The Role of Knowledge in Economic Life — From Bacon to Marshall

ABSTRACT

The paper seeks to uncover a long-submerged tradition that saw knowledge accumulation as the main driver of development. This vision was ubiquitous until the late 18th century when, with the advent of the machine age, the focus shifted from knowledge accumulation to capital accumulation. Emphasis on knowledge did not disappear completely. Some argued that the knowledge embedded in human agents and not capital was the source of productivity gains while others emphasised the role of technological and scientific knowledge alongside capital accumulation. By the early decades of the 20th century, the economic role of science had become more salient and by the end of that century, the idea that knowledge accumulation has a central role in progress was again taken for granted. The paper suggests that by focusing the kinds of knowledge we have; and how that knowledge is stored, transmitted, made use of, and extended; we can learn much about how specific social relations of production facilitate or retard development, about who gets the rewards, and how relations of production may need to change to allow knowledge itself to develop.

KEYWORDS:

• Accumulation
• Embodied
• Knowledge
• General
• Historical — institutional — evolutionary

Introduction

Chapter VI of Edwin Cannan’s Review of Economic Theory is entitled ‘The influence of accumulation on produce’. The topic of the first part of the chapter is The Accumulation of Knowledge or Non — Material Equipment. This is followed by a section on the accumulation of material equipment. Cannan began his exposition by suggesting that ‘It would seem natural to suppose that economists desirous of explaining the cause of greater or less productiveness would give a prominent place to changes in knowledge’ (Cannan 1929, 122). He went on to give reasons for the neglect of this fact. The first was that the most apparently obvious things are often the least noticed. The second was that Adam Smith tucked the increase of knowledge under the wings of the division of labour and subsequent writers followed him in this. Cannan credited J.S. Mill with being one of the few to recognise superior knowledge as one of the main causes of superior productiveness but he noted that later writers failed to develop the subject.

What Cannan wrote about knowledge accumulation was not particularly original but it was important because his treatment of the issue alongside and on a par with the accumulation of capital was unusual at the time and, as we shall see, the recovery of a view that had been dominant until the late 18th century. Cannan noted the belief that limited legal monopolies such as patent rights would tend to encourage increases in knowledge but he was not convinced that either patents or copyright had much impact in term of encouraging invention. Having acknowledged that some economically relevant inventions were in fields where the invention was not marketable and, could not be made so, Cannan turned his attention to the funding of non-marketable research. Here he noted that the benefactions of private donors were becoming important but he also suggested that there was a case for public subvention of this research.

Cannan does not appear to been aware that in focusing on knowledge accumulation as the driver of growth, he was part of a long, often submerged tradition, which can be traced back to the late sixteenth and early seventeenth centuries. The purpose of the present paper is to explore this tradition, its relationship with theories of scientific development, and later, of economic progress. It is shown that a vision of development based on human learning was ubiquitous until the late 18th century. With the dawn of the industrial revolution and the machine age, the focus shifted from knowledge accumulation to capital accumulation. Even so, the focus on knowledge did not disappear completely with some authors arguing that the knowledge embedded in human agents and not capital was the source of productivity gains. Others emphasised the role of technological and scientific knowledge as well as capital accumulation in economic development while authors such as J S Mill lamented the maldistribution of knowledge and emphasised the importance of education for ending the oppression of women and the working class more generally. By the early decades of the 20th century, the economic role of science had become more salient as reflected in Alfred Marshall’s later work and in Cannan’s references to the accumulation of knowledge on a par with that of capital.

Post World — War II, what has come to be described as the knowledge economy began to take more definite shape with the development of new science-based industries, increasing investment in R&D and investment in education at all levels. During the 1960s, pioneering work on the production and use of knowledge was carried Kenneth Boulding and Fritz Machlup and in the process of so doing, these authors recovered the earlier view that development processes are fundamentally processes of learning. Such learning has two dimensions — a replication dimension involving the transmission of existing knowledge between generations and a developmental dimension involving the generation of new knowledge (Boulding 1966; Machlup 1962).

A large literature on the knowledge economy has appeared in the half century since Boulding and Machlup wrote. This literature has emphasised the importance of human intellectual capabilities rather than physical inputs or natural resources in driving economic progress (Powell and Snellman 2004). While the characteristics of the modern knowledge economy have given salience to the role of knowledge, the focus here is not on the modern literature but on the pre-history of this view from Roger Bacon to Alfred Marsall.

Knowledge Accumulation as the Source of Progress in Science and in Society

Francis Bacon (1561–26) was amongst the first to argue that that the progress of knowledge was potentially continuing and cumulative and depended in large part on observation and practical scientific experiment organised in an efficient way. He condemned excessive reverence for the authority of ancients and argued that truth was the daughter of time, not authority (Bacon 1620[1902], p. 62). He saw scientific knowledge as the work of many hands not as the fruit of exceptional wisdom; and he considered that the proper aim of science was the endowment of human life with new inventions and riches.

