The Undertaker's Role in Marshall's Approach To Economic Growth PDF

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THE UNDERTAKER'S ROLE IN MARSHALL'S APPROACH TO ECONOMIC GROWTH

Author(s): Enzo Pesciarelli
Source: Quaderni di storia dell'economia politica, Vol. 9, No. 2/3, Vol. I: ALFRED
MARSHALL'S "PRINCIPLES OF ECONOMICS" 1890-1990 (1991), pp. 133-160
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Quaderni di Storia dell'Economia Politica, IX/1 99 1/2-3
THE UNDERTAKER'S ROLE IN MARSHALL'S

APPROACH TO ECONOMIC GROWTH*
Enzo pesciarelli
Università di Ancona
Dipartimento di Economia
This paper is concerned with those ample passages in Marshall's

Principles, where, in Professor Whitaker's expression, a "complex
theory of economic growth which has gone largely unnoticed" lies
buried (Whitaker, 1972, p. 34). More specifically, the paper's main
theme relates to those parts of Marshall's thought, and in particular his
theory of entrepreneurship, where he seeks to identify the forces that
act as the fundamental determinants of economic growth.
As regards the former, more general theme, it is my view that, far
from being based on the presupposition that economic growth is the
result of everything (Youngson, 1982, p. 95), Marshall's approach
rests on a subtle and intriguing analysis, where subjective and objectfve
factors, together with natural and institutional aspects, are historically
and dialectically related in a dynamic context
As far as the more specific theme is concerned, I share the view, that
this process leads to the "production of the English business man and
artisan of the latter part of the [nineteenth] century" (Parsons, 1982, p.
220). In this sense, Marshall looked in particular at the emergence of
the figure of the undertaker as a phenomenon specific and characteristic
to the development of economic activities or as an aspect of the
increasing supremacy of the economic factor.
1. In the opening paragraphs of the Principles, Marshall gives a

broad outline of his personal vision of man based on the assumption
that man is not simply a selfish creature and that, consequently,
selfishness cannot be interpreted as the one driving motive of human
nature:
* I wish to express my thanks, without implicating, to P.D. Groenewegen, T.

Raffaelli, J.K. Whitaker.
134
"[i]t is deliberateness, and not selfishness, that is the characteristic

of the modern age" (Marshall, 1964, p. 5)1, and Marshall adds that the
motive to action "will not necessarily be a selfish gain, nor any material
gain" (ibid., p. 17).
On the same page he explains what he means by 'deliberateness',
observing that "careful deliberation seems to [the agent] the best suited
for attaining his ends, whether they are selfish or unselfish"2.
Likewise, in Industry and Trade Marshall writes that "an individual,
devoted merely to material ends, is but a poor creature" (Marshall,
1927, p.3; see also 1964, pp. 189-91); and in another part of the book
he emphasizes the "intense desire for success in great strategical
enterprises" (Marshall, 1927, p. 332) as an outstanding motive to
action. As we shall see, these are fundamental premises, given the
consequences that they entail, ones which at the same time also identify
the scope and the limits of economics:
[...] the side of life with which economics is specially concerned is

that in which man's conduct is most deliberate, and in which he most
often reckons up the advantages and disadvantages of any particular
action before he enters on it. And further it is that side of his life in
which, when he does follow habit and custom, and proceeds for the
moment without calculation, the habits and customs themselves are
most nearly sure to have arisen from a close and careful watching the
advantages and disadvantages of different courses of conduct
(Marshall, 1964, p. 17)3.
1 On the rejection of the "economic man", see Whitaker, 1982, pp. 455-64.
Marshall, moreover, points out the importance of neighbours' approval in a passage
which bears a distinctively smithian 'air': "the desire to earn the approval, to avoid
the contempt of those around one is a stimulus to action which often works with
some sort of uniformity in any class of persons" (Marshall, 1964, p. 19).
2 Careful deliberation, in turn, entails the prerequisite of "free choice" by each
individual. This approach is quite close to Adam Smith's concept of prudence and his
critique of "carelessness": "The methods of improving our fortune, which [prudence]
principally recommends to us, are those which exposes to no loss or hazard; real
knowledge and skill in our trade or profession [...] (Smith, 1976, pp. 213, 304).
3 Here, again, we find close links with Smith's treatment of the role and qualities
of prudent men: "If he enters into any new projects or enterprises, they are likely to
be well concerted and well prepared. He can never be hurried or drove into them by
any necessity, but has always time and leisure to deliberate soberly and coolly
concerning what are lihely to be their consequences" (Smith, 1976, p. 215).
135
Marshall is evidently arguing here that habit and custom do not only
spread by imitation; they also derive from a kind of an inno- rationality
of agents which he defines in terms of an inconscious deliberateness.
However, although habit and custom do not seem to bear any
'negative' consequences in a static society, in a dynamic context,
"when a habit or a custom which has grown up under one set of
conditions, influences action under other conditions, there is so far no
exact relation between the effort and the end which is attained by it"
(Marshall, 1964, p. 18). In this case, therefore, no reference to an inner
rationality of customary agents seems to be made.
The other element apparent in Marshall's approach is his dualistic
conception of human nature. On the one hand, he supports the idea that
men rapidly degenerate unless they have some hard work to do or
difficulties to overcome. Hence he asserts that "[t]he fulness of life lies
in the development and activity of as many and as high faculties as
possible. There is intense pleasure in the ardent pursuit of any aim,
whether it be success in business, the advancement of art and science,
or the improvement of the condition of one's fellow-beings" (ibid., p.
112). In a lecture given at Bristol on October 7 1878, Marshall, albeit
partially influenced by the audience (as Professor Becattini has
maintained) had already made this point and in an even more radical
form. In this lecture, in fact, which is markedly 'Schumpeterian' in its
approach, he describes the features which characterize the able business
man, as follows:
... if there is room in his business for vigorous and creative intellect,
adapting means to ends, devising new means and new ends, and you
can convince him of this, you will do him a great service. All his force
and the energy that is within him will be drawn out towards his work,
and he will become strong by doing hard things.... If he is the right man
for the work all that is best within him will go forth towards that which
is best in his trade. He will aim at excellence for the sake of excellence;
he will take an artistic pride in the things that he makes and sells
(Whitaker, 1972, p. 58).
It is through the working of these faculties that some agents become

