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About this book

Tiziano Raffaelli (Pisa 1950) was a widely esteemed scholar in the field of the history and methodology of economics, who died suddenly in January 2016 while still in the midst of working and of developing projects for new lines of research. He was a philosopher of science by formation and a historian of economic ideas by professional choice, with interests covering a vast area, ranging from the 18th to the 20th century and from Europe to the US. Where he left an indelible mark, however, was in his interpretation of Alfred Marshall’s economic theory and its reverberations through Keynes on the one hand, and the Cambridge school of industrial economics on the other. Raffaelli’s research in this field offered a completely new view of the core and meaning of Marshall’s work and of its relevance for 21st century social scientists. In the process, it stimulated a new and fruitful research program in Marshallian economics.
This volume consists of two parts. The first is devoted to illustrating the above-mentioned changes in the understanding of Marshallian economics and Raffaelli’s role in bringing them about. The second part offers a collection of essays documenting some more recent developments in fields related to Marshall and his influence, including welfare economics and industrial organization, Marshall’s legacy in Cambridge economics, the Chicago school, and beyond. The contributors to this volume range from leading senior scholars in the field to exceptional young scholars, and their contributions illustrates a myriad of ways in which the “new view” of Marshall inspired by Raffaelli’s work influences our understanding of the history of economics from the late 19th century onward. This book will be of international interest to scholars working in the history of economic thought, and will also appeal to philosophers of science, methodologists, intellectual historians, and those who specialize in industrial organisation.

Table of Contents


Revisiting Marshall’s Economics


Alfred Marshall in the Lower Valdarno

The chapter may be taken as an exercise in second-level history of ideas. It reconstructs the history of almost half a century of historical research on Alfred Marshall, carried out in the circumscribed geographical area indicated in the title by a close-knit team that included (in addition to the author) Giacomo Becattini and Tiziano Raffaelli. The reconstruction reveals that the direction of the research and the ensuing historical image of Marshall and interpretation of his economics varied with time and inside the team, depending on each member’s reactions to the political and academic environments in which he grew up and worked. As a result, the versions of Marshall turned out by the team were always to a certain extent politically charged and generational.
Marco Dardi

The Organisation of Knowledge and Knowledge as Organisation

In contrast to the focus on the requirements for efficient allocation and the possibilities for meeting these requirements, which have been the prime theoretical focus in economics during the last century, Alfred Marshall’s primary concern as an economist was the organisation of the growth of knowledge in firms and industries, in ways which properly reflected both the limitations and the potential of the individual human mind—notably in the process of problem-finding, in which the tendency to variation may be crucial. Of particular interest is the conversion of John Whitaker, who was trained in post-Marshallian ways, to a focus on Marshall’s intellectual history, and notably on his early interest in the human mind, and its implications for his account of how economic systems develop through differentiation and integration—in which time is often crucial, and partial equilibrium normally a condition of progress. Andrew Skinner’s exploration of Adam Smith’s work, which was powerfully influenced by David Hume’s insistence on the necessary limitations of the potential of every human brain, explains both the impossibility of a general equilibrium which is based on proven knowledge and the continuing—and potentially dangerous—appeal of such a conception. Hayek offers a similar warning in The Sensory Order that, since we can never prove the truth of any supposedly universal proposition, our apparent knowledge may be false—as Adam Smith warned us. Therefore, as Nicolas Stern observed, when President of the British Academy, the inability to predict applies to both analysts and economic systems.
Brian J. Loasby

Raffaelli on Historical Progress in Smith and in Marshall

Tiziano Raffaelli’s pathbreaking contributions to our understanding of how Adam Smith and Alfred Marshall viewed historical progress are scattered across a number of his publications. This chapter builds on Raffaelli’s discussion in two ways. First, it provides a discussion and synthesis of his contributions with the goal of enhancing our understanding of the idea of “historical progress”. Second, it delves more deeply into Smith’s and Marshall’s commentaries on historical progress to further probe the degree of similarity between their respective views.
Cosimo Perrotta

