The General Pattern of Marshallian Evolution1
1. Partial equilibrium analysis as a model for piecemeal evolution
Marshall is usually considered the champion of static equilibrium analysis; so much
so that the point of intersection of the Marshallian cross epitomizes the very notion of
static equilibrium, the final aim of economic analysis. However, as is widely
acknowledged, he was not fully satisfied with static economic analysis per se. In his
eyes, statics was ‘but a branch of dynamics’ (Marshall, 1920, p. 366 n.) and the latter
itself ought to be replaced by economic biology (ibid., p. xiv), the economist’s Mecca,
which required economics to be supplemented with sociological, historical and
institutional research. Notwithstanding these reservations on their role, the tools he
devised helped economics to develop static analysis and, thanks to them, static value
theory became its prominent research field.
This reconstruction relies on the unchallenged and almost obvious static interpretation
of partial equilibrium analysis, the theoretical core of Marshall’s economics. Even
when there is general recognition that he is concerned with time, as when he resorts to
time period analysis, he does not appear to be interested in change itself, but in its
termination, in the way change can be disposed of through the action of equilibrating
forces. The somewhat mechanical operation of the principle of substitution is the
leading force that brings the system into equilibrium. Though the principle does not
always lead to straightforward, unambiguous solutions, especially when the time
horizon widens, its prevailing aim appears to be that of charting the path towards
equilibrium.
It is no surprise that from the point of view of a pioneering evolutionary economist
(Veblen, 1900), or of the more combative members of the historical school
(Cunningham, 1892), Marshall was heavily criticized for failing to realize the intrinsic
limits of marginal analysis and its inability to deal with the truly relevant problems of
social and economic change. More recently, advances in evolutionary economics,
playing havoc with mainstream equilibrium theory, have indirectly shown that the
tools of Marshallian analysis were inappropriate to convey the evolutionary
aspirations he held in reserve.
That the conclusion inexorably points to the inadequacy of Marshall’s analytical
apparatus for ‘economic biology’ is beyond doubt, but in order to gain a more
adequate historical perspective, we need to clear the ground from a whole set of
commonplaces and misunderstandings that have counterfeited Marshall’s research
programme. Let us begin with a history of economics perspective: Marshall is usually
enlisted in the mainstream as a half-baked general equilibrium theorist, one who did
not go all the way through to the natural end-point of the research project he had
undertaken. Scholars deeply acquainted with Marshall’s work (Becattini, 1975; Dardi,
1984; Loasby 1978; 1989), recently supported by information and material previously
unavailable (Groenewegen, 1995; Raffaelli, 1994; Whitaker, 1996), have shown that
this assessment is completely wrong and that his research agenda was incompatible
with that of general equilibrium theory. His partial equilibrium models, which never
pretend to explain more than a circumscribed subset of economic and social
phenomena, cannot be considered as approximations to GET (Dardi, 2006). The
relationship between partial and general equilibrium analysis is not analogous to that
1
The background to the present paper is to be found in Raffaelli (2004), to which
readers are referred.
between a part and the whole to which it belongs; rather, they represent two
irreconcilable research strategies. Unlike general equilibrium economists, Marshall
looks for localized adjustments of the economic system, a process that strictly mimics
the way Darwinian evolution works.
Let us recollect that one of the main objections to the theory that species evolve was
George Cuvier’s ‘principle of the correlation of parts’, which stated that each part of
any organism is always in a necessary relation to all the other parts (like the economic
variables of GET models). According to Cuvier, this interconnection ruled out the
possibility of evolutionary change, since, for any organism to remain viable,
modifying a single part of it would require a corresponding, simultaneous
modification of all the other parts. By contrast, evolutionism rests on the possibility of
localized change. Loosening the grip of Cuvier’s fundamental principle, it makes
room for piecemeal modifications that do not subvert or impair the working of other
parts and the whole organism itself. Evolution can be said to rely on a principle
similar to Marshall’s ceteris paribus clause, opposite to that of the correlation of parts.
Organisms evolve because in the main they continue working as usual while the
modifications they undergo are localized, though in the course of time they become
cumulative and affect other features of the original organism. This corresponds to
Marshall’s conception of social evolution. His principle of continuity itself is firmly
rooted in the idea of piecemeal evolution.