Bacon was aware that, during his own lifetime, mechanical inventions, long ocean voyages and new geographical discoveries were serving to increase prosperity and change the economic and social structure of the country (Rossi 1996). He could see that these changes were not the product of philosophy or the intellectual sciences, which had stood still for some time, but were instead linked to the mechanical arts which focused on the search for solutions to practical problems. Such arts were subject to continuous improvement over time an achievement that was possible because many minds co-operated in this improvement.

those [sciences] which are founded on nature grow and increase, while those which are founded on opinion change and increase not. … .[they] still continue in their beaten track, and nearly stationary … But we see that the case is reversed in the mechanical arts, which are founded on nature and the light of experience, for they (as long as they |are popular) seem full of life, and uninterruptedly thrive and grow, being at first rude, then convenient, lastly polished, and perpetually improved. (Bacon 1620[1902], p. 51)

The importance of the mechanical arts for Bacon lay not only in their direct impact but also in the model they offered for the organisation of scientific inquiry in which the key to progress was specialization and collaboration (Eamon 1996; Sargent 1996). As he put it: Much was to be hoped for from ‘a course which … admits of the best distribution and union of labor and effect, … For men will then only begin to know their own power, when each performs a separate part, instead of undertaking in crowds the same work’ (Bacon 1620[1902], p. 89).

Bacon’s work was read widely both in England and in Europe and his theories were influential both in science itself and in the emerging theories linking knowledge accumulation and the idea of progress. In the Preface to his Treatise on Vacuum, the French polymath, Blaise Pascal (1623–62), explained why knowledge was cumulative in the sciences that are subject to experiment and reasoning. Pascal suggested that the main difference between men and animals was that men were capable of accumulating knowledge (Pascal 1651[1910], p. 448).

[Man] is ignorant at the earliest age of his life; but he is instructed unceasingly in his progress; for he derives advantage, not only from his own experience, but also from that of his predecessors; … And as he preserves this knowledge, he can also add to it easily; … not only does each man advance from day to day in the sciences, but all mankind together make continual progress in proportion as the world grows older … (T)he whole succession of men, during the course of many ages, should be considered as a single man who subsists forever and learns continually. (Pascal 1651[1910], p. 449)

Scientific progress could go on indefinitely. Progress in the sciences was the result of chance but had its own order and rule. Each addition to knowledge happened only when earlier discoveries had laid the foundations for it (Bury 1960, pp. 110–113; Devaille 1910, pp. 215–217). In other words, human knowledge develops in a structured manner with the later possibilities being determined by the earlier achievements. This broad position on the progress of knowledge became the new orthodoxy. In one form or another, a series of writers including Baglivi, Mandeville, Ferguson, Turgot, Condorcet, Babbage and Marx saw knowledge as an ever — growing product of the joint labour of several ages.

Georgio Baglivi (1668–07), a physician and medical scientist who worked in Italy made an interesting attempt to put Bacon’s proposals for the systematization of scientific activity into practice in his field. Baglivi emphasised the importance of clinical observation in medical practice and sought to address the question of how knowledge based on observation could be systematised, recorded and built on over time. His proposal involved the setting up of colleges of physicians each of which was to be divided into two bodies. One, termed a literate society, would be devoted to the reading of books containing existing observations and the categorization and summarization of their scientific content. The other, the practical society, would be devoted to making and setting down new observations. Within each society, each fellow should specialize in a particular disease. In this way, Baglivi believed that his proposals would ensure that knowledge was preserved and transmitted between generations so that ‘by the instruction of many men in several ages, one man may become very learned’ (Baglivi et al. 1704, pp. 2012–2219).

Bernard Mandeville (1670–33) endorsed Baglivi’s proposals for specialization but thought it unlikely that his more ambitious scheme would be implemented. He agreed with both Baglivi and Bacon that the basis of knowledge was experience and that the growth of human knowledge was the child of time rather than individual genius. Like Bacon, Mandeville emphasised the importance of practical knowledge but this extended beyond the mechanical arts to include that embodied in the institutions of society including language, mores, and the law. Mandeville’s commitment to a cumulative and collective view of knowledge is evident throughout much of his work but especially in the second volume of his Fable of the Bees. There, he refers to many useful arts and sciences being the result ‘human sagacity in general, and the joint labour of many ages, in which men have always employed themselves in studying and contriving ways and means to soothe their various appetites, and make the best of their infirmities’ (Mandeville 1729 [1924], II, pp. 128). Using the example of a sailing ship which represented the most advanced technology of the age, Mandeville spelt out the means by which the joint labour of men of ordinary capacity allowed them to produce ‘a first — rate man of war’ in a short space of time. The division of labour was key to this. The task would not be possible ‘if it was not divided and sub-divided into a great variety of different labours; and it is certain that none of the labours require any other, than working men of ordinary capacities’ (Mandeville 1729[1924], II, p. 142). Specialization gave rise not only to efficiency benefits but encouraged innovation: ‘the callings and employments themselves will in the same number of years receive much greater improvements, than if all had been promiscuously followed’ by each person (Mandeville 1729[1924], II, p. 284). Furthermore, specialization facilitated the transmission of knowledge between generations through learning by doing, by means of apprenticeships, and by forms of specialist education (Mandeville 1723[1924], I, pp. 58–61). It also gave rise to the need for co-ordination — ‘how to get services performed by others when we have occasion for them, is the grand and almost constant solicitude in life of every individual person’ (Mandeville 1729[1924], II, p. 349).

Pascal had suggested that the principal difference been animals and men was that men were capable of accumulating knowledge. Mandeville identified two reasons for this. The first was that men lived longer thereby possessing greater opportunities to accumulate wisdom based on their own experience. The second was that men remained young for a longer period than other animals. Given that the capacity for learning was greatest in the period before maturity, this favoured the transmission of knowledge between generations. In addition to education and division of labour, Mandeville pointed to the importance of the tendency to imitate others as being conducive to the transmission of all forms of knowledge between generations and throughout society. However, it was also the case that imitation could act as an obstacle to fruitful change such as the development of a division of labour.