"leaders of men": because they are able, according to Marshall, "to go
straight to the kernel of the practical problems with which [they have] to
deal, to see almost instinctively the relative proportions of things, to
136
conceive wise and far-reaching policies, and to carry them out calmly
and resolutely" (Marshall, 1964, p. 504). This, therefore, is a set of
faculties - as rare natural gifts - which can be only partially learnt and
which cannot be reconciled with a hedonistic approach to man's
motivations and activities.
On the other hand, in the following passage which seems to come
directly from those pages of the Wealth of Nations devoted to the
qualities of the 'prudent man', Marshall points out that "for ordinary
people, for those who have no strong ambitions, whether of a lower or
a higher kind, a moderate income earned by moderate and fairly steady
work offers the best opportunity for the growth of those habits of
body, mind, and spirit in which alone there is true happiness" (ibid., p.
113).
In this context, moreover, one of the more important reinforcers of
habit and custom, is the resistance to innovations, which sets the
majority of people against the innovative minority4; an attitude which is
further buttressed by the religious and institutional structures of
primitive societies, where "the smallest divergence from ancestral
routine met with the opposition of people who had a right to be
consulted on every detail" (ibid., p. 604). Marshall lays an enormous
stress on the working of this conflict and emphatically asserts: "It is
probable that this has been the most important of all the causes which
have delayed the growth of the spirit of free enterprise among mankind"
(ibid., p. 605). He argues, in fact, that the influence of custom on the
forms of production is cumulative, because "when the effects of a
cause, though small at any one time, are constantly working in the same
direction, their influence is much greater than at first sight appears
possible" (ibidem). This also explains the interval of time that elapses
between the emergence of new ideas and their application: "[I]t is worth
while to notice that the full importance of an epoch-making ideas is
often not perceived in the generation in which it is made [...]. In the
same way the mechanical inventions of every age are apt to be
underrated relatively to those of earlier times" (ibid., p. 170, n. 1).
Last but not least, in relation to the characteristics of men's
production, the same dualistic approach can be extended to the
4 "[T]o face the anger with which their neighbours would regard any innovation,
and the ridicule which would be poured on any one who should set himself up to be
wiser than his ancestors" (ibid., p. 604).
137
behaviour of the individual agent, either in business or in the

advancement of art, science or social activities5.
These are the basic elements which form the subjective determinants
on which Marshall builds his theory of the alternation of "great times"
and "small times" both in the history of mankind and of individual
nations:
...history tells us that all great times had something in common, and
that all small times had something in common. It shows us that all great
times were times of action, times of change and excitement, times when
men were doing new deeds, and thinking out new thoughts, and feeling
out the emotions that were raised by the freshness of the times... Still, it
is in the main true that great times have been those in which men have
worked out new things. In the small times men have preferred to react
the old; therefore they have learnt nothing, and they have taught nothing
to future generations. They have not revelled in the energy of living, and
therefore they have not truly lived; they have scarce had any share in the
grand life of this old world of ours (Whitaker, 1972, p. 54)6.
Conversely, "small times" are characterized by strong ruling castes

and by mainly stationary economic conditions: "in such a civilization
the ablest men look down on work7; there are no bold free enterprising,
and no adventurous capitalists; despised industry is regulated by
custom, and even looks to custom as its sole protector from arbitrary
tyranny" (Marshall, 1964, pp. 603-4).
Thus we are reminded, on a more general level, that: 1) the absence
of subjective determinants of economic growth is strictly depending
upon the role that economic activities play in the social structure; and 2)
at their different stages of development, human societies have not
5 "There is intense pleasure in the ardent pursuit of any aim, whether it be

success in business, the advancement of art and science, or the improvement of the
condition of one's fellow being. The highest constructive work of all kinds must
often alternate between periods of over-strain and periods of lassitude and stagnation"
(ibid., pp. 112-13).
6 The last sentence shows an impressive similarity to the following passage
drawn from Schumpeter's first book: "upon reflection, it becomes clear ... that we
are really living only at relatively real moments; for the rest of the time we grope
our way 'mechanically' through our daily labors" (Schumpeter, 1908, p. 568).
7 "Ruling castes have given their energies to war and politics not to industry"
(Marshall, 1964, p. 603).
138
always suffered from the rule of habit and custom8. This latter point
provides the basis for Marshall's analysis of its positive role, where he
literally reproduces J.S. Mill's approach to the theme9. It is in particular
the "plastic" character of custom which, according to Marshall,
determines the positiveness of its role. In fact, by discouraging "any
attempt at improvement which involved a sudden breach with tradition
... [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, 1927, pp. 197-8).
Habit and custom are thus seen not simply as setting obstacles
against innovations but, more properly, as acting as a brake on the
innovative process so it can be adapted to the existing social and
institutional order and the graduality of progress be ensured. It is
specifically to this difficulty of the human nature to adapt itself to
sudden changes that the famous motto Natura non facti saltům refers.
2. The objective determinants of economic growth must be looked

for in those parts of Marshall's work where he discusses their historical
and temporal supremacy over subjective determinants. This analysis,
which is very remeniscent of Hegel, whose Philosophy of History
Marshall cites quite frequently (Groenewegen, 1990, pp. 70-1) and
which in the previous editions was included in the main sections of the
Principles, is sketched out in Appendix A of the book under the title
"The Growth of Free Industry and Enterprise"10. In this Appendix
Marshall makes the following points, concerning the operation of
objective determinants as opposed to subjective ones.
First, Marshall argues that, apart from the inner characteristics of a
race, none of the subjective determinants "are of any permanent avail if
the climate is unfavourable to vigour: the gifts of nature [...] determine
the character of the race's work, and thus give a tone to social and
political institutions" (Marshall, 1964, p. 602); This is the reason why
® For the opposite position, see Youngson, 1982, p. 96.

" "Custom is nevar altogether on the side of the strong and is indeed a necessary
protection when the means of communication are small" (Marshall, 1964, p. 604).
*0 The relation between these parts and the Appendix is inequivocally stated by
Marshall himself where he says that "[t]he last section of the first chapter of Book I
describes the purpose of Appendices A and B; and may be taken as an introduction to
them" (Marshall, 1964, p. 602).
139
all early civilizations have been developed in warm climates (ibid, p.

603).
Secondly, this rule, however, cannot be used to explain the
emergence of those energetic men who are going to conquer and to rule
such societies. According to Marshall, in fact, rulers "have generally
belonged to a race that has recently come from a cooler climate in a
distant country or in neighbouring mountain lands", and this is because
a warm climate "is destructive of energy" (ibidem).
Thirdly, Marshall now introduces a dialectical element into his
analysis. In fact, although climate made early civilization possible - and
he approvingly refers here also to Montesquieu's authority - it "has also
doomed it to weakness" (ibidem). Consequently, "[uļnder the
combined influence of climate and luxury the ruling classes gradually
lose their strength; fewer and fewer of them are capable of great things:
and at last they are overthrown by a stronger race which has come most
probably from a cooler climate" (ibidem).
In Marshall's broader vision, this dialectical relation between
scarcity and plenty - in terms of either subjective and objective
determinants - is responsible for the movement of progress and
civilization from one country to another, although it always follows a
clear and definite geographical direction. He uses this basis combined
with the principle of the survival of the fittest to build his own theory of
the race competition among the fittest to gain control over human
activities.
The civilization of the Ancient Greeks, full of "energy and
enterprise" and of "new ideas", was an object lesson because "[a]
genial climate slowly relaxed their physical energies; they were without
that safeguard to strength of character which comes from resolute and
steadfast persistence in hard work; and at last they sank into frivolity"
(ibid., p. 606). After the Greeks, the Romans showed "the firm will,
the iron resolution, the absorption in definite serious aims of the mature
man" (ibid., p. 607) and, after the Romans, the Teutons, and so forth
until it was England's turn to emerge:
England's geographical position caused her to be peopled by the