2. Evolution by innovation and standardization and the role of variation by design
So far, we have highlighted the existence of deep, fundamental analogies between the
core of Marshall’s economic analysis and evolutionary theory. But is this connection
supported by historical evidence, or is it a bare coincidence?
To answer this query, it is necessary to go back to Marshall’s philosophical training
and especially to the model of the human mind embodied in his early paper ‘Ye
machine’ (Raffaelli, 1994a; 2006; Loasby, 2006). Stripped of its psychological and
physiological specificity, the model of the mind is exactly the same as that of
biological evolution and partial equilibrium analysis. The machine adapts to
environmental change by readjusting the inner segment(s) that are no longer viable,
while all the remaining parts of its structure are left unchanged and proceed as usual.
Once successful change has taken place, it is preserved by being incorporated into the
system itself (the function performed by genetic reproduction in Darwin’s system):
the dialectics between repetition and innovation, order and freedom, custom and
competition that characterizes Marshall’s main economic work here finds its genesis
and prototype.
Where the (neo-)Darwinian theory is not fully endorsed by Marshall, at least in its
applicability to human and social evolution, is in the idea that variations (changes) are
due to pure chance. This idea was – and still is - rather unbearable and Darwin
himself was loath to bow his head to its inevitability. In a crucial passage of The
Origin of Species, at the beginning of chapter V, he wrote that attributing variations to
chance is a ‘wholly incorrect expression’ and should be simply read as signalling our
‘ignorance of the cause of each particular variation’. Whatever Darwin’s opinion on
the subject, an issue that is beyond the scope of the present paper, no doubt the neoDarwinian revolution2 marked a clear discontinuity with the theories held by Lamarck
2
Triggered at the beginning of the XX century by the rediscovery of Mendel’s
findings, the neo-Darwinian revolution was led by August Weismann. In Cambridge,
and Spencer, who maintained that acquired characters are genetically transmitted and
who conceived of evolution as a process oriented by the needs and requirements of
the organism itself, in response to environmental change. This LamarckianSpencerian conception sharply contrasts with the (neo-)Darwinian theory, based on
the pair chance variation – natural selection. Attributing variation to some sort of
intelligent design, and thereby admitting that selection is already at work in the
generation of change, the former view downplays the role of natural selection, which
comes into effect only ex-post, after change has occurred. Inheritance of acquired
characters is a corollary, required if organisms are to be allowed to mould their own
evolution, without leaving full play to chance genetic variation.
Marshall confessed he was unconvinced by Weismann’s critique of Spencer
(Whitaker, 1996, II, p. 114) and held the opinion that chance variation does not
provide the only - nor even the main - explanation of human and social evolution. The
Darwin-vs.-Spencer opposition helps understand Marshall’s views on social
evolution, though not in the way which is usually assumed. The strong opposition
between the two theories throughout the history of scientific ideas, and the fact that
empirical evidence dismisses the latter, induce even the few scholars who place
Marshall among the pioneers of evolutionary economics to conclude that his
Spencerian leanings prevented him from setting the discipline on the right track.3
Marshall’s resistance to neo-Darwinian genetics is held responsible for his lack of
attention to population dynamics and the role of chance variation as the generating
spring of social evolution. The main agency of evolution, according to Marshall, is
purposeful design rather than the Darwinian interplay between chance variation and
natural selection. Though paying lip service to the view that ‘physical peculiarities
acquired by the parents during their life-time are seldom if ever transmitted to their
offspring’ (Marshall 1920, p. 247),4 he inclined to retain, at least for social evolution,
the Lamarckian–Spencerian theory of the hereditary transmission of acquired
characters. In 1916, in the 7th edition of Principles (Marshall 1920, p. 248 n.), and
later in Industry and Trade (Marshall, 1919, pp. 163-164), he dismissed Mendel’s
findings about peas as a clue to the evolution of society, setting a contrast between
natural and cultural evolution. Ready to concede that the former is completely driven
by chance variation and natural selection (i.e., by trial and error), he stuck to the idea
that the latter avails itself of conscious efforts to foresee the outcome of any variation
and builds on the ability to record any successful result and transmit it to future
generations. Here too, trial and error play their role, but are themselves submitted to
conscious investigation.