Marshall’s External Economies: Economic Evolution and Patterns of Development

George Stigler, like Piero Sraffa before him, characterised Marshall’s doctrine of external economies as playing a major role in permitting an analytical reconciliation of competition and increasing returns, thus repairing a major gap in classical price theory. However, such a characterisation represents a fundamental misunderstanding of the role Marshall intended external economies to play in his analysis. These misinterpretations neglect the essentially evolutionary nature of Marshall’s analysis of the organisation and development of industry. A consideration of some aspects of recent approaches to economic geography, including the formation of industrial districts, helps to emphasise the role Marshall intended to be assigned to external economies in his writings.
Neil Hart

Economic, Ethical and Political Aspects of Wellbeing: Some Marshallian Insights from His Book on Progress

Marshall decided to dedicate his life and career to economic studies because of the increasing urgency of the problem of poverty and of the so-called Residuum. This explains why, for him, the most important goal was to find the ways and the means to economic, social and human progress, which he clearly distinguished from material growth. Accordingly, Marshall developed a compound concept of “wellbeing” in which “wealth” was important and necessary but other aspects played a much more important role for the development of human faculties and (evolutionary) progress. The main aim of this chapter is to inquire into the concept of wellbeing and the complex nature of economic progress as conceived and dealt with by Marshall, particularly in his late notes for his unpublished book on economic progress.
Katia Caldari, Tamotsu Nishizawa

Jevons and Marshall as Humboldtian Scientists

In a famous essay in Science in Culture: The Early Victorian Period (1978), the historian of science Susan Faye Cannon explored the notion of “Humboldtian science” to characterize the way of working of some of the great Victorian scientists, such as John Herschel and Charles Darwin. This essay takes up Cannon’s notion of Humboldtian science to see if anything is gained if we apply it to two Victorian political economists who are central to the change in methods political economy experienced in the final quarter of the nineteenth century. By thinking about Jevons and Marshall as Humboldtians, the attention shifts from their theoretical and philosophical tenets toward their research practices. Cannon invites us to not ask about their theories, but about their ways of working, about how they came to write the way they did. Too often, in my view, historians of economics forget that studying the work of economists is not just studying their ideas. At the end of the day, it is work that finds its way to print, and to understand how this work is done, we not only need to understand the ideas that may have guided them in producing it, but also its actual mode of production.
Harro Maas

Utilitarianism, the Moral Sciences and Political Economy: Mill-Grote-Sidgwick

While it is generally believed that Marshall sought to diminish the economics of Jevons in setting out his own, little attention has been paid to the original, Millian, contexts in which both Jevons and Marshall turned to the study of political economy. Jevons’s first 1862 paper seems to have been prompted by the publication in 1861 of Mill’s account of utilitarianism; at the same time in Cambridge John Grote, Knightbridge Professor of Moral Philosophy, and a young Henry Sidgwick, Knightbridge Professor from 1883, were engaged in lively discussion of Mill’s arguments. Grote died in 1866, but the Grote Club continued to meet and it was in this context that Marshall met Sidgwick. Grote’s Critique of Mill, An Examination of the Utilitarian Philosophy (1870), and Sidgwick’s Methods of Ethics (1874) can be read in the light of these arguments of the 1860s, as can also Sidgwick’s own Principles of Political Economy (1883), which made use of Jevons’s conception of final utility. This Cambridge context sheds a new light on any differences between Jevons and Marshall.
Keith Tribe

Marshall’s Influence Through the 20th Century


Destabilizing Speculation on Organized Markets: Early Perspectives in the Spirit of Marshall