strongest members of the strongest races of northern Europe; a process
of natural selection brought to her shores those members of each
successive migratory wave who were most daring and self-reliant
(ibid., pp. 613-4).
140
A similar thesis is set out in those pages of Industry and Trade

where he describes England as "peopled by successive hordes of
immigrant warriors; and, whatever may be the rule in the modern age of
machine guns, the bravest were the most likely to survive in the days of
hand to hand conflict. Her people therefore had an exceptional large
share of the solid qualities by which men have won their chief victories
in difficult industries" (Marshall, 1927, p. 700).
At the same time, and this is why I spoke in terms of the
'temporary' supremacy of objective factors, Marshall observes that
subjective determinants are weaker at an early stage of civilization and,
conversely, that physical causes act most powerfully, "because in this
stage of his progress man's power of contending with nature is small,
and he can do nothing without her generous help" (Marshall, 1964, p.
602).
This introduces a gradual but progressive double shift of emphasis
in Marshall's argument from objective to subjective determinants, and
from natural factors to institutional ones11. A fundamental role in this
latter process is played by political and legal institutions, as is apparent
from those passages where he describes, in a smithian vein, the factors
responsible for the emergence of undertakers in English society: like the
"custom of primogeniture" and the consequent relaxing of "caste
privileges", for example, which "tended to make politics business-like;
while it warmed the veins of business adventure with the generous
daring and romantic aspirations of noble blood" (Marshall, 1964, p.
614)12.
1 1 In general Marshall considers the existence of a favourable institutional

environment as a necessary (objective) condition for the emergence of entrepreneurial
energies. He clearly declares, for example, that England enjoyed a clear differential
advantage when compared to the "restrictive regulations" that existed in France
before the Revolution" (Marshall, 1927, p. 1 14).
*2 Marshall draws on Smith to show that this process began in the agricultural
sector where the establishment of the landlord/tenant relation led to "a great increase
in the number of farmers who undertook the management and the risks of
agriculture, supplying some capital of their own, but borrowing the land for a
definite yearly payment, and hiring labour for wages: in like manner as, later on, the
new order of English business men undertook the management and the risks of
manufacture, supplying some capital of their own, but borrowing the rest on
interest, and hiring labour for wages" (ibid., p. 615).
141
3. The progress of civilization is thus described as being normally

attended by a progressive reduction in the role of custom. In modern
developed societies the forces of change progressively gain the upper
hand and reverse what for centuries has been the 'natural course of
things1. We may, at this point, compare the following passages, taken
respectively from Industry and Trade and from the Principles where the
impact of this transition is graphically described:
During the greater part of the life of the world most of the people
have spent nearly the whole of their time in the fields: compact centres
of life and thought were rare: and, before the days of printing, a
scattered population had little opportunity for the stimulus and
suggestion, which one man can derive from the thoughts and
experiences of another. Tradition ruled; and particular experiences
seldom developed into successive steps of cumulative progress
(Marshall, 1927, p. 199).
[T]owards the end of the eighteenth century, the change, which had
so far been slow and gradual, suddenly became rapid and violent.
Mechanical inventions, the concentration of industries, and a system of
manufacturing on a large scale for distant markets broke up the old
traditions of industry, and left every one to bargain for himself as best
he might [...]. Thus free competition, or rather, freedom of industry and
enterprise, was set to loose to run, like a huge untrained monster, its
wayward course. The abuse of their new power by able but uncultured
business men led to evils on every side; it unfitted mothers for their
duties, it weighed down children with overwork and disease; and in
many places it degraded the race. Meanwhile the kindly meant
recklessness of the poor law did even more to lower the moral and
physical energy of Englishmen than the hard-hearted recklessness of the
manufacturing discipline: for by depriving the people of those qualities
which would fit them for the new order of things, it increased the evil
and diminished the good caused by the advent of free enterprise
(Marshall, 1964, p. 9).
Thus, in Marshall's view, the 'dramatic' impact of the Industrial

Revolution had a crucial role to play in shifting society out of the path
of gradual development, so that a new relation between custom and
competition, to use J.S. Mill's words, arises.
142
At the same time Marshall was convinced that the upheaval of the
Industrial Revolution had altered not only the path but also the rhythm
of change, which seemed to be in costant crescendo :
As civilization has progressed, man has always been developing

new wants, and new and more expensive ways of gratifying them. The
rate of progress has sometimes been slow, and occasionally there has
even been a great retrograde movement; but now we are moving on at a
rapid pace that grows quicker every year, and we cannot guess where it
will stop (ibid., p. 185).
Marshall's belief is even more apparent in Industry and Trade ,

where he points out the rapidity of the economic applications of new
inventions and observes that in past times some of them - like the
printing press - took more than two centuries to realize their full
potential, while "the present generation is the first that has seen the
whole rise of several great inventions from nothing to dominating
positions" (Marshall, 1927, p 6).
Hence, and for the very first time, mankind is faced by profound
and sudden economic change - a change which, as Marshall puts it, has
a 'new race of undertakers'13 as its main cause:
[t]he most vital changes hitherto introduced into industrial life centre
around this growth of business Undertakers . We have already seen how
the undertaker made his appearance at an early stage in England's
agriculture. The farmer borrowed land from his landlord, and hired the
necessary labour, being himself responsible for the management and
13 "Each man had to do what was right in his own eyes, with but little guidance
from the experience of past times: those who endeavoured to cling to old traditions
were quickly supplanted. The new race of undertakers consisted chiefly of those who
had made their own fortunes, strong, ready, enterprising men: who looking at the
success obtained by their own energies, were apt to assume that the poor and the
weak were to be blamed rather to be pitied for their misfortunes. Impressed with the
folly of those who tried to bolster up economic arrangements which the stream of
progress had undermined, they were apt to think that nothing more was wanted than
to make competition perfectly free and to let the strongest to have their way"
(Marshall, 1964, p. 620). Marshall's criticism of the social impact of the Industrial
Revolution is even harsher in the following page when he writes: "[i]t has been left
for our own generation to perceive all the evils which arose from the suddenness of
this increase of economic freedom" (ibid., p. 621).
143
risks of the business [...]. But the natural selection of the Attest to
undertake, to organize, and to manage has much greater scope in
manufacture (Marshall, 1964, pp. 617-8).
4. The role of the undertaker in all this is clearly central (see