Indeed, in his view of historical evolution, human and social progress coincides with
the growth of opportunities for the conscious modification of life conditions.
its main supporter was William Bateson, Professor of Biology and Marshall’s friend
and correspondent on genetics and heredity (Whitaker 1996, vol. III: ). Bateson’s
assistance is acknowledged in 1895 in the preface to the third edition of Principles, in
which Marshall suppressed the unfortunate example of the giraffe’s neck, lengthened
by use and taken as a representative case of how the struggle for survival works
(Guillebaud: 326). Another change concerning evolution was also introduced in the
third edition (see below, note 4).
3
Geoffrey Hodgson is the main supporter of this view. See Hodgson (2006); for a
different and more favourable interpretation, see Metcalfe (2006).
4
The sentence was added to the third edition, almost certainly on William Bateson’s
advice (see above, note 2).
Deliberation, resolve, freedom are distinguishing features of modern as compared to
primitive society (Cook, 2005 and 2006). What they amount to can again be guessed
by turning our attention to ‘Ye machine’, in which two mental circuits are at work,
one driven by trial and error and the other by conscious anticipation of future
outcomes. The latter affords new and better strategies for change when the former
fails.
This hierarchy of the two levels, however, is only part of the whole story. As stated
above, Marshall is mainly interested in the way successful changes can be preserved
and become cumulative. This process requires the accumulation of those very
unconscious elements that the growth of freedom seems to have removed from human
life. Consciousness prevails only thanks to the fact that it is used sparingly. Marshall’s
model of human and social evolution relies heavily on unconscious automatisms, the
role of which he had learnt from neurophysiology. The main idea can be summarized
as follows: successful operations are stored in the mind to be later repeated without
any conscious effort. The physiologist William Carpenter, with whose works Marshall
was familiar, referred to the outcome of this process as ‘secondarily automatic
instincts’ (Carpenter, 1875). The role of such unconscious automatisms is twofold; on
the one hand they provide the register where successful behaviour can be recorded to
be later reproduced without effort, on the other hand their existence is a prerequisite
for change itself. Deprived of all their automatisms, a mind, an organism, a firm or a
society would be unable to go beyond the performance of very limited tasks. It is only
thanks to accumulated automatisms that new, more complex tasks can be performed.
Variation mainly consists in rearranging pre-existing automatisms and thereby
inducing them to perform new tasks. In this evolutionary model we find at work
Marshall’s principles and guidelines for social evolution: a) the advantages associated
with the automatic performance of repeated tasks, b) the dangers stemming from
excessive rigidity of existing automatisms, c) the need to make room for innovation
and creativity and concentrate attention and energies on this task.
a) The advantages of automatisms are ubiquitous; without them, life would be
impossible; every ordinary task would require ages and absorb all the
available energy. It is thanks to acquired automatisms that we can perform
new tasks. When we are learning to ride a bicycle, all our energy is absorbed
by the task; once the learning process is accomplished, we can cycle while
devoting our mental energy to other tasks (see Marshall on skating, 1920, p.
251 n.). What is even more interesting is that acquired automatisms are a
prerequisite for carrying out any novel plan. The ability to type without paying
too much attention to the keyboard is a prerequisite for writing a paper. What
is true of mental individual activities applies to science and industry as well.
Science is of great help because it builds up sets of connections which deal
with aspects of the world that are often repeated; by this means, science saves
time and energy, allowing us to resort to standard causal connections to deal
with various challenging problems (Raffaelli, 1994b). There is no science of
the individual and when it comes to solving individual cases, the work must be
finished up ‘by hand’ (Marshall 1920, p. 779). This statement calls to mind
another powerful source of automatism, the factory machine. Here again, we
have a system in which processes that are repeated are performed
automatically and innovation rests on the existence of previous automatisms,
tending in its turn, when successful, to add to their number.
