic terms:
few careful economists, such as Marshall, did observe that man can create
neither matter nor energy. But in doing so, they apparently had in mind
this is not surprising given that, in Marshall's time, there was only
thermodynamics of the equilibrium variety, with its gloomy prediction of an
irreversible tendency to maximal disorder in systems. This would have hardly
? Royal Economic Society 1993
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
his thinking (Hodgson, I993). Marshall was, of course, familiar with Jevons'
(i 865) dismal application of the entropy law to economics in The Coal Question
characteristics, they are used in an economising manner through time and they
are scrapped when the opportunity cost of maintaining them becomes too high.
Thus, in Georgescu-Roegen's view, Marshall's economics is a necessary
consequence of the existence of the entropy law and cannot be intelligible from
any other perspective. In particular, he emphasises that Marshall's economics
makes no sense at all in a static neoclassical framework of perpetual motion
machines.
view has emerged from the energy/entropy perspective as to the precise nature
of evolutionary dynamics in economic processes. Indeed, some evolutionary
economists have found the approach to be unconvincing. In particular,
Mirowski (I988), a member of the institutionalist school that has shown most
interest in the approach, has expressed some doubts, reminiscent of previous
institutionalist doubts concerning Marshall's evolutionism, about GeorgescuRoegen's work:
? Royal Economic Society I993
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
984
THE
ECONOMIC
JOURNAL
[JULY
(Mirowski, I 988, p. 826) is not a conundrum at all. The concept of utility used
is not a strictly neoclassical one: Georgescu-Roegen's subscribes to a Gossenian,
not a Jevonian, view of utility maximisation. The latter neglects time, the
former incorporates time and can deal, explicitly, with time irreversibility and
evolutionary change. Here we get another link with Marshall: Gossen is cited
Georgescu-Roegen saw the orthodox economist's neglect of time irreversibility as a much more serious deficiency than neoclassical thinking about
modelling dynamics, both in the natural sciences and in economics, and, again,
adopts a position similar to Marshall:
Marshall's conception of economic change as 'organic growth' almost
certainly explains why he never developed a mathematical theory of
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
Since the late I 940S, Ilya Prigogine, along with a number of co-researchers at
the Solvay Institute in Brussels have been pioneers in the application of nonequilibrium thermodynamics to understand the behaviour of structures
considered to be 'dissipative' in character (see Prigogine and Stengers, I984;
Nicholis and Prigogine, I977). Since all types of structure, whether chemical,
biological or socio-economic, include dissipative examples in the face of the
entropy law, Prigogine and his associates lay claim to have discovered a general
scientific paradigm, capable of displacing the prevailing mechanical approach
to dynamics in the natural and social sciences. Prigogine challenges
conventional attempts to model processes as 'clockwork' mechanisms that obey
timeless functional laws and are discoverable using a reductionist experimental
method. However, he also attacks the kind of thermodynamics developed in the
nineteenth century, characterising all structure as tending irreversibly towards
a thermodynamic equilibrium state of maximum disorder. This 'heat death'
view, Prigogine argues, had a profoundly pessimistic effect, in both science and
art, which has lingered on up to the present day.
In Prigogine's view, there are many examples, both in the natural and social
worlds, which contradict both the static mechanical and the thermodynamic
disordering notions of process. Processes at all levels, he argues, often seem to
of' self-organisation' (or autopoiesis) which enables them to export entropy and
import free energy to maintain themselves and, in the biological domain, to
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
986
THE
ECONOMIC
JOURNAL
[JULY
successful in chemical applications, Brooks and Wiley (I986) argue that the
Prigoginian approach to self-organisation is inadequate in biological and, by
inference, socio-economic contexts. By identifying a state of maximum entropy
even more important than they are in biological contexts (see Clark, i99i, for
an assessment of the relevance of the Brooks/Wiley approach for economics).
Indeed, the independent studies of socio-economic evolution by mathematical
sociologists, Hannan and Freeman (i 989), in the organisational ecology
tradition, identify similar processes to those identified by Brooks and Wiley
(I986).
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
Pp. 5-6).
Marshall offers a multi-faceted vision of organisational interactions in the
economic system and they form an essential basis for his arguments concerning
in both Brooks and Wiley (I986) and Hannah? and Freeman (I989) is not
surprising given that Marshall was acutely aware of the socio-economic
relevance of organisational analogies drawn from biology:
economists have, in their turn, owed much to the many profound
analogies which have been discovered between social and especially
industrial organisation on the one side and the physical organisation of the
higher animals on the other (Marshall, 7th edn, p. 24I).