The cumulative nature of knowledge was also emphasised by the young Turgot (1727–81) in his Philosophical Review of the Successive Advances of the Human Mind. There he noted that ‘all ages are successively bound up with one another by a succession of causes and effects which link the present state of the world with all those that have preceded it’ (Meek 1973, p. 41; Turgot 1750[1913], I, p. 215). Speech and writing provided means of preserving and communicating ideas and enabled individual stores of knowledge to become a common treasure house which one generation transmitted to another. This inheritance was enlarged by the discoveries of each age (Meek, 1973, p. 41; Turgot 1750[1913], I, p. 215).¹

Turgot’s biographer, Condorcet (1743–94) also suggested that humankind progresses continuously towards perfection. In his Sketch for a Historical Picture of the Progress of the Human Mind, he expressed confidence that new discoveries would continue to be made both in the sciences and the arts, and that these would improve the means of individual and general prosperity. Such discoveries would be gradually simplified and integrated with existing knowledge so that they could be grasped more easily. Hence, the progress of the sciences allowed progress of the art of instruction, which, in turn, accelerated the progress of the sciences. As a result of this better organisation of the knowledge ‘what may be acquired in a given space of time, by the same strength of intellect and the same degree of attention, will necessarily increase’ (Condorcet 1795[1796], p. 285). Condorcet was also of the view that there would be a real improvement in human beings themselves as a result of better nutrition, housing, sanitation, regular exercise and medical practice (Condorcet 1795[1796], pp. 289–290).

Both Turgot and Condorcet were advocates on behalf of public provision of instruction at least at the elementary level. According to Turgot, ‘A new system of education … .would lead to the formation, among all classes of society, of virtuous and useful men, just souls, pure hearts, and zealous citizens’ (Turgot 1775). Unlike Turgot who emphasised the importance of both moral and social instruction, Condorcet differentiated between instruction which aims at transmitting knowledge and cultivating reason; and education which had the task of also transmitting political, moral and religious opinions. Condorcet argued that public provision should be concerned with instruction but not education which he regarded as a parental prerogative. Despite this, Condorcet believed that it was impossible to have a well-functioning democracy without an educated citizenry. Unusually for the time, he also advocated that education should be equally available for men and women. (Condorcet 1791; Duce 1971).

In his both his Essays on the History of Civil Society and his Principles of Moral and Political Science, Adam Ferguson (1723–16) outlined a vision of cumulative development based on the accumulation of knowledge which by now looks familiar.

‘men continue their works in progression through many ages together: They build on foundations laid by their ancestors; and in a succession of years, tend to a perfection in the application of their faculties, to which the aid of long experience is required, and to which many generations must have combined their endeavours. (Ferguson 1767[1789], p. 7)

Ferguson’s emphasis was not on pure codified knowledge but on the practical application of the faculties: ‘Men are to be estimated, not from what they know, but from what they are able to perform’ (Ferguson 1767[1789], p. 48). He emphasised the role of the division of labour in increasing the quality and quantity of output and in cheapening commodities. Like his contemporary, Adam Smith, Ferguson was concerned not just with the social division of labour but with division of labour within the firm. ‘Every undertaker in manufacture finds, that the more he can subdivide the tasks of his workmen, and the more hands he can employ on separate articles, the more are his expenses diminished, and his profits increased (Ferguson 1767[1789], p. 274). Despite his emphasis on its benefits, Ferguson was also alive to the downsides of the division of labour. He appears to have been the first to identify that, in every sphere of human activity, the division of labour resulted in a hierarchy of skills which, in turn, was one of the grounds for subordination (Ferguson 1767[1789], pp. 277–279). Referring to the manufacturing sector, Ferguson wrote:

Manufactures, accordingly, prosper most, where the mind is least consulted, and the workshop may, without any great effort of imagination, be considered as an engine, the parts of which are men. (1767[1789], p. 277)

Ferguson was also aware that a condition for continuing progress was that each generation should add innovations of its own. This led him to view the invention of new tools as being particularly meritorious and to be valued above mere proficiency. Ferguson’s distinction between what it meant to be stationary and progressive is also worth noting not only for its remarkable similarity to a distinction later made by Schumpeter but also for laying the groundwork for later critiques of the role of capital in the work of socialist authors:

To be stationary, it is not necessary that the subject be incapable of change … it is sufficient that it not have any principle of change in its own nature. … To be progressive … .does not consist of any variation or change which an external cause may produce’ but in those transitions, from one state to another, which proceed from a principle of advancement within the subject itself. (Ferguson 1792, I, p. 190)

Ferguson noted that subjects which were stationary could be described by enumeration of co-existent parts whereas progressive subjects required description of the steps from one state to another (Ferguson 1792, p. 191). ‘A block of stone from the quarry, may receive in the hands of a workman, any variety of forms, but left to itself, would remain in its state. A seedling plant on the contrary, in a favourable soil and exposure, takes root and grows of itself’ (Ferguson 1792, p. 190). As we shall see, a similar distinction was later used by Hodgskin as part of his argument that progress was due to skill of labour without which capital could not be productively used.

