Management and the representative firm revisited: the modern significance of Marshall's evolutionary economics

In an essay written in honour of Peter Swann, it is second nature to discuss some aspects of the economics of innovation, as that is the very challenging area of economic life where he has added so much to our understanding. I will attempt to do this by posing the problem of how innovation fits into the theory of value. Innovation research continues apace, but its broader systemic implications for how we understand the dynamics of capitalism are in danger of being overlooked. But two important economists, Schumpeter and Marshall, have seen the problem differently and built innovation into their theoretical schemes from the start. Marshall's theory of evolutionary change provides a natural focus for our discussion, and this is reflected in his treatment of management, in his use of the representative firm and in the variation-cum-selection dynamics of his open competitive process. We treat each of these topics and show how his evolutionary dynamics can be expressed in the Fisher/Price dynamics of evolutionary change. More generally, the key to economic development is the uneven nature of innovation and it is the uneven nature that gives economic transformation its evolutionary character. This, I suggest, is the proper legacy of Marshalls economics.