The idea that speculation exacerbates commodity and stock price volatility dates back at least from the second half of the nineteenth century when an extensive literature emerged to which Marshall contributed. The essence of his arguments, originally applied to commodities and subsequently extended to securities, was that speculation is mostly beneficial. Professional speculation improves resource allocation by reducing the size (if not frequency) of price fluctuations, enabling producers, manufacturers and traders to hedge against price risks and increasing the liquidity (and market value) of traded assets. These benefits more than offset the costs associated with occasional market manipulation and the problems raised by the presence of amateur speculators. According to Marshall, amateurs add noise to the market and tempt professionals away from their fundamental (and constructive) duties. As the number of amateurs increases, so does the incentive for professionals to devote their resources to anticipating short-run fluctuations in amateur opinion, which may have little if any connection with fundamentals. Based on these analytical considerations, Marshall endorsed the use of futures and short-selling by professionals while opposing options, which he saw as dangerous instruments in the service of ill-advised speculation.
Paolo Paesani, Annalisa Rosselli

Industrial Leadership, Market Power and Long-Term Performance: Marshall’s and Keynes’s Appreciation of American Trusts

During their lives and careers, both Marshall and Keynes visited the United States and expressed views on American capitalism. Marshall visited the US in 1875, before the advent of the trust question, and then followed the development of the American industrial world, on which he gave his final word in Industry and Trade. Meanwhile, Keynes had begun to develop his own personal relationship with America, which became very close after his visits during the 1930s, when Keynes began to invest in Wall Street on a large scale. In this paper, we argue that there is “a family resemblance” in Marshall’s and Keynes’s views on America, as they shared a common appreciation of American trusts, weighting the advantages of a large industrial organization more than the loss of competitive edge. In 1875, Marshall was struck by the deliberateness and adaptability of the American people, and even though he expressed some scepticism about the future of trusts and big business during the 1890s, his confidence in the leaders of American industry and their dynamism resurfaced in Industry and Trade, where he described the leaders of big business in America as inspired by the same spirit of innovation he had observed in 1875. The ideas that Keynes expressed about Roosevelt and the New Deal, and his choices as an investor in the US market during the 1930s, seem to reflect a similar view. While we see no direct link connecting Keynes’s views on America during the 1930s with his apprenticeship with Marshall in 1905, we see this latter episode as the starting point of a longer process, in which Keynes could observe the evolution of Marshall’s opinions on America, possibly being influenced by it.
Carlo Cristiano, Maria Cristina Marcuzzo

Between LSE and Cambridge: Accounting for Ronald Coase’s Fascination with Alfred Marshall

For most economists at Chicago, Marshall was simply an input, the supplier of an approach to economic analysis. For Ronald Coase, however, Marshall was much more than this—a subject of fascination and, at times, almost a reverence and obsession. Trained in the late 1920s and early 1930s at the London School of Economics, where indifference and even antipathy toward Marshall was widespread, and a member of the LSE faculty from 1935 until his departure for the United States in 1951, Coase would not have ranked high on the list of those expected to become Marshall’s first biographer—a project that Coase finally abandoned only late in life—let alone one who drew on Marshall’s methodological approach to castigate both modern economics generally and certain of his (“Marshallian”) Chicago colleagues in particular. Coase’s affinity for Marshall, whom he considered both a “great economist” and a “flawed human being,” requires some explanation, clues toward which can be found both in his published writings and in the voluminous materials from his researches on Marshall now available in Coase’s archives. This paper examines Coase’s biographical work on Marshall and his discussions of Marshall’s economics for clues as to the sources of Coase’s affinity for Marshall. The evidence suggests explanations that are at once personal and professional.
Steven G. Medema

“A Great Economist” and “A Careful Empiricist”: Paul Samuelson’s Attitude Towards Alfred Marshall

Paul Samuelson is renowned as a debunker of Alfred Marshall. This chapter reviews his assessments of Marshall. It concludes that, although the conventional view is correct, it is important also to recognise that Samuelson considered Marshall to have been a great economist, albeit one who could have been even greater.
Roger E. Backhouse


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