A Turning Point

Adam Smith’s (1723–90) treatment of the contribution of division of labour to economic progress has much in common with that of Adam Ferguson. However, whereas Ferguson explicitly discussed the role of knowledge, Smith, as Cannan noted, tucked most of his discussion of increases in knowledge under the wings of division of labour. Smith gave three reasons for the increase in the quantity of work in consequence of the division of labour. These were the increase in dexterity, the saving of time lost in transitioning from one species of work to the other, and the invention of machines which facilitated and abridged labour. Some of these machines were the inventions of common workmen but, more often, they were produced by those who had specialised in the machinery trade. With the further progress of society, the invention of labour saving machinery become the business of philosophers and men of speculation. Speculation, in turn, became the sole trade of a particular class of citizens and, like every other employment too, it was sub-divided into a great number of specialities (Smith 1776[1976], pp. 21–22). Although Smith discussed the type of knowledge and understanding required for different occupations as well as the broader issue of education elsewhere in the Wealth of Nations, it is fair to say that for him knowledge and its transmission is bound up with the division of labour. That, however, was not the end of the matter because in Book II of WN, Smith linked the extension of the division of labour to the accumulation of stock.

The annual produce of the land and labour of any nation can be increased in its value by no other means but by increasing either the number of its productive labourers, or the productive powers of those labourers who had before been employed. The number of its productive labourers, it is evident, can never be much increased, but in consequence of an increase of capital, or of the funds destined for maintaining them. The productive powers of the same number of labourers cannot be increased, but in consequence either of some addition and improvement to those machines and instruments which facilitate and abridge labour; or of a more proper division and distribution of employment. In either case an additional capital is almost always required. It is by means of an additional capital only that the undertaker of any work can either provide his workmen with better machinery or make a more proper distribution of employment among them. … When we compare, therefore, the state of a nation at two different periods, and find, that the annual produce of its land and labour is evidently greater at the latter than at the former, … we may be assured that its capital must have increased during the interval between those two periods. (Smith 1776[1976], p. 343)

As Brewer (1999, p. 250) noted, this argument linking the division of labour to capital accumulation ‘gave the Wealth of Nations its backbone’ and ‘came to dominate thinking about growth’. However, there is another important reason for the neglect of the role of knowledge and technical progress from the early 19th century onwards. As highlighted in Pasinetti (1999), in the particular historical circumstances of England in 1815, a group of political economists including Ricardo and Malthus saw that, with a growing population, the economic future would be decided by the prevalence of one of two opposite and countervailing trends, namely, improvements in technology or the limitations of nature. They made the choice to concentrate on latter. Ricardo, in particular, did not deny the importance or possibility of technical progress but, in pursuit of analytical clarity, he explicitly assumed that it was absent in agriculture.² As Pasinetti notes, despite early opposition, the law of diminishing returns in agriculture became one of the cornerstones of mainstream political economy in the 19th century. Not only that, following the marginal revolution in the late 19th century, diminishing returns to changing factor proportions which the classicals had confined to land were applied uncritically to all factors of production. Partly as a result, the main focus of economic analysis became the allocation of scarce resources rather than technical change.

The Dissenters

In so far as the accumulation of capital came to be seen as the source of economic growth, the role of knowledge tended to be forgotten although it did not disappear entirely from view. Most of those who continued to insist on the importance of knowledge accepted that the accumulation of capital and the growth of knowledge often went hand in hand though some denied that it always did so. Bentham, for example, placed great stress on the importance of education as did his leading disciple, James Mill.³ He also emphasised the importance of entrepreneurship although part of his argument with Adam Smith in Defence of Usury related to the ability of entrepreneurs to have access to capital funds in the event that there was a ceiling on the interest rate as Smith proposed (Bentham 1787). Bentham (1748–32) had a good understanding of the special characteristics of knowledge. He noted that successful innovations would be emulated by others, and that, having incurred the cost of innovation, an inventor could be driven out of the market by a rival taking advantage of the knowledge that has been generated (Bentham 1843, pp. 71-2).

Both Melchiore Gioja (1767–29) and J B Say (1767–32) were also amongst those who emphasised the role of knowledge in the production process. Gioja wrote that the production of every product required two actions: the mental action with the governing idea, and the corporal action which carried it out.⁴ In similar vein, Say wrote that industry was ‘in all cases, divisible into theory, application and execution’ (Say 1821[1971], p. 81). Taking the example of a lock, he noted that it could never have been constructed without the previous knowledge of the properties of iron, the method of extracting and refining the ore, and that of fashioning the metal. The next step was the application of this knowledge to the design of an object serving a useful purpose. The final step was execution of the labour required to make the components and assemble them to form the object in question. Say noted that all three operations were seldom carried out by the same person. It commonly happened that one man studied the laws of nature, one used available knowledge to design useful products while a third provided the necessary exertion under the direction of the former two (Say 1821[1971], pp. 79–80). Having acknowledged that scientific knowledge had to be supplemented by technical skill, Say suggested that scientific knowledge circulated with ease and rapidity from one nation to the rest. As a result, a country well stocked with intelligent merchants, manufacturers, and agricultures had more powerful means of attaining prosperity, than one devoted chiefly to the pursuit of the arts and sciences (Say 1821[1971], pp. 82–83).

The issue of transfer of technology between different countries was explored in greater detail by John Rae (1796–72). Rae noted that such transfers usually required costly adaptation because of such things as differences in the supply of raw materials and differences in relative factor prices. He also noted that the information needed to facilitate transfers was seldom codified or complete. Rae argued that no individual had the incentive to carry out these necessary adaptions because he would derive no more benefit from his effort than others who simply copied what he had done (Rae 1834, p. 56). This together with a strong preference for the tried and tested paths meant that some favourable conjuncture of events was necessary before technology transfer could take place. Rae hypothesised that calamities were favourable to innovation because they disturbed the expected order of events and exposed ‘the necessity, or the possibility, of connecting them by some other means’ (Rae 1834, p. 223). However, since they exposed the property of members of society to danger, they diminished the desire for accumulation. This was important because accumulation and progress sometimes went hand in hand even if they did not always do so.

