New Directions in Theory and Policy
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
Chapter 5: The Representative Firm and Increasing Returns: Then and Now
5. The representative ﬁrm and increasing returns: then and now Stephanie Blankenburg and G.C. Harcourt I There is something archaic, yet modern about the tone and issues of the 1920s debates in the Economic Journal on the representative ﬁrm and increasing returns, often referred to as ‘the cost controversy’. Then, as now, applied economists, ‘realitics’, Sir John Clapham called them, and theoretical economists (‘analytics’) were often poles apart, who neither properly understood or appreciated each other’s roles and approaches. Then, as now, views diﬀered on whether or not theory had to be directly applicable in explanations of ‘real world’ observations, and much misunderstanding occurred because the separation between logically coherent ‘high theory’ in its own domain and, a separate issue, its direct applicability, was not made by protagonists. Or, one side would be concerned with the former, the other with the latter, neither making this understanding explicit. For this, Marshall must take much blame. Though the distinction was clear to him, in the arguments of his Principles it is purposefully blurred because he wished to be read by businessmen (sic). Its text often reads as a narrative about real-life happenings, admittedly explicitly conﬁned mostly to normal periods but meant to call up in readers’ minds their own observations and experiences. Yet Marshall’s powerful theoretical mind provided an underlying but hidden structure, conﬁned to footnotes and appendices, of explicitly set out theoretical pre-suppositions and arguments. It took the same subtlety of mind (and foxiness of character) as Marshall’s...
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