b) Looked at from the other side of the coin, these accumulated automatisms
generate their own problems. They need updating and much energy is often
consumed in acquiring competencies doomed to soon become obsolete. The
painful experience of discovering that a large investment in learning a
computer programme has lost its value is all too familiar. One of the antidotes
is the fragmentation of automatisms, what we would now call ‘modular
flexibility’. Marshall uses this argument when he discusses gains and losses
from standardization. The benefits are enormous; standardization saves energy
and allows the performance of tasks that would otherwise be impossible (Fuji,
2006). However, when it embraces whole processes of production, no room is
left for evolution by localized change. Overall re-switching is the only
available chance for change and this means that the normal action of
piecemeal evolution is no longer viable, to the disadvantage of the small
producer:
‘The standardization of component parts is at once more productive of
economy and less hostile to progress than that of complex structures. ... [A]nd
this contrast is of special significance in regard to the contest between giant
businesses and those of moderate size’ (Marshall 1919: 227).
One of the main dangers of the excessive size and extension of automatic units
is that they tend to discourage creativity and innovation. This is seen at work,
in a similar way, in both industry and science. The small producer is displaced
by the huge size of elementary automatic processes that require large capital
endowments, the would-be young scientist is discouraged by the huge amount
of preliminary text-book knowledge he has to acquire before being able to
exercise any creative faculties. Let us learn this lesson from Marshall’s own
suggestive words
The fact that Aristotle, Newton and Cuvier would have much to learn, if they
should meet a mediocre student of modern science on his arrival in Hades,
does not tell entirely on the side of the present age. For creative faculties are
developed by exercise; and many who might have been fascinated by
opportunities of relatively easy creation fifty years ago, now find that very
little of the original work, which remains to be done, and yet has the
fascination that belongs to bright new ideas, is within the scope of their limited
power. This depressing influence, which is already felt in some realms of
science, may possibly spread in the realm of business. For the widening range
of standardized methods tends generally to increase the dependence of the
creative mind on large capitalistic aid in obtaining scope for its activities.
(Marshall 1919: 242-3).
c) Combining the considerations under a) and b), Marshall has mixed feelings on
the overall progress of modern society. It is positive in so far as it helps human
creativity and freedom, as it often does. Standardization, for instance, allows
attention to concentrate on well-defined specific tasks and helps innovation
and creativity. Without standardized bolts and nuts, it would be impossible
even to build the simplest mechanical device. And whenever automatisms are
able to solve a problem, they are more reliable and less expensive than
conscious processes. This is exemplified, once again, by ‘Ye machine’, which
resorts to the upper circuit only when the lower is ineffective. But
automatisms can too often be hostile to the exercise of creative thought, as
shown under b). Human reason is asked to assist the growth of automatisms
that give greater scope to creativity without hindering its exercise. Business
policy (the defence of the small producer), education (the promotion of
general education, which does not soon become obsolete) and other remedies
are devised, often in response to the aforementioned concern.
3. Social evolutionary devices
It is important to keep in mind these general remarks when dealing with Marshall’s
views on economic and social evolution and the role of economics and social science.
The evolution of the economy and society follows the above-sketched pattern and
faces the same potentialities and problems. The market is a very powerful device to
promote economic evolution, because it works automatically, solving problems that
would otherwise require enormous conscious energy. By this means, it allows the
State to concentrate on a limited range of tasks and perform them with greater
accuracy. Moreover, the competitive market promotes innovation, since what is
automatic is the direction of the driving force, not the specific way agents react. Prices
signal which way to go, but leave room for personal creativity. Marshall’s
competition is never ‘automatic’, as his young pupil, John Maynard Keynes, learned
when he got a red pencil in one of his 1905 exercise papers for the expression
‘automatic competition’, which, as Marshall remarked, ‘belongs to the mathematical
world on the other side of the looking glass’ (Raffaelli, 2004, p. 113). Marshallian
competition is precisely the opposite, the driving force that leads to innovation.
The evolution of the supply side of the economy is characterized by two
complementary drives. On the one hand there is the growth of automatized,
standardized, mechanized methods of production, whose value shrinks as the process
unfolds. This gives rises to a path of economic growth, exemplified, fundamentally,
by the USA, where the width of the market fosters mechanization: large amounts of
standardized goods are marketed at very low prices. On the other hand, and at the
other end of the spectrum, the benefits of innovation and creativity are illustrated by
France, where fashion and design foster the production of high price, nonstandardized goods. Any real economy is a combination of these two models, which
can never be wholly separated.