As well as recognising the public good aspects of technological knowledge, Rae can be thought of as recognising the limitations of this perspective. Technological knowledge was sticky or tacit and required adaptation before it became usable in a new situation (Rosenberg 1976, p. 167). A further limitation pointed out by Friedrich List (1789–46) in The National System of Political Economy [1841] was that knowledge was necessary to access existing knowledge. As he put it:

The present state of the nations is the result of the accumulation of all discoveries, inventions, improvements, perfections, and exertions of all generations which have lived before us; they form the mental capital of the present human race, and every separate nation is productive only in the proportion in which it has known how to appropriate these attainments of former generations and to increase them by its own acquirements. (List 1841[1916], p. 113)

List attributed to Adam Smith and his followers a cosmopolitan view of political economy in which the accumulation of fixed capital was sufficient for progress and in which the immaterial productive forces dropped out of view.⁵ He denied that mere accumulation of fixed capital was enough and argued that the focus should be on capability or productive power. This required that attention be given to a host of institutions including those concerned with education, justice, infrastructure, communications, finance, and science. List summarised:

The nation derives its productive power from the mental and physical powers of the individuals; from their social, municipal, and political conditions and institutions; from the natural resources placed at its disposal, or from the instruments it possesses as the material products of former mental and bodily exertions (material, agricultural, manufacturing, and commercial capital). (List 1841[1916], p. 181)

Intimations of several aspects of modern innovation theory can be traced to List. His recognition that knowledge is required to access and use ‘the mental capital of the human race’ is nowadays discussed under the heading of absorptive capacity (Cohen and Levinthal 1990). List is also acknowledged as a pioneer of the concept of national innovation systems, one of the main frameworks now used for the analysis of science, technology and innovation policy (Freeman 1995; Lundvall 2010; Schot and Steinmueller 2018).

One of the strongest defences of the role of knowledge in the early 19th century was that of Thomas Hodgskin (1787–69). Hodgskin’s critique of Adam Smith was set out in Labour Defended against the Claims of Capital (1825). Having noted Smith’s claim that a stock of the different kinds of commodities consumed by labour had to be stored up somewhere before labour could be divided, Hodgskin set out to prove that the effects attributed to a stock of commodities, under the name of circulating capital, were actually caused by co-existing labour.

To enable either the master manufacturer or the labourer to devote himself to any particular occupation, it is only necessary that he should possess — not, as political economists say, a stock of commodities, or circulating capital, but a conviction that while he is labouring at his particular occupation the things which he does not produce himself will be provided for him, and that he will be able to procure them and pay for them by the produce of his own labour. (Hodgskin 1825[1922], p. 45)

Hodgskin argued that the only thing which could be said to be stored up, or previously prepared was the labourer’s skill. ‘If the skill of the baker, butcher, grazier, tailor, weaver, etc., was not previously created and stored up, the commodities which each of them purchases could not be obtained; but where that skill exists, these commodities may always be procured when wanted.’(Hodgskin 1825[1922], p. 46)

As far as fixed capital is concerned, Hodgskin accepted that instruments and machines enabled the labourer to (i) execute tasks he could not perform without them; (ii) perform a greater quantity of work in a given time; and (iii) perform the work with greater nicety and accuracy than would otherwise be possible. However, he argued that without being guided, directed, and applied, by skilful hands, such machines were only dead matter of no utility whatsoever. ‘The most perfect instrument which the cunning hand of man can make is not instinct with life, and it constantly needs the directing hand of its creator, or of some other labourer.’ (Hodgskin 1825[1922], p. 56). It was also the case that before many of the most useful machines and instruments could be invented, a vast deal of knowledge gathered in the progress of the world by many generations was necessary.

Without knowledge they could not be invented, without manual skill and dexterity they could not be made, and without skill and labour they could not be productively used. (Hodgskin 1825[1922], p. 64)

Having established that the beneficial effects commonly attributed to fixed and circulating capital were in reality due to labour’s knowledge and skill, Hodgskin concluded that the view that profit and interest were necessary for improvement was false and that the best means of securing progressive improvement was to allow the labourer the whole product of his effort.

Marx (1818–83) had considerable sympathy with Hodgskin’s emphasis on the importance of living labour although he did not entirely agree with Hodgskin’s analysis. Marx agreed that the economists ascribed a false importance to the material conditions of labour compared with labour itself in order to have a technological justification for the capitalist social form. In their representation, it was not the worker who made use of the conditions of labour, but the conditions of labour that made use of the worker. Marx understood that Hodgskin’s assertion that accumulated wealth had value only insofar as it was a factor in the living production process was intended to counter the economist’s depiction. He accepted that this had some merit in opposing economic fetishism but he thought that Hodgskin underestimated the value which the labour of the past has for the labour of the present (Marx 1863[1972], p. 276).

In the early draft of Capital, commonly known as Grundrisse, Marx was explicit that the full development of capital took place only when the machine as the technological application of science dominated the production process. Whereas Hodgskin emphasised that the knowledge which appeared to belong to capital really resided in the engineers and workmen who contributed to the creation of machinery, Marx accepted that the general productive forces of the social mind were absorbed into capital. As he put it:

The accumulation of knowledge and of skill, of the general productive forces of the social mind, is thus absorbed into capital, as opposed to labour, and hence appears as a property of capital, more precisely, of fixed capital, to the extent that it enters into the production process as means of production in the strict sense. (Marx 1857-1861[1987], p. 84)

Marx thus acknowledged not only that knowledge is a productive force but also that, in particular historical conditions, knowledge is bound up with and under the control of capital.

