Conclusion. Correlation of the tendencies to increasing and to diminishing return

Book 4, Chapter 13

§1. A clever entrepreneur can grow a business with good management, talented workers, economies of scale in purchasing materials and using machines, etc. This firm might grow to dominate the industry but its success will be limited by the founder’s capacities and threats from smaller competitors.

§2. Pulling back to look at the entire industry, it’s useful to consider the “representative firm” when thinking of productivity, profits, etc. This firm is average in many senses, but it’s not a random pick. Older and younger firms with developed or under-developed processes, for example, are not “average”.

Good management brings increasing economies of scale (or organization) that can offset decreasing economies from exploiting Nature or other limited resources. These forces might balance out — or not.

§3. A growing population can enjoy growing prosperity for all if raw materials are not constrained and everyone has access to adequate space, clean air and water. Thus, Marshall sees benefits from population growth during the Industrial Revolution while also warning that wealth per capita will not increase forever. These observations sit neatly in the middle of the optimism of Julian Simons and the pessimism of Paul Ehrlich.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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