O'Brien, 1990, p. 72), although J.S. Mill's wrote that " [i]t is regretted
that th[e] word [undertaker], in this sense, is not familiar to an English
ear" (Mill, 1961, p. 406n). It was probably this question that Marshall
was addressing in those pages of the Principles where he makes direct
reference to the British tradition, and remarks that the term, "which has
the authority of Adam Smith and is habitually used on the Continent,
seems to be the best to indicate those who take the risks and the
management of business as their share in the work of organized
industry" (Marshall, 1964, p. 617, n. 1).
As we have already seen, in Industry and Trade the emergence of
the figure of the undertaker or "new energetic man", who is in constant
conflict with those who "tread in ancient paths" (see Marshall, 1927,
pp. 48-50), is explained as a phenomenon of English history and, in
particular, of its institutional and political structures. He represents the
true actor of progress and, accordingly, Marshall emphatically writes of
the strong individualities "which created Britain's industrial leadership"
(ibid., p. 580). In my view, this represents the final step in Marshall's
shift of emphasis from the objective to the subjective determinants of
economic growth, and his convinction that the undertaker's functions
can no longer be treated in terms of property relations14.
Marshall's analysis of the undertaker's role and characteristics is
conducted chiefly in Book IV (Chapters XI and XII) and Book VI
(Chapter VII and VIII) of the Principles. Chapter XI addresses the
features of industrial organization with special reference to the
advantages of large scale production. Here, assuming the vision of the
life cycle of the firm as an effect of the life cycle of the undertaker's
activities, Marshall takes as his example the birth of a new enterprise,
where "[a] new man, working his way up in such a trade, has to set his
energy and flexibility [...] against the broader economies of his rivals
Marshall approvingly resorts to Francis Walker's assertion according to which

"[i]t is no longer true that a man becomes an employer because he is a capitalist.
Men command capital because they have the qualification to profitably employ
labour" (ibid., p. 169).
144
with their larger capital, their higher specialization of machinery and

labour, and their larger trade connection" (Marshall, 1964, p. 238)15.
This process, which he describes as a potentially unconstrained
progress towards the establishment of "something like a limited
monopoly", is not, however, limitless. First, because it is closely
associated with the subjective 'energetic' attitudes of the undertaker;
attitudes which are seldom found among ordinary men and whose
existence, as we have already noted, is far from being a constant in the
life-span of an undertaker16. Second, because increasing internal
economies are often associated with increasing difficulties in finding a
market for increasing output.
Having established in Chapter XI the relative scarcity of 'energetic'
attitudes and theirs discontinuous appearance during a man's life-span,
in Chapter XII Marshall expressly examines business management as a
part of the industrial organization. However, the true meaning of the
chapter goes far beyond this consideration: its main purpose is to
describe the constituents of the undertaker's functions and features by
listing the following elements :
- "knowledge of things in his own trade";

- "power of forecasting the broad movements of production and
consumption", especially by "seeing where there is an opportunity for
supplying a new commodity that will meet a real want or improving the
plan of producing an old commodity";
- ability "to judge cautiously and undertake boldly";
- last but not least, the undertaker must "be a natural leader of men"
(ibid. p. 248).
^ "[T]he very conditions of an industry which enable a new firm to attain

quickly command over new economies of production, render that firm liable to be
supplanted quickly by still younger firms with yet newer methods. Especially where
the powerful economies of production on a large scale are associated with the use of
new appliances and new methods, a firm which has lost the exceptional energy
which enabled it to rise, is likely ere long quickly to decay; and the full life of a
large firm seldom lasts very long" (Marshall, 1964, p. 239).
16 "But long before this end is reached, his progress is likely to be arrested by
the decay, if not of his faculties, yet of his liking for energetic work. The rise of his
firm may be prolonged if he can hand down his business to a successor almost as
energetic as himself' (ibidem).
145
In the final section of the chapter, Marshall summarizes these points

by referring to the "broad faculties of judgement, promptness,
resource, carefulness and steadfastness of purpose", and he adds that
these faculties are not of a specialized kind (ibid., p. 261). What
emerges here is a combination of different qualities, of which "very few
persons can exhibit them all in a very high degree" (ibid., p. 248); a
combination which Marshall condenses into his oft-recurring concepts
of 'ability' and 'energy'.
According to Marshall, ability and energy belong to different classes
of undertaker qualities. He uses the term 'ability' as a synonimous with
knowledge, since it is, in his opinion, a quality which can be learnt and
improved. Energy, on the other hand, he treats as a synonimous with
creativity (see Marshall, 1927, pp. 242ff, 356ff). Because of its
relation to man's temperamental sphere, energy appears to be the critical
and crucial factor in Marshall's analysis, being a quality which can be
neither learnt nor improved. Moreover, the inner characteristics of this
peculiar quality generate significant by-products. Since energy cannot
be inherited, business men are in fact prevented from becoming a caste,
and this ensures social mobility ( see Marshall, 1964, pp. 250ff).
Marshall buttresses his argument by resorting to the long parable of
the "son of a man already established in business" (ibid., p. 249) who
enjoys basic advantages over other competitors in terms of information,
direct command over capital, established connections, appropriate staff,
etc. (in short, knowledge and power, if not ability). However, despite
the vigorous potential of the business, because of the son's lack of
energy, it "almost invariably falls to pieces unless it is practically
handed over to the management of new men who have meanwhile risen
to partnership in the firm" (ibid., p. 250)17.
Marshall's explanation of the life cycle of the firm shows, in
particular, that the main reason for firm decay is the undertaker's
incapacity to pursue innovating schemes, and his reliance instead, on
"old traditions [which] are no longer a safe guide" (ibidem). In Chapter
VII of Book VI "Profits of Capital and Business Power", Marshall
makes the point again when he declares that, "[...] we may divide
employers and other undertakers into two classes, those who open out
Marshall, as a matter of fact, lists also other scenarios, ranging from people
who prefer to live on rent to people who decide to become sleeping partners in a
joint-stock company.
146
new and improved methods of business, and those who follow beaten
tracks" (ibid., p. 496)18.
In this way, the growing command over capital or, if preferred, the
rate of this growth, is almost exclusively to be ascribed to the subjective
gap which sets "able and energetic men" against "weaker" ones. It is in
fact on this differential in either ability and energy that the net earnings
of management - which he defines as "the supply price of business
ability and energy" - depend (ibid., p. 260)19. Thus Marshall shows
himself fully aware of the increasing role of inventions and new
methods of production in economic life, and of the relatively increasing
share of net earnings when compared with the broader category of
gross earnings of management. This point is clearly stated on those
pages of the Principles where Marshall describes the impact of the life
cycle of innovations on different categories of economic agents.
As his point of departure he takes the case of "[a] manufacturer of
exceptional ability and energy" who may introduce a range of possible
innovations, such as methods of production and machinery better than
those of his competitors, or more efficient organization in either
manufacturing or marketing, etc. (ibid., p. 510). The impact of these
innovations on the economic system sets off a cyclical movement
characterized by a momentary advantage for the innovator - which is
partly shared by other undertakers who "will copy his plan" - followed
by a fall in profits "to about their old level" because of competition.
This, by increasing supply, tends to "lower the price of wares" (ibid.,
pp. 496, 510-1), leaving the consumer as the ultimate winner in the
entire process. In this context, it must be added that the recurrent
Marshallian theme of the role of competition in the equalization of
'These two sets of forces, the one increasing the capital at the command of
able men, and the other destroying the capital that is in the hands of weaker men,
bring about the result that there is a far more close correspondence between the
ability of business men and the size of business which they own than at first sight
would appear probable" (ibid., pp. 260-61).
*9 According to Marshall, however, the gap existing between able and energetic
men and weaker men cannot be stated in absolute terms, because its width depends
both on the subjective characteristics of agents and on the inner characteristics of
firms. It ranges from the case of the "village trader" who, in spite of the competition
of "abler rivals" is "able to held his head above water", to the opposite example of
"those large businesses which are difficult and do not rely on routine and [...where]
there are no profits at all to be got by any one who attempts the task with only
ordinary ability" (ibidem).
147
returns should not be necessarily interpreted as an argument against the

