Marshall’s Dilemma: Equilibrium versus Evolution
point of view, that there is a danger in throwing it into definite form at all. (1920b, 461) Marshall then referred his readers to appendix H of Principles for a "short study" of the limitations of the use of statical assumption when increasing returns prevail. It is here that we encounter most directly Marshall's "reconciliation problem." This problem centers on the difficulties associated with representing, within an equilibrium framework, outcomes of "evolutionary" processes identified directly with the increasing returns and thus the long-period industry supply schedule (derived from the Representative Firm). Limitations to the applicability of Marshall's equilibrium framework are made obvious when shifts in the demand curve are being considered. Such shifts imply movements along a long-period supply curve through time. However, as the following passage from Principles concedes, movements along such a curve lack operational meaning: It must however be admitted that this theory is out of touch with real conditions of life, in so far as it assumes that, if the normal production of a commodity increases and afterwards again diminishes to its old amount, the demand price and the supply price will return to their old positions for that amount.... For, when any casual disturbance has caused a great increase in the production of any commodity, and thereby has led to the introduction of extensive economies, these economies are not readily lost. Developments of mechanical appliances, of division of labour and of the means of transport, and improved organisation of all kinds, when they have been once obtained are not readily abandoned. (1920b, 807, 808).6 Importantly, the difficulties referred to in this passage are not dependent on whether returns to scale are internal or external to the firm or industry. Nor do they depend upon the degree of competition in the industry. What is called into question is the ability of static equilibrium analysis to adequately encapsulate the effect of changes that were irreversible in time. Marshall stated that it could only be in the "famous fiction" of a stationary state, in which the general conditions of production, consumption, distribution, and exchange remain motionless, that the element of time would not complicate mechanical notions of equilibrium (1920b, 367).7 However, as Marshall argued, "nothing of this is true in the world in which we live," and he was forced to concede that his long-period analysis, a centerpiece of book 4 of Principles, was in danger of becoming "out of touch with real conditions of life" when increasing returns are admitted. Marshall considered "imperfections" in analytical methods would only be diminished in a later age "by the gradual improvement of our scientific machinery" (1920b, 819). As stated often in his methodological writings and Principles, Marshall envisaged this improvement as resulting from a movement away from analysis founded on mechanical notions of equilibrium. This content downloaded from 157.55.39.249 on Wed, 03 Aug 2016 06:18:43 UTC All use subject to http://about.jstor.org/terms Marshall's Dilemma: Equilibrium versus Evolution 1145 Therefore, G. L. Shackle's judgment that Marshall had successfully achieved a "peculiar triumph in his creation of a unity out of the conceptions of equilibrium and of evolution" (1965, 36) cannot be supported. No such triumph is celebrated in Principles. Instead we are left with an incomplete journey into the realms of "economic biology," obstructed by a desire to develop an "equilibrium" concept in which eventual outcomes could be imposed on continuous processes. The dilemma confronting Marshall arose because, as Thorstein Veblen reasoned (1898), the whole notion of equilibrium abstracts from the agencies or forces causally at work in the economic life process. Marshall's dilemma can in turn be traced back to potentially conflicting endeavors in the purpose of his analysis. As Peter Groenewegen's (1995) penetrating account of Marshall's life and career highlights, Marshall's journey to political economy from mathematics, metaphysics, and ethics was driven by a desire to provide an economic base to make general human improvement possible. The theoretical structure of Marshall's Principles was therefore constructed to provide an "engine of discovery" to investigate the possibilities of economic progress. This required realism of analysis in a world characterized by ever-changing and complex circumstances. "Economic biology" was seen as a vehicle to assist in achieving this end. At the same time Marshall was attempting to establish economics as a distinct "science" and was therefore concerned to present his subject in a way which emphasized the solidarity of its principles (Loasby 1989, 71-2). Here the much simpler mechanical world of equilibrium attracted Marshall's interest, at least until the promised, though not forthcoming, "Second Volume" of Prin-