In asserting that the general productive forces of the social mind were absorbed into capital, Marx may have benefited from the early chapters of Charles Babbage’s (1791–71) On the Economy of Machinery and Manufactures [1832] in which the role of tools and machinery in extending human capabilities and in cheapening commodities is discussed concretely and in detail. In the chapter on copying, Babbage described an array of industrial processes in which cheapness results from the skill devoted to some original instrument or tool becoming the basis for many thousands of copies themselves requiring minimal amounts of skill (Rosenberg 1994). These instruments or tools can be said to embody the information and skill necessary to reproduce the objects in question.

As depicted by Babbage, the process of division of labour and mechanization was facilitated by large scale production and resulted in the creation of a hierarchy of skill in the labour force. High levels of skill were required for the invention, design, construction, maintenance and set-up of machinery while routine tasks were de-skilled and eventually mechanised. Babbage had independently arrived at the conclusion that economising on skill was one of the main benefits of the division of labour but he subsequently acknowledged that the principle had already been set out by Melchiore Gioja’s Nuovo Prospetto of 1815. Babbage regarded the tendency to economize on skill as applying to all areas of activity and not just manufacturing. In fact, the starting point for his own thought on the matter was not manufacturing but the processes used in compiling mathematical tables in post-revolutionary France.⁶

Throughout his career, Babbage argued that the prosperity of a country’s arts and manufactures was intimately related to the progress of the ‘severer sciences’ and he argued for public support for the sciences on the ground that those practicing them seldom benefitted from their eventual commercialization (Babbage 1832[1835], p. 379). Each generation availed of the knowledge bequeathed to it by its predecessors and purified it. Progress would continue as long as each generation added to the knowledge it had inherited. Both the accumulation of knowledge and the accumulation of physical capital resulted in growth but, in common with the views of his time, Babbage accepted that the accumulation of physical capital would eventually be checked by a fall in the rate of profit. On the other hand, ‘knowledge accelerated its own advance’ because every advance in knowledge opened up possibilities for further advance (Babbage 1851[1968], p. 210–211).

Although, J S Mill (1806–73) was lauded by Cannan as one of the few economists to draw attention to the link between superior knowledge and superior productivity, his contribution to the topic was modest and relied heavily on the work of Babbage and others. According to Mill, the skill and knowledge existing in a community was the third factor (after natural advantages and the greater energy of labour) determining the productiveness of labour (Mill 1848[1909], p. 107–108). Mill noted that one of the principal ways in which knowledge served to economize on labour and enable work to be performed in greater perfection was through the invention and use of tools and machinery. Despite its importance, Mill noted that the use of machinery was not the only means by which knowledge impacted on productivity and that in agriculture, ‘judicious' improvements in the processes of land and crop management were far more important. Mill then went on to argue that while the relationship between increased knowledge and increased wealth was widely recognised, the importance of the general diffusion of intelligence among the people was not so well understood. Part of Mill’s discussion of this issue covered the way in which basic education increased the flexibility of the workforce but a larger part was concerned with the cultivation of the moral qualities which in Mill’s view were ‘as important to the efficiency and worth of their labour, as the intellectual.’ (Mill 1848[1909], p. 110). Mill’s discussion of moral qualities drew on Babbage but with the difference that qualities, such as trust, which were facilitated by industrial structure in Babbage, were for Mill personal qualities which had to be cultivated through education.

Carlo Cattaneo (1801–69), Mill’s Italian contemporary went further than Mill in emphasising that the wealth of a nation depended not just on effort but on ‘intelligence and work combined’ (Cattaneo 1861[2007], p. 63). According to Cattaneo, human intelligence had a vital role in discerning the value of things and he provided several examples of resources being unused for a long periods of time because humans had not yet discovered their usefulness. Value, however, did not depend solely on usefulness but rather on minds’ assessment of value. Cattaneo’s theory of development has the standard elements of inheritance and innovation which we have seen elsewhere but rather than a smooth accumulation of knowledge, as each generation added to what it inherited from its predecessor, he postulated a series of life systems each of which involved a closed circle of ideas. Adults transmitted the life system by imitation to adolescents and the authority of tradition and pride made it seem the only way to live (Cattaneo 1861[2007], p. 65). Cattaneo suggested that this stagnation or ‘pause of the spirit repeats itself in all subsequent stages of mankind every time the circle of ideas … .becomes closed’ (Cattaneo 1861[2007], p. 66). While Cattaneo saw the value of Pascal’s suggestion that the ‘whole succession of men … should be considered as a single man who subsists forever and learns continually, he was of the view that the brevity of life provided an important compensation. This was that the minds of the successors began a new stage in the flow ideas which was less encumbered by the thought and traditions of the past than their predecessors were (Cattaneo 1859-1866[2019], pp. 232–233). Cattaneo provided a conjectural history of the beginnings of science and reliable knowledge and the emergence of schools as important means of knowledge transmission. But while emphasising the importance of science, he also acknowledged that many of the most important discoveries were not of a scientific nature. All, however, were acts of intelligence by sagacious minds (Cattaneo 1861[2007], p. 77).

As in Hegel’s Philosophy of World History, Cattaneo linked changes in commerce, industry and agriculture with changes in the thought process of the nation, led by a few powerful minds who have insights into the needs of the time (Hegel 1956, pp. 29–36; Cattaneo 1861[2007], pp. 85–87). Continuing in the Hegelian spirit, Cattaneo asserted that will is a principle of wealth as much as intelligence (Hegel, 1956, pp. 22–24). He recognised the potency of interest as a positive factor in creating abundance but also noted that this could have negative results when exercised at the expense of others. This led Cattaneo to the consideration of institutional structures which align individual and public interests (Cattaneo 1861[2007], p. 101).