role of innovations. In fact, the competitive process ensures "that the
entrepreneur ha[s] a continual incentive to search for new methods and
new products which would yield profits of innovation in the short
term" (O'Brien, 1990, p. 73). A process which is consistent with
Marshall's already mentioned vision of the incessantly increasing
rhythm of economic change in the progress of time.
In Industry and Trade, Marshall treats this process as also
responsible for the cyclical movement that characterizes the economy of
nations and which he explains in terms of their search for leadership.
"The test of leadership" is, as he observes, "the doing things which
other countries with similar economic problems will be doing a little
later, but are not ready and able to do yet" (Marshall, 1927, p. 3).
Marshall thus clearly associates the concept of leadership with the
introduction of innovations, and he cites Britain as an example of a
country which in some respects is losing its industrial leadership
because of competition by other countries, either as mere followers or
as innovators20.
Moreover, in those sections of Industry and Trade where social and
economic tendencies are examined, Marshall points out the progressive
emergence, together with the rise of large enterprises, of a new class of
undertakers who must "imite the command of a great business concern,
with the possession of high faculty for appreciating new inventions, if
not for creating them" (ibid., p. 173). At the same time the growth of
large industrial capitals promotes technical progress and this, in turn
"tend[s] almost without exception to increase the size of the business
unit" (ibid., p. 221). As an intermediate stage in this process, the
"administrative head of a giant business [...] must have some of the
chief qualities that are required of the commander of an army. He is not
a 'captain' of industry; he is a 'general' in control of several regiments"
(ibid., p. 173)21.
20 "[Britain] best methods are now common property of the western world; and
recent advances in them have been very largely due to the enterprise and inventive
faculties of other countries" (Marshall, 1927, p. 3).
2' Marshall's dualistic approach to the analysis of economic motivations and
actions also has interesting effects on his treatment of the role of credit and bankers.
He identifies two sets of risks: trade risks, which are common to both lenders and
borrowers and depend on changes and fluctuations in the particular business in which
they are engaged; and personal risks, which must be borne by the borrower and
148
With the appearance of large joint-stock companies, however, this

scenario tends to change radically22. In this new situation, it is personal
motives and gratifications that change first: "the moral coherence and
strength of the business depend largely on the growth of an esprit de
corps, of a spirit of loyalty to the business itself. As time goes on, and
the name of the business becomes hallowed by traditions of good
achievements in the past, the best of its employees find a pleasure and a
pride in its success and glory, as they do in that of their country" (ibid.,
p. 326). From this point of view, Marshall adds, "the great long-lived
company may stand at no disadvantage relatively to a new company,
which has more of the vigour of young blood, but is held together by
little beyond a mere cash nexus" (ibid., p. 327).
However, these companies show, like public enterprises, a
diminishing tendency towards "creative ideas and experiments in
business technique, and in business organization" matched by a
corresponding drift towards bureaucratic methods (Marshall, 1964, p.
254). This acts as the prelude to the beginning of a new cycle, as the
well-known parable of the trees in the forest implies. Nevertheless, and
this is another by-product that depends on the presence of large joint-
stock companies "which often stagnate, but do not really die", this rule
"is far from universal", although "it still holds in many industries and
trade" (ibid., p. 263. See also Marshall, 1927, p. 316). One notes,
however, that it is the progressive decay of the energetic function of the
undertakers that represents the crucial factor in this process:
depend oil his personal character and ability . At the same time, and again because of
his dualistic approach, Marshall tends not to consider credit and bankers as passive
and neutral factors as J.S. Mill did, despite his acknowledgement of personal
differences among capitalists in tarns of "knowledge, talents, economy, and energy"
(Mill, 1961, p. 411) . In Marshall's opinion, in fact, there is a partial shift of the
burden of personal risks from the borrower to the lender in those cases - increasingly
numerous - in which the latta is unable to judge the subjective characteristics of the
former, who "may be less able than he appears, less energetic, or less honest",
(Marshall, 1964, p. 490).
22 The shift in risk-bearing becomes even more evident with the emergence of
joint-stock companies. This is, in particular, the case of company managers who,
"[e]xcept in so far as they are themselves shareholders, they run no risks from its
failure, beyond some loss of prestige" (Marshall, 1927, p. 311). Interestingly, in
the same page Marshall draws a contrast between the personal risks which are faced
by the manager and the pecuniary risks accruing to the shareholders.
149
[a]s a separate business man he would make the venture; and, if he

were a member of a private firm, he might probably succeed in carrying
his partners with him. But the vis inertiae of a great company is against
him: he can seldom argue the case effectively with numerous scattered
shareholders, who do not understand the business. He is therefore
inclined to acquiesce, however unwillingly, in the general opinion, that
a company, the ownership of whose capital is almost wholly in the
hands of the public, must for the greater part adhere rather closely to
routine (ibid., p. 318)23.
Thus, all things considered, Marshall's analysis appears to be

conducive to a theory of the progressive bureaucratization of economic
life, where space cannot easily be created for 'energetic' actions24.
This tendency, however, is not limitless: firstly because "there is
likely to be a point, beyond which any further increase in size gives
little further increase in economy and efficiency"; and secondly
because, although it is true that "the forces that are working against the
small producer are growing cumulatively", neverthless, "the number of
small businesses is constantly growing, with the exception of their
'marketing' side" (ibid., pp. 248-9).
Last, but not least, the emergence of joint-stock companies gives
rise in turn to the appearance of a new figure, who either stands
alongside or substitutes for the undertaker. I refer to the promoter,
whose main features Marshall introduces in Chapter IX of Industry and
Trade. For Marshall the promoter performs a range of different
functions. He organizes "industrial cooperation on purely business
lines"; he may perceive that some businesses have a better future before
them than is generally known, "procure the capital they need, bring
23 Marshall pessimistically concludes: "We may conclude provisionally that

recent developments call only for some mitigation, not for a reversal, of the
judgement of English business men that the conversion of a private business into a
joint stock company, though occasionally inevitable and very frequently convenient
to those immediately concerned, sometimes acts adversely to national prosperity and
industrial leadership" (ibid., pp. 327-8).
24 According to Marshall, the rule also applies to a socialist economy, where the
whole state is transformed into one large joint-stock company. In this case, "no one
would have much scope for independent initiative, and a glib tongue would be likely
to give a man more prominence and influence than could often be attained by
originality and energy: while those, who just escaped discipline as sluggards, might
often have an unduly easy existence" (ibid., p. 177).
150
them into unison, and push them on their way to success farther than
they could otherwise have gone"; he studies "ways in which new
inventions, new methods of production, new developments of demand,
or new facilities for transport, offer opportunities for profitable
alliances between industries that have had little in common as yet"; he
"watches the wastes of competition between rivals: and, being detached
from the details, he is generally able to take a broader view of
fundamentals, and to discover their true relations and proportions
better, than those whose energies are chiefly occupied with practical
work in their several lines" (ibid., pp. 329-30). In short, he is the able
and energetic man (or his re-adaptation) transferred to an economic
environment dominated by joint-stock companies and where the only
options open to potential undertakers are either to become promoters or
to engage in small-scale undertakings.
5. Some Concluding Remarks
It is often maintained that Marshall's 'vision' has been chiefly

