Alfred Marshall, Allyn Young and business size

Abstract Many prominent thinkers such as Karl Marx and Joseph Schumpeter thought that monopoly capitalism would eventually replace competitive capitalism. Several subsequent economists like Antoine Cournot and Piero Sraffa also maintained that increasing returns are incompatible with competition. This paper examines Alfred Marshall’s and Allyn Young’s views on whether monopoly capitalism is inevitable and whether increasing returns are incompatible with competition. Both Marshall and Young took their data from real life and were of the view that the economy was dominated not by big but small and medium firms. Both built on Adam Smith’s analysis of the division of labour and thought that the dominant tendency in the system was that of industrial specialisation and differentiation. Even if some firms producing standardised products such as steel or raw materials became big, most specialised firms remained small, and both small and big firms coexisted in a framework of effective competition. Advent of imperfect competition did not mean absence of competition but rather its imperfect working.