Edited by Michael Dietrich and Jackie Krafft
Chapter 4: Alfred Marshall and the Marshallian Theory of the Firm
Jacques-Laurent Ravix 4.1 INTRODUCTION Economists’ opinion is divided over the way Alfred Marshall treated the firm in his works, the author being considered either as a precursor of the neoclassical theory or, more appropriately in our sense, as a forerunner of neo-institutionalism and evolutionary economics. As most of the modern interpreters of Marshall rightly argue, an appraisal of Marshall’s approach to the firm cannot be separated from his conception of the dynamics of industry. Careful readings of the author’s works reveal that his concept of the firm is intertwined with that of industry within an evolutionistic framework mainly based on biological analogies (Raffaelli et al., 2006). Consider, for instance, the well-known notions and images that characterize Marshall’s approach to the firm. The famous metaphor of the ‘trees of the forest’ and the rather mysterious and sometimes ill-interpreted concept of the ‘representative firm’, first appear in Book IV of the Principles, in conclusion to the chapters dedicated to the study of industrial organization. Conversely, Book V on demand, supply and value, while referring to the representative firm, uses a toned-down notion of the firm and the industry in the ceteris paribus view of partial equilibrium. This version seems to be better adapted to the abstract theory of value and price developed by neoclassical theory and elaborated to avoid ‘the incredible banalities of much of the so-called theory of production’ (Robbins, 1932, p. 65). Quoting Lionel Robbins again: One has only to compare the masterly sweep of Book V of Marshall’s Principles,...
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