determined by the influence of the German historical school. Without
totally rejecting this interpretation, it is however my view that his
description of the forces which underlie economic growth mainly derive
from two streams of thought, both belonging to British tradition. In
particular, by making double reference to energy and ability as the main
qualities of the undertakers, Marshall develops a synthesis between, on
the one hand, the Adam Smith stream, with its emphasis on the habits
of prudence, knowledge, ability and, on the other, what Redlich
defined as the 'creative entrepreneur' tradition (Redlich, 1949, pp. 1-7)
- a tradition, in my view, which also includes thinkers like Bentham,
Lauderdale and Rae, and which lays almost exclusive emphasis on the
capacity of undertakers to introduce innovations and on change as the
basic force behind economic progress.
As I have tried to show elsewhere (Pesciarelli, 1989), Adam
Smith's theory of entrepreneurship was strongly influenced by his
overall approach to the social sciences and centred on the role and
characteristics of the prudent man. I have also described the main issues
in his conflict with Jeremy Bentham over the Usury Laws by showing
Bentham's defence of the role of projectors, whom he regarded as
being the principal actors in economic development as opposed to the
151
'Smithian' prudent men. This set two types of entrepreneur against

each other: the one centred on the entrepreneur as an exception, as a
minority in society, as a man above the "common herd of people"; the
other marked by the opposite feature of being a common type, one
necessarily and fortunately widespread in society. On a more general
level, these contrasting views gave rise to two different conceptions of
economic development: the one characterised by continual changes
determined by "improvements", and for this reason highly susceptible
to a non-linear trend; the other slow, gradual, uniform, and not
susceptible to sudden variations (ibid., p. S35)25.
However, the querelle between Bentham and Smith did not remain
an isolated event in Britain. One of its effects was to provoke a debate
conducted at the beginning of the nineteenth century in pamphlets and
journals like the "Edinburgh Review" and the "Pamphleeter". As W.
Stark has shown in his 'Introduction' to Jeremy Bentham's Economic
Writings, numerous pamphlets were published attacking Bentham's
ideas and seeking to counteract his influence26. Nevertheless, not all
pamphleteers argued in favour of Adam Smith, and a typical example of
those who followed Bentham's approach, is provided by E. Cooke in
his Thoughts on the Expediency of Repealing the Usury Laws ("The
Pamphleteer", n.13, 1818), which escaped Stark's notice.
Apart from these minor writers Lord Lauderdale27 developed an
explicit productivity theory grounded on a definition of capital as
23 "Here then (you conclude) lies the difference between us: what you look upon
as the cause of the increase about which we are both agreed, I look upon as an
obstacle to it: and what you look upon as the obstacle, I look upon as the cause",
(Stark, 1952, p. 174).
26 "James Graham's Defence of Usury Laws against the Arguments of Mr.
Bentham (1817); Robert Maugham's Treatise on the Principles of the usury Laws:
with Disquisitions on the Arguments against them by Mr. Bentham (1824);
anonymous Reasons against the Repeal of the Usury Laws (182S); Francis Neale's
Essay on Money Lending... and... Answer to the Objection of Mr. Bentham (1826);
and John Whipple's Free Trade in Money (1855) which had as sub-title Stringent
Usury Laws, the best Defence of the People against hard times " (Stark, 1952), p.
31). Stark also notes that this current of literature developed at least thirty years after
the appearance of the Defence, "a fact which shows how long it takes before the
public can be roused; but a fact which proves at the same time that Bentham's little
work had really left its mark" (ibidem).
27 As Schumpeter pointed out, at the beginning of the nineteenth century
"Lauderdale was the first major writer to set up capital as a distinct factor"
(Schumpeter, 1955, pp. 560, 648).
152
labour-supplanting factor and not - as in the classical tradition - as

labour-assisting one28. On this basis Lauderdale criticized both Smith's
optimistic analysis of saving29 and his pessimistic approach to the role
of prodigals and projectors30. He also showed that only innovations
and the acquisition of new territories would bring about a change in the
capital/ labour ratio31. In his work, moreover, is developed, albeit
indirectly, a theory of profit as payment for differential abilities or, in
his own words, for "individual capability in discovering new ways in
supplanting labour"32 which, in turn gives endogenously birth to
innovative habits together with the "power of executing it" that
increasing demand generates (ibid., pp. 352-3).
John Rae's New Principles of Political Economy is even more
radical than Lauderdale's book in its dualistic analysis of human nature
and motivations, where the imitative qualities of die majority, who are
"mere transmitters of things already known", stands in radical contrast
to "real inventors, the men whom", as Rae emphatically adds, "we have
alone to consider" (Rae, 1834, p. 213). And, in the context of this
28 Worth noting is Marshall's reference to Lauderdale's statement that England

showed a peculiar "dexterity in supplanting and performing labour by capital"
(Marshall, 1964, p. 113).
™ In another passage Lauderdale ironically points out "this baneful passion for
accumulation, that has been falsely denominated a virtue" (Lauderdale, 1966, p.
218).
30 On the querelle between Smith and Bentham Lauderdale wrote, "the public
prejudice is confirmed by men most admired for talents; when we are told by the
most esteemed authority, that every prodigal is a public enemy, and every frugal
man a public benefactor; that parsimony, and not industry, increases capital,
(meaning wealth)" (ibid. pp. 209-10). In the same page Lauderdale also speaks of "an
erroneus system of legislation, which, if persisted in, must infallibly ruin the
country that adopts if perseveres in it", clearly referring to the Usury Laws.
31 Here we probably have Lauderdale's major analytical contribution, based on
the notion of the existence of an optimal point in the capital-labour ratio at any
given period. As O'Brien writes, "with a given technology, there was an optimal
aggregate capital/labour combination, and [...] if more saving was undertaken the
result would be a negative marginal productivity of investment" (O'Brien, 1975, p.
229).
Among these "new ways" Lauderdale lists the "procuring and conveying to
the manufacture the raw materials", the "conveying the manufactured commodity to
the market", the "importation of the commodities of another country", and the
"exportation of home-manufactures" (Lauderdale, 1966, p. 159). "The monopoly
arising from skill, talent, and genius, is not an evil proceeding from the absurd
regulations of man; it is stamped on the human species by the hand of nature, and
must exist as long as genius adorns the world" (ibid., p. 144).
153
paper, it is of interest to note that Rae introduces a relation between