Competition brings about change along this bi-dimensional pathway: innovation and
standardization; the former leading to, and depending on, the latter. The model of ‘Ye
machine’ helps us form an idea of their interconnection. Innovation that is never
transformed into a new standard is pure fancy, doomed to disappear without
exercising any impact on the evolution of the system. What really matters is
innovation that can establish a new standard. This is only possible if custom plays its
complementary part. Like mental automatism, if custom were too rigid its effect
would be negative, since it would resist any change whatsoever. On the other hand,
the absence of custom, like the absence of mental automatisms, would both reduce the
breadth of possible innovation and downgrade it to mere fancy, without the possibility
of being recorded. Progress is the continuous sequence of innovations which, once
they are accepted, become a new standard, and custom is the whole set of standards
that we inherit from the past. Again, it is worth reading Marshall’s own reflections on
the subject, in a passage that well recapitulates how his general pattern of evolution
works:
If custom had been absolutely rigid, it would have been an almost unmixed evil. But
the resistance which it offered to the bold reformer resembled that presented by a
glacier to anyone who might try to change its shape: custom and the glacier are plastic,
but both refuse to be hurried in their adjustments. Custom has discouraged any
attempt at improvement which involved a sudden breach with tradition: but, except in
some ceremonial matters, it has been tolerant of modifications in substance, form and
method which did not obtrude themselves. On the one hand, stagnant social
conditions do not crush out of everyone the desire to humour his own fancy, or his
love of novelty, or his inclination to save trouble by a rather better adjustment of
implements to the work done: and, on the other hand, the solidity of custom has
rendered the supreme service of perpetuating any such change as found general
approval. Had each put his individual fancies into practice without restraint, few
would have followed his erratic movements: there would have been no corpus, or
body of general thought, in which they could have been merged; and, in the absence
of written record, they might probably have perished without leaving direct successors.
But custom supplied a permanent body of general design, on which each fresh mind
might try to make some variation for the sake of economy of effort, of increased
utility, or more pleasing effect. (Marshall 1919: 197-8).
4. The limits of economic science
What specific contribution does economics bring to understanding how this
evolutionary pattern unfolds? Partial equilibrium analysis hardly goes very far.
Focusing on a tiny part of the real world, its specific aim is to analyse how the system
reacts to exogenous change, readjusting the segment that is more directly exposed to
the shock. From the wider perspective of social and economic evolution, this bit of
knowledge, when taken in isolation, is almost irrelevant. We have already explained
the connection between evolution and partial equilibrium analysis. However, the
analytical tools at hand resemble those of mechanics and can only point towards a
new equilibrium: a new configuration of the economy emerges from a shift in
production and consumption patterns consequent, for instance, on a cattle plague
(Marshall 1920, p. 369).
If Marshall were moving towards general equilibrium, he should go on to follow the
successive waves of change that reverberate onto the rest of the economy. Being
interested in a different theoretical problem, that of the evolution of the economy and
society, he sets out to consider the more profound modifications that the former is
likely to bring about. In the direction indicated by general equilibrium, change is
slowly brought to rest; in Marshall’s system, by contrast, it is amplified, though along
lines which defy his analytical tools. Here is where other social sciences are called in,
especially the science of character formation. Partial equilibrium analysis captures the
reaction to external change, but this in its turn produces a less visible change in the
way human beings think and act, a change that will greatly influence the future
evolutionary path of the whole system (Raffaelli, 2006b). Economics, at least as
Marshall knew it, was not equipped to deal with these inner changes brought about by
other reactions, the only ones that partial equilibrium analysis could investigate.
What we are left with is an incomplete system of social science, but the missing
elements are not those supplied by GET. This explains why Marshall showed little
interest in Walras’s research programme. The historians concentrated their attention
on Marshall’s disagreement with Walras concerning ‘the right place for mathematics
in a treatise on Economics’, and this led them to conclude that the former represented
the past and the latter the future of the discipline, in which mathematics would play a
key role. But the dissent was much deeper, as aptly summarized in the last words of
Marshall’s letter, which show how distant his own research programme was from
Walras’s: ‘it is most desirable that different seekers after truth should take different
routes’ (Whitaker, 1996, I, pp. 300-301).
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