A key aspect of both the self-organisation and organisational ecology
approaches is the prediction that system growth is nonlinearly density
dependent. Hannah and Freeman (i 989) offer persuasive empirical support for
this prediction in various socio-economic contexts. Marshall's argument
concerning economies of scale in the long period also emphasises organisational
factors:
The law of increasing return may be worded thus: an increase of labour and
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
988
THE
ECONOMIC
J-OURNAL
[JULY
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
economists might wish to follow in certain respects. They also show how selforganising behaviour in socio-economic contexts seems to be much less subject
to chaotic outcomes at the macroscopic level than in chemical or biological
contexts. Inertial forces are found to be extremely powerful in the cases which
they consider. Marshall's natura non facit saltum seems to apply.
Today, some of our most eminent mainstream economic theorists are beginning
to see evolutionary economics as the future:
History dependence stares us in the face but it is not the stuff of pure
theory... Evolutionary theories are beginning to flourish, and they are not
the sort of theories we have had hitherto ... But while there will be work for
the computer scientist, I very much doubt that economists will be able to
establish general propositions in any but very special examples (Hahn,
I99I, p. 48).
However, this rather pessimistic view is not derived from the largely nontechnical literature on evolutionary economics but, instead, from the work of
mathematicians interested in nonlinear dynamics who have found chaotic
complexity to be a feature of even very simple nonlinear dynamic systems.
Computer simulation offers the only route to discover the hidden attractors to
which chaotic dynamics tend. However, even though chaotic systems with
determinate, but unpredictable, features are of interest to economists, a cursory
glance at the historical dynamics of actual economic variables tells us that,
despite the fact that we observe a great deal of chaotic-like behaviour at the
microscopic level, there is also much order and predicability at the macroscopic
level at any point in time. In other words, it is not axiomatic that the complex
chaotic potential of economic dynamics renders them unanalysable using
theoretical constructs. The order we see and, indeed, have sometimes modelled
necessarily follow that economic processes are, in fact, very chaotic, despite
their chaotic potential. In socio-economic systems, many of the homeostatic
mechanisms we observe are designed, explicitly, to prevent chaotic dynamics
from occurring. This has been understood intuitively by many economists in
the past, a good recent example being Leijonhufvud (I98I) with his 'corridor
hypothesis'. With historical data, it is possible to capture these 'well-behaved'
Marshall, then density dependent models, which can be stable over long
K Royal Economic Society I993
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
990
THE
ECONOMIC
JOURNAL
[JULY
the evolutionary change which accompanies time irreversibility in selforganising systems. We can make some assessment as to the influence of
historical conditions on the future of an economic structure from the statistical
evidence we have (see, for example, Foster, I992). We can be alerted to the fact
that, for example, over-faithful reproducibility and insufficient absorption of
micro-novelty is rendering an economic structure increasingly vulnerable to
being selected out. However, the non-equilibrium thermodynamical approach
offers us only a statistical viewfinder set to observe the stable interplay of selforganisation and entropy-like processes, not evolutionary nonlinearities,
imperfectly accounted for in the homeostatic mechanisms of the economic
been explored and it has been argued that his insights concerning economic
processes are highly compatible with this new approach. In attempting to deal
economics. One suspects that Marshall would have -been disappointed with the
slowness with which economics has moved beyond his 'backbone' mechanical
approach. However, he would have also been capable of understanding why
ideological and ethical factors have had such a powerful influence on the
REFERENCES
Arrow, K. J. (1 988). 'Workshop on the economy as an evolving complex system: summary.' In The Economy
as an Evolving Complex System (ed. P. W. Anderson, K. J. Arrow and D. Pines), pp. 275-82. Redwood
City: Addison Wesley.
Arthur, W. B. (i988). 'Self reinforcing mechanisms in economics.' In The Economy as an Evolving Complex
System (ed. P. W. Anderson, K. J. Arrow and D. Pines), pp. 9-32. Redwood City: Addison Wesley.
Boulding, K. E. (I98I). Evolutionary Economics. London: Sage.
Brooks, D. R. and Wiley, E. 0. (I986). Evolution as Entropy: Toward a Unified Theory of Biology. Chicago:
Chicago University Press.