imitative attitudes, which characterize the majority of people, and habit
and custom33.
Moreover, as regards the role of inventive attitudes - which, together
with capital accumulation, is the main theme of Rae's book34 - 1 would
like to refer to one of Rae's basic principles according to which "the
return to capital diminishes slowly but continuously" because of its
depencence upon "the cumulation of relevant knowledge and its
expression in invention" (Spengler, 1959, pp. 39Ó-9)35.
It is interesting to note that Rae's book was used extensively in the
context of the organisation and the evolution of industry by W.E.
Hearn in his book, Plutology , and that Marhall owned a copy of this
book and annotated it36.
Rae's book was also enthusiastically cited by J.S. Mill: "In no other
book known to me is so much light thrown, both from principle and
history, on the causes which determine the accumulation of capital"
(Mill, 1961, p. 165)37. It was in particular Rae's treatment of invention
33 "There are, in every society, rules of conduct, and practices of life, which the
progress of events has gradually marked out, and general observance hallowed. Of
these, some are founded on the principles of morality and religion, some on caprice,
some on prejudice. The breaking of any of them is always esteemed a crime against
society, and in reality is so; the observance of them constitutes a character, in public
estimation, perfect. The mere man of society, that is, the man of merely imitative
action, learns them all uninquiringly, and diligently: they make up indeed, almost all
he knows, and all the interests of himself and family requires he should know, of
right and wrong. If he transgress them, it is secretly, and cautiously... The
consequence is, that, while the mere man of the world is never at a loss, but
proceeds securely in the direct path to general approbation, the man of speculation
very frequently wanders from it", J. Rae, p. 218.
34 On this point see also Deans and Deans, 1972, p. 107.
35 On this last principle M. Berg observes that "Rae did notice a key exception",
in the sense that if "capital accumulation and the innovation of techniques suffered
from any disturbance in the social order it was precisely this disturbance that
stimulated scientific advance" (M. Berg, 1980, p. 135).
36 I owe this reference to Professor Groenewegen. On this point see
Groenewegen, 1988.
37 In Mill's view, moreover, Rae's work represents "an example, such as not
unfrequently presents itself, how much more depends on accident, than on the
qualities of a book, in determining its reception", ibid., n. On the relation between
Rae and Mill, see also Hayek, 1943. According to O'Brien, "Rae's book influenced
Mill in three directions. First and most importantly Rae provided a treatment of the
motivation to accumulate capital. This involved provision for the future. Knowledge
was very important in determining the power to make provision for the future; but
154
that attracted Mill's attention, albeit he was not entirely in agreement

with his analysis. Firstly, he considered Rae's proposals simply to be
one possible instrument in the postponement of the stationary state;
secondly, he wanted Rae to reduce the radicalism of his plea for state
intervention in favour of infant industries (Mill, 1961, p. 249).
Mill's approach, however, represents an important element in the
economy of this paper, since his was a first attempt to achieve a
synthesis between the two above-mentioned traditions, albeit with two
strong qualifications which heighten our appreciation of Marshall's
originality on this point.
As it is well known, the objective determinants of economic growth
in Mill's Principles are fertility of soil, climate, and abundance of
mineral production (ibid., pp. 101-4). In this case, therefore, no
significant difference seems to emerge between Marshall and Mill's
theories.
As far as subjective determinants are concerned, Marshall seems
again to rely on Mill's analysis, which he bases, in relation to labour
productivity, on the pivotal role of "energy" and "skill and knowledge"
(ibid., pp. 104-8). Behind the scenes, however, the true meaning and
relevance of the terms is actually reversed. In Mill's approach, energy -
considered as the most important of workers' qualities - is assumed to
be the capacity to work "on ordinary occasions" and through "regular
and habitual" exertion (ibid., pp. 104-5). More explicity, in the 4th
edition of the Principles he observes that this attitude, being essentially
a characteristic of "the English, and perhaps the Anglo-Americans [...]
has become the habit of the country; and life in England is more
governed by habit, and less by personal inclination and will, than in
any other country, except perhaps China or Japan" (ibid., p. 105, n 1).
also motivation, and the level of motivation varied widely between countries and
peoples". Moreover, "Rae offered an analysis which Mill did not reproduce in its
entirety but which lay behind some of his thinking even where he did not spell out
precisely what he meant". In particular, this influence is apparent in Rae's treatment
of capital instruments, the main characteristics of which are that they supply future
wants, that they yield a return before this capacity is exhausted, and that this process
takes time. In this way each capital instruments could be arranged in "some part of a
series", its position depending upon "the time elapsing from the period of formation
and that of exhaustion"; a process which Rae explained as being determined by the
dialectic struggle between "slower" and "quicker" returns (O'Brien, 1975, pp. 219-
21). We may add that Mill extensively quoted from Rae's work in the Principles ,
especially in Book I, Chapter XI (Law of the increase of capital).
155
According to Marshall, on the contrary, as we have already seen,

the concept of energy - which he considers to be the most important
among the undertaker's qualities - is taken to be largely synonymous
with the creative faculty. And in those parts of Industry and Trade in
which he sets out the principal reasons for Britain's industrial
leadership, he devotes numerous pages to illustrate the English
propensity to improve (Marshall, 1927, pp. 40-56) while, conversely,
Mill treats the concept of improvement as being exclusively dependent
upon less temperamental qualities like skill and knowledge (Mill, 1961,
p. 107).
In this context, a brief summary of Marshall's approach to the role
of the state may be of some help in improving understanding of this
latter point. As it is well known, in Marshall's view one of the chief
reasons for state intervention lies in the necessity to contrive methods
for defending the 'weak' against the 'strong' in all cases where custom
can no longer come to the defence of the weakest sectors of society
during periods of sudden change - as evidenced by the Industrial
Revolution38: "The aim is to devise, deliberately and promptly,
remedies adapted to the quickly changing circumstances of modern
industry; and thus to obtain the good, without the evil, of the old
defence of the weak that in other ages was gradually evolved by
custom" (ibid., p. 622).
Secondly, but even more importantly, state intervention is justified
by its 'active' role in promoting public education among the working
classes. In this case too, Marshall's analysis seems to echoe Smith's
position. But, while Smith's main perplexities related to the relaxation
of civic attitudes among the workers, Marshall adduces a double set of
reasons, which are only indirectly, and in any case not primarily,
connected with supposed 'socialistic' sympathies39.
38 This brings us again to the special treatment Marshall reserves for Adam
Smith: "Adam Smith, while insisting on the general advantages of that minute
division of labour and of that subtle industrrial organization which were being
developed with unexampled rapidity in his time, was yet careful to indicate many
points in which the system failed, and many incidental evils which it involved. But
many of his followers with less philosophic insight, and in some cases with less
real knowledge of the world, argued boldly that whatever is, is right" (Marshall,
1964, p. 205).
39 This approach is directly related to the often reiterated consideration according
to which "older economists took too little account of the fact that human faculties
are as important a means of production as any other kind of capital" (ibid., p. 191).
156
On the one hand, Marshall refers - in a Millian 'vein' - to the

