Industry and Trade: Marshall’s magnificent dynamics

The chapter explores Alfred Marshall’s evolutionary thinking by focusing on his widely misunderstood notion of the representative firm and by reconsidering his writings on knowledge and innovation. In Marshall, the idea that a theory of evolution requires variety generation and variety elimination is reflected in his organic account of the process of firm differentiation through division of labour and integration through organisation, and his selectionist account of the competitive struggle for existence. At the heart of this process lies the representative firm, which captures the changing composition of competitors within an industry population, and is itself constantly changing. Capitalism, from Marshall’s perspective, is never at rest because the economically valuable knowledge on which it is based is not, and cannot be, at rest. Economic change rests on epistemic foundations: the modern business world is organised to generate and apply new knowledge.