From the representative to the equilibrium firm : why Marshall was not a Marshallian

The representative firm has been a much-criticized concept, subject to conflicting interpretations with respect to both its configuration and its intended role in Marshall's Principles (the Principles).2 The concept found itself a focal point of much of the debate during the significant cost controversies of the 1920s; however, it has appeared infrequently in subsequent economic analysis.3 In its place, the equilibrium firm has taken centre stage in the microeconomic textbooks, sometimes being mistaken for its vanquished predecessor. It is argued in this chapter that an evaluation of the role of Marshall's representative firm must proceed within the context of its intended purpose. It is contended that Marshall's representative firm was very much the product of an unresolved struggle, observed through successive editions of the Principles, to construct an equilibrium framework in which to analyse some elements of an economic system where 'evolutionary forces' were considered to be pervasive. However, this struggle does not disturb the analysis of the later Marshallians from which the equilibrium firm emerges. Here the economic system being investigated is one in which mechanical notions of static equilibrium had extinguished the forces of progress and history that had so complicated the construction of the Principles. This fundamental divergence in the method of economic analysis escaped the attention of most of the combatants in the 'Marshallian' cost controversies, a setting that in turn had far-reaching implications for the subsequent development of mainstream economics.