increasing relevance of workers1 technical education in order to increase
labour productivity. On the other hand, he also points out the
importance of general education, even for the ordinary workman,
because "[i]t stimulates his mental activity; it fosters in him a habit of
wise inquisitiveness; it makes him more intelligent, more ready, more
trustworthy in his ordinary work, etc. etc." (ibid., pp. 175-6).
In my view, this proposal appears to be closely dependent on the
above-mentioned dualistic approach to human nature, and in fact
Marshall significantly adds:
The laws which govern the birth of genius are inscrutable. It is

probable that the percentage of children of the working classes who are
endowed with natural abilities of the highest order is not so great as that
of the children of people who have attained or have inherited a higher
position in society. But since the manual labour classes are four or five
times as numerous as all other classes put together, it is not unlikely
that more than half the best natural genius that is born into the country
belongs to them; and of this a great part is fruitless for want of
opportunity (ibid., p. 176)40.
It was in particular the role of Tiiiman capital' that induced Marshall to build a bridge
between Smith's legacy and Mill's Principles. "Mill's followers have continued his
movement away from the position taken up by the immediate followers of Ricardo;
and the human as distinguished from the mechanical element is taking a more and
more prominent place in economics" (ibid. p. 632).
40 The theme is taken up again in Industry and Trade : "...a great part of the
supply of business genius of the highest order, especially in America, has come
from the working classes: for such genius is in great measure innate; and an alert
youth in a factory or counting house has great opportunities for sharpening his wits
in relation to realities" (Marshall, 1927, p. 646; on the same point see also pp. 579-
84). In the last paragraph of Chapter VIH of Book IV (Industrial Organization)
significantly entitled 'Limits of man's power to hasten progress', Marshall returns
again to this point by adding:
"It is needful then diligently to inquire whether the present industrial organization
might not with advantage be so modified as to increase the opportunities, which the
lower grades of industry have for using latent mental faculties, for deriving pleasure
from their use, and for strengthening them by use" (Marshall, 1964, p. 207). As an
example Marshall cites the differences existing between the South and the North of
England:
"In the South something of a spirit of caste has held back the working men and
the sons of working men from rising to posts of command; and the old established
families have been wanting in that elasticity and freshness of mind which no social
advantages can supply, and which comes only from natural gifts" (ibid., p. 176).
157
Marshall thus links his favourite theme of the relevance of human

capital not only to the increase in labour productivity but also, and
primarily, to the emergence of those "latent" energetic attitudes which.,
in his opinion, are also scattered among the ranks of the working
classes. This gives partial explanation as to why, according to
Marshall, the rate of the emergence of energetic undertakers or, in his
words, "the energetic creators of a business" possessing "exceptional
natural abilities", is more high in economically advanced nations.
This thesis rests, again, on a double set of reasons. First, Marshall
observes that among the ruling classes a new attitude towards economic
businesses is emerging which no longer considers them as activities to
be 'looked down' on.
Secondly, as we have already seen, potential undertakers comprise a
large number of people "born in the lower ranks of industry" (ibid., p.
517). In this latter case, moreover, not only are greater quantities of
energy released, but their inner quality is also enhanced because - as
Marshall makes clear in Industry and Trade - "man's energies are at
their best when he is emerging from poverty and distress into the
command of great opportunities" (Marshall, 1927, p. 87).
So, from a broader point of view, we may say that Marshall's
analysis seems to end on a note of optimism, prompted by: 1) the
ability both of educated people and state intervention to counterbalance -
especially from a social point of view - the negative effects of economic
changes (see, in particular Marshall, 1964, p. 622), and 2) the
assumption that social mobility, efficiency, and democracy are closely
linked and, morever, that they can proceed hand in hand with economic
progress.
Summary : The Undertaker's role in Marshall's approach to economic

growth
The paper's main themes relate to those parts of Marshall's thought, where
he seeks to identify the forces that act as the fundamental determinants of
economic growth, with a special emphasis to his theory of entrepreneurship.
As regards the former, more general theme, Marshall's approach rests on a
158
subtle and intriguing analysis, where subjective and objective factors, together
with natural and institutional aspects, are historically and dialectically related in
a dynamic context As far as the more specific theme is concerned, Marshall
looked in particular at the emergence of the figure of the undertaker as a
phenomenon specific to the development of economic activities and as an
evidence of the increasing supremacy of the economic factor.
159
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THE UNDERTAKER'S ROLE IN MARSHALL'S APPROACH TO ECONOMIC GROWTH

THE UNDERTAKER'S ROLE IN MARSHALL'S

This paper is concerned with those ample passages in Marshall's

1. In the opening paragraphs of the Principles, Marshall gives a

* I wish to express my thanks, without implicating, to P.D. Groenewegen, T.

"[i]t is deliberateness, and not selfishness, that is the characteristic

[...] the side of life with which economics is specially concerned is

It is through the working of these faculties that some agents become

behaviour of the individual agent, either in business or in the

Conversely, "small times" are characterized by strong ruling castes

5 "There is intense pleasure in the ardent pursuit of any aim, whether it be

2. The objective determinants of economic growth must be looked

® For the opposite position, see Youngson, 1982, p. 96.

all early civilizations have been developed in warm climates (ibid, p.

England's geographical position caused her to be peopled by the

A similar thesis is set out in those pages of Industry and Trade

1 1 In general Marshall considers the existence of a favourable institutional

3. The progress of civilization is thus described as being normally

Thus, in Marshall's view, the 'dramatic' impact of the Industrial

As civilization has progressed, man has always been developing

Marshall's belief is even more apparent in Industry and Trade ,

4. The role of the undertaker in all this is clearly central (see

Marshall approvingly resorts to Francis Walker's assertion according to which

with their larger capital, their higher specialization of machinery and

- "knowledge of things in his own trade";

^ "[T]he very conditions of an industry which enable a new firm to attain

In the final section of the chapter, Marshall summarizes these points

returns should not be necessarily interpreted as an argument against the

With the appearance of large joint-stock companies, however, this

[a]s a separate business man he would make the venture; and, if he

Thus, all things considered, Marshall's analysis appears to be

23 Marshall pessimistically concludes: "We may conclude provisionally that

5. Some Concluding Remarks

It is often maintained that Marshall's 'vision' has been chiefly

'Smithian' prudent men. This set two types of entrepreneur against

labour-supplanting factor and not - as in the classical tradition - as

28 Worth noting is Marshall's reference to Lauderdale's statement that England

paper, it is of interest to note that Rae introduces a relation between

that attracted Mill's attention, albeit he was not entirely in agreement

According to Marshall, on the contrary, as we have already seen,

On the one hand, Marshall refers - in a Millian 'vein' - to the

The laws which govern the birth of genius are inscrutable. It is

Marshall thus links his favourite theme of the relevance of human

Summary : The Undertaker's role in Marshall's approach to economic

ANONYMOUS (1825), Reasons Against the Repeal of the Usury

HAYEK, F.A (1943), John Rae and J.S

MAUGHAM, R. (1 824), Treatise on t

Economic and Social Thought, in J.C

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