While aspects of Cattaneo’s contribution such as the focus on discovery, the subjectivity of value and the advocacy of freedom might lead one to think that his views are close to those of Austrian economists, this would be a mistake. As Raffaelli (2014) notes, Cattaneo consistently disputed the concept of the solitary individual and in Psychology of the Associated Minds insisted that in human science, it is impossible to leave society out of consideration. His focus is the associated man who in the course of history builds collective ways of thinking and acting. As noted earlier, the idea that knowledge is essentially a social product goes back at least to Bacon. What was new in Cattaneo’s argument is his insistence that the pychology of society arose from the conflict of several minds and could not have arisen from among minds in agreement or in a mind on its own (Cattaneo 1859-1866[2019], p. 206). Although he shared List’s recognition of the importance of scientific and technological capability, Cattaneo was adamant that this could not be achieved by means of protectionism. Free trade was the only principle that gave people a chance to develop their latent faculties. It provided access to ideas, products and techniques and the competition that prevented stagnation (Raffaelli 2014, p. 269).⁷ The association of the senses of several men in different points of time and space meant that certain phenomena could be embraced in their wholeness in ways that exceeded the capacity of individual sense. Out of this crowd of uncertain and occasionally contradictory sensations, a stable and serene light gradually emerged to represent the order of the universe (Cattaneo 1859-1866[2019], p. 170).

Like Cattaneo, Schumpeter (1883–50) identified two essential moments in history — the preservation of the existing order or ‘circular flow’, on the one hand and its destruction and replacement by a new order on the other. There is no evidence that Schumpeter ever read Cattaneo’s work and it is likely that the apparent similarities reflect both authors’ debt to Hegel.⁸ There are also significant differences. Schumpeter did not share Cattaneo’s emphasis on science and discovery and he would undoubtedly have rejected Cattaneo’s idealism just as he rejected that of Hegel. Change in Schumpeter’s schema was led by entrepreneurs whose job was not to invent new possibilities but to put these possibilities into action.

While Schumpeter discounted the importance of invention as opposed to innovation and emphasised creative destruction as opposed to knowledge accumulation, his main interest was always the course of economic development and he fully acknowledged the historical and evolutionary nature of the economic process.

Things economic and social move by their own momentum and the ensuing situations compel individuals and groups to behave in certain ways whatever they may wish to do — not indeed by destroying their freedom of choice but by shaping the choosing mentalities and by narrowing the list of possibilities from which to choose. (Schumpeter 1947, pp. 129–130)

Explicitly in Capitalism, Socialism and Democracy, but implicitly in his earlier work, Schumpeter contended that the gains from technical progress greatly outweigh those from allocational efficiency. As he put it:

A system … that at every point of time fully utilizes its possibilities to the best advantage may yet in the long-run be inferior to a system that does so at no given point of time because the latter’s failure to do so may be a condition for the level or speed of long run performance. (Schumpeter 1947, p. 83)

This was a position he shared with Alfred Marshall (1842–24) although as Raffaelli (2003, pp. 119–120) has pointed out, there were substantial differences in the approach of the two authors despite both being concerned with the dynamics of capitalism. Schumpeter was of the view that Walras’s general equilibrium theory could be used to capture static interdependence while his own theory of creative destruction was required to analyse change. By contrast, Marshall rejected the view that it was possible to divide the study of humanity into a statical part dealing with structure and dynamical part dealing with progress. Any explanation of the structure that went beyond pure description had to deal with the forces that brought that structure into existence and must therefore be dynamical (1961, II, p. 48).⁹

Like Cattaneo and Schumpeter, Marshall (1842–24) was a student of Hegel but he differed from them in emphasising the gradual nature of economic change. He also rejected the view that individual genius had an important role in development (Marshall 1890[1961]: I, p. xviii).¹⁰ Although he declared that knowledge was the most powerful engine of production, Marshall seldom treated it separately from capital, labour and organisation.¹¹ He believed that progress would continue because there was scope for technological innovation as well as for improvement in human beings themselves. The improvement in human beings was an end in itself — ‘the end of all our studies’ but Marshall also recognised its instrumental importance. Building on Babbage, he argued that with the evolution of the division of labour, machinery was constantly supplanting purely manual skill but this deskilling was counteracted by the increased the demand for complex skills and intelligence that were required in activities related to mechanization. (Marshall 1890[1961], p. 255). This optimistic picture of the effects of technological and organisational change on wider human development displayed in Marshall’s Principles of Economics was qualified somewhat in Industry and Trade where he considered the effects of scientific management. Marshall acknowledged that the approach resulted in higher productivity and often in higher wages. However, he was concerned that its impact in terms of removal from operatives any duty other than the carrying out of instructions (Marshall 1919, p. 388). Man was not merely an agent of production and the most economic use of man as an agent of production was wasteful if he was not himself developed by it.

