The contribution of Gerald Shove to the development of Cambridge Economics

Abstract

Frank Gerald Shove was a close friend of Keynes and the other protagonists of the economic debates in Cambridge during the 1920s and 1930s. Shove's influence on those debates is not well documented because he published little and had all his notes destroyed after his death. This paper looks at Shove's most significant contributions to the debates of the 1930s. Attention is concentrated on the debates over increasing returns and imperfect competition. Shove emphasized the complexity of economic phenomena and the need to develop tools to deal with it. He found his analytical and methodological inspiration in Marshall's work. This position led him to clash with younger economists, in particular Joan Robinson, whose work on imperfect competition and whose efforts to achieve rigorous and ‘precise’ results failed, in his view, to capture the working of actual markets. The final section of the paper discusses the similarity of Shove's methodological outlook to that of Keynes. Both were well aware of the need to go beyond Marshall, but they wanted to retain the richness, complexity and realism of Marshall's approach.

Notes

Correspondence Address: Claudio Sardoni, Dipartimento di Scienze Economiche, Università di Roma ‘La Sapienza’, Via Cesalpino 12, 00161 Roma, Italy. E‐mail: [email protected]

A few letters and some of his lecture notes have survived. See Harcourt & Araujo (1995) for a study of some of Shove's surviving correspondence.

Austin Robinson, too, believed that Shove did not play a significant role in the development of The General Theory (Robinson, 1977, p. 28).

On Shove's attitude toward Marshall, see also Harcourt (1992).

This study concerned the relationship between costs and output. It was never published and the manuscript must have been destroyed after Shove's death.

‘What equilibrium requires is not equality of the actual earnings, but equality of the mathematical expectation of earnings … for similar units in different uses’ (Shove, 1930, p. 95).

‘Equilibrium for the industry as a whole does not imply that all (or indeed any) of the individual firms are in equilibrium: every one may be either expanding or contracting, provided that the rates at which the output of the growing firms is expanding and that of the declining firms contracting are such as to leave the aggregate output unchanged’ (Shove, 1930, p. 96).

The expected return to each unit of resources offered by different firms varies continuously and, hence, ‘there will be a continual ebb and flow of resources from one firm to another: what equilibrium requires is simply that the distribution of resources should be such that this process of reshuffling cannot give rise to any general increase in earning capacity’. In other words, ‘the division of output and resources between firms must always remain the most advantageous that is possible with the degree of knowledge and intelligence among the persons engaged in the industry’ (Shove, 1930, p. 98).

He dealt explicitly with the problem of the measurement of capital in his review of Hicks's Theory of Wages (Shove, 1933b, pp. 470–471).

Internal economies are those advantages that a firm obtains ‘from the efficient organisation of the resources which it employs directly’; external economies are the advantages that a firm derives from ‘the organisation of those outside resources, not in its own direct employment, whose services or products it uses’ (Shove, 1930, p. 101).

Shove also introduced the ‘economies of rationalisation’, i.e. increases in efficiency due to a redistribution of resources within the industry made possible by improvements in the degree of knowledge, expertise, etc (Shove, 1930, p. 105).

‘The solution of this problem turns, as Marshall saw, on the element of time’ (Shove, 1930, p. 109).

However, two years before Shove and Harrod, Young had given the time element great importance for the analysis of increasing returns (Young, 1928).

On Marshall's notion of competition and its relationship with the Cambridge debate on imperfect competition, see Whitaker (1989, pp. 172–184).

‘The chief obstacle against which [firms] have to contend when they want gradually to increase their production does not lie in the cost of production—which, indeed, generally favours them in that direction—but in the difficulty of selling the larger quantity of goods without reducing the price, or without having to face increased marketing expenses. This … is only an aspect of the usual descending demand curve, with the difference that instead of concerning the whole of a commodity … it relates only to the goods produced by a particular firm’ (Sraffa, 1926, p. 543)

Harrod, for example, argued that conditions of increasing returns are normal in an industry where the rate of expansion of the optimum plant is higher than the rate of expansion of demand. For a more detailed reconstruction of the 1930s debate on imperfect competition, see Sardoni (1999).

‘The level of profits may be everywhere kept high by the existence of market imperfections, but it is only in a trade into which entry is unusually hard that profits will be unusually high’ (Robinson, 1932, p. 547).

For example, the cost at which a firm can provide advertisement, facilities, transport, etc.

It will suffice to say that Shove's interpretation of Marx's economics was rather unoriginal, and that he was not persuaded by Robinson's attempts to relate Marx's economic analysis to contemporary economics, in particular to Keynes's theory of effective demand (Shove, 1944, pp. 47–50).

With the exception of Kalecki who, for Joan Robinson, transformed the academic theory of imperfect competition into a realistic account of price and ‘brought imperfect competition into touch with the theory of employment’ (Robinson, 1969, p. viii).

‘Too large a proportion of recent “mathematical” economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols’ (Keynes, 1936, p. 298).

See, for example, his observations on Hicks's concept of elasticity of substitution and its use in the analysis of real economies (Shove, 1933b, pp. 468–469).