chapter  1
22 Pages

The Physiocrats' Theory of the Farm

Alfred Marshall emphasizes that marginal analysis is an observational method that in itself does not contain any concrete knowledge. An economist, therefore, should never maintain that marginal costs determined the value of a product. In Marshall's time, machines in established industries such as cotton, wool, and agriculture were usually produced by specialized companies. The large German chemical companies were continuously inventing new processes that they carefully avoided publishing, but instead utilized in production. For the nation, however, the most important increases in productivity would not come about without the development of institutions that reduced the large business risks associated with expansion. Marshall recognized that scientific management had increased productivity in many American companies, even if the method was not quite as original and effective as Frederick Winslow Taylor and his disciples would maintain. Scientific management was a system of cost accounting that could be so detailed and administratively demanding that it cost more than it was worth.