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms
I993]
MARSHALL
AND
SELF-ORGANISATION
99I
Clark, N. (i99i). 'Organisation and information in the evolution of economic systems.' In Evolutionary
Theories of Economic and Technological Change (ed. P. P. Saviotti and S. Metcalfe). London: Harwood
Press.
Currie, M. and Steedman, I. (I990). Wrestling with Time. Manchester: Manchester University Press.
Debreu, G. (I991). 'The mathematization of economics.' American Economic Review, vol. 8I, pp. I-7.
David, P. (i 988). 'Putting the past into the future of economics.' Institute for Mathematical Studies in the
Dosi, G. and Metcalfe, J. S. (i 99 I). 'On some notions of irreversibility in economics.' In Evolutionary Theories
of Economic and Technological Change (ed. P. P. Saviotti and J. S. Metcalfe). London: Harwood Press.
Dyke, C. (I992). 'From entropy to economy: a thorny path.' Advances in Human Ecology, vol. I, pp. I49-76.
Foster, J. (i987). Evolutionary Macroeconomics. London: Allen and Unwin.
Foster, J. (I 992). 'The determination of Sterling M3: an evolutionary macroeconomic approach.' ECONOMIC
JOURNAL, vol. I02, pp. 48I-96.
Georgescu-Roegen, N. (I97I). The Entropy Law and the Economic Process. Cambridge, Mass.: Harvard
University Press.
Georgescu-Roegen, N. (I976). Energy and Economic Myths: Institutional and Analytical Economic Essays. New
York: Pergamon.
Georgescu-Roegen, N. (i 984). 'Time and value in economics and in Gossen's system.' Mimeo (December).
Hannan, M. T. and Freeman, J. (i 989). Organisational Ecology. Cambridge, Mass.: Harvard University Press.
Hahn, F. (i99I). 'The next hundred years.' ECONOMIC JOURNAL, vol. 10I, pp. 47-5I.
Hodgson, G. M. (I993). 'The mecca of Alfred Marshall.' ECONOMIC JOURNAL, vol. I03, pp. 406-I5.
Loasby, B.J. (1978). 'Whatever happened to Marshall's Theory of Value?' Scottish Journal of Political
Economy, vol. 25, pp. I-I2.
Loasby, B.J. (I990). 'Knowledge and organisation: a post-Marshallian research programme.' Mimeo,
Department of Economics, University of Stirling June).
Lozada, G. A. ( I990). 'Georgescu-Roegen's critique of statistical mechanics revisited.' Mimeo, Energy and
Resources Group, University of California, Berkeley (December).
Maloney, J. (i985). Marshall, Orthodoxy and the Professionalization of Economics. Cambridge: Cambridge
University Press.
Marshall, A. (I898, I9I6, I920, i96i). Principles of Economics (4th, 7th, 8th and gth edns). London:
Macmillan.
Mirowski, P. (1 988). 'Energy and energetics in economic theory: a review essay.' Journal of Economic Issues,
vol. 22, pp. 8I I-32.
Mirowski, P. (i99i). 'The when and how and why of mathematical expression in the history of economic
analysis.' Journal of Economic Perspectives, vol. 5, pp. I47-57.
Moss, S. (i984). 'The history of the theory of the firm from Marshall to Robinson and Chamberlin: the
Samuelson, P. A. (I972). 'What classical and neoclassical monetary theory really was.' Reprinted in The
Collected Scientific Papers of Paul A. Samuelson, vol. III (ed. R. C. Merton). Cambridge, Mass.: MIT Press.
Shove, G. F. (I942). 'The place of Marshall's Principles in the development of economic theory.' ECONOMIC
JOURNAL, vol. 52, pp. 294-329.
Thomas, B. (I99I). 'Alfred Marshall on economic biology.' Review of Political Economy, vol. 3, pp. I-I4.
Veblen, T. B. (i 990). 'Why is economics not an evolutionary science?' Quarterly Journal of Economics, vol. I 2,
pp. 373-97. Reprinted in T. B. Veblen, The Place of Science in Modern Civilisation. London: Transaction.
Wicken,J. S. (1 986). 'Evolutionary self organisation and entropic dissipation in biological and socioeconomic
systems.' Journal of Social and Biological Structures, vol. 9, pp. 26I-73.
This content downloaded from 193.227.1.43 on Wed, 20 Apr 2016 21:11:29 UTC
All use subject to http://about.jstor.org/terms