In line with his belief that demand for complex skills and intelligence was increasing, Marshall devoted attention to the issue of education and technical training both in the Principles and in Industry and Trade. In the latter, he noted that, after 1870, Britain’s industrial leadership came under strong challenge first from Germany and later the United States. British industry had been slow to recognise the importance of education in promoting improved productivity but steps were being taken to rectify this position. These included improved access to sound general education, even for the poorest, and the provision of educational ladders by means of which children from the lowest ranks could progress to higher learning. Reforms were taking place in the old universities and new universities had a greater focus on science and engineering. Marshall approved of the provision of national funds to support the advancement of knowledge for its own sake. More applied research was taking place in large firms and was also promoted by open associations of producers and traders. Separate chapters of Industry and Trade were devoted to industrial leadership in France, Germany and the United States. Marshall saw the advantage of the French as lying in refinement of production; of the United States in standardization and mass production; and of Germany in science in the service of industry. He noted that Germany’s leadership was mainly in industries in which scientific training could be turned to good account and that these industries were growing in relative importance.

In his discussions of form and purpose of education, Marshall warned that ‘mere accumulation of knowledge’ stunted rather than educated the mind and insisted that it was important to maintain the spontaneity and intellectual alertness that had traditionally been developed in the workplace. Marshall’s concern that rigorous training should not be at the expense of creativity is in keeping with his wider evolutionary approach which Raffaelli characterised as exploration of the ‘dialectics between repetition and innovation, order and change, custom and freedom’ (Raffaelli 2008, p. 38). The preservation of enterprise and initiative was also an important aspect of economic organisation. Marshall’s support for free enterprise was always qualified and his opposition to government intervention was due to his concern that it would dampen the entrepreneurial spirit and not due to any distortions intervention might introduce. In a fragment written in 1922 for his projected final volume on progress, Marshall wrote that ‘Economic progress depends in great measure on the courage as well as sound judgment with which business risks are taken’ and he commended developments such as joint stock undertakings for their role in mitigating risks. (Groenwegen 1995, p. 727).

The newfound emphasis on knowledge by Marshall and Cannan’s reference to the accumulation of knowledge referred to in our introduction reflected important changes that were taking place in real economy in the 20th century. Research by Abramovitz (1993) and others on the sources of economic growth has shown that the growth of capital intensity was a much larger source of labour productivity growth in the 19th century than in the twentieth. Nineteenth century technological progress was heavily biased in a physical capital-using direction and could be incorporated into production only through the expansion in physical capital per worker. This physical–capital using bias weakened in the 20th century and the bias shifted in an intangible (human and knowledge) capital-using direction bringing with it an increasing focus on the role of knowledge in the production process.

As noted in our introduction, a focus on knowledge capital as opposed to physical capital has intensified further with the growth of what is characterised as the knowledge economy in the late 20th and early 21st centuries. People all around the world now devote more money and time to the acquisition of education than ever before.¹² Returns from this educational effort are positive and explain a large part of the difference in earnings in and between countries. However, while recognising that the skills embodied in labour inputs are important for firm productivity, Corrado et al. (2022) argue that these do not exhaust the corporate knowledge they help to create. The additional organisational knowledge is seen as forming part of the intangible capital of firms. This intangible capital, which goes well beyond investments in R&D, is estimated to have risen from roughly 5 to 16.75 per cent of private sector GDP between 1985 and 2021 at a time when tangible investment fell from 12.5 to 8.5 per cent.

Concluding Remarks

This paper has sought to uncover the long-submerged tradition that saw knowledge accumulation as the main driver of progress. This vision is incapsulated in a statement by Luigi Pasinetti in the introduction to his Structural Change and Economic Growth:

A sufficient condition [to explain technical and economic change] is to suppose that human beings are able to learn from past experience and to communicate amongst themselves the results of their learning activity. Then, if men, on the average, are born with the same degree of intelligence in time, each generation is bound to go further than the previous one; not because it is more intelligent but because it starts from a better position, by taking advantage of longer experience. (Pasinetti 1983, p. 22)

Passinetti does not appear to have been aware that this cumulative vision was ubiquitous during much of the 18th century. However, with the advent of the machine age, the focus shifted from knowledge accumulation to capital accumulation. Emphasis on knowledge accumulation did not disappear completely but, for a century and a half, it remained in the shadows. Even from the shadows, there was much insightful inquiry into the role of knowledge, and, in this conclusion, an attempt will be made to highlight aspects of these somewhat disparate contributions.

From Bacon onwards the insight that, in order for society to progress, human beings have to build on inherited knowledge was common to many of the authors considered here, and highlights, first, that knowledge has to be transmitted not just within society but between generations and, second, that each generation has to add innovations of its own if progress is to continue.

The transmission of an ever growing body of knowledge has been a continuing problem and there has been a strong interest in the identifying the channels through which this could be achieved. Emphasising the importance of education, our authors recognised the role of households and communities as well as schools. They showed an awareness that the effective transmission of knowledge requires appropriate sequencing as well as simplification. They emphasised that the division of labour is important for the ease of transmission of knowledge and not just for its contribution to productive efficiency. By dividing the knowledge to be transmitted and reducing what each actor was required to learn, the division of labour facilitates the transfer of vast bodies of knowledge which would otherwise be infeasible. A failure in transmission leads to a loss of knowledge which may be positive or negative depending on the circumstances. Knowledge lost may have become outdated or no longer valued by society as in Schumpeter’s creative destruction. Alternatively, knowledge which is potentially valuable for the present and/or future generations may be lost because it seen as too costly to maintain and transmit.

Innovation is necessary if the economy is not to stagnate. Such innovation can be gradual affair as in Marshall; in can interspersed with periods of stagnation as in Cattaneo; or it can arrive in Schumpeterian waves. The processes of transmission and innovation are not independent of each other. Innovation builds on existing knowledge, even if it ultimately replaces it. Effective transmission mechanisms support innovation but mechanisms which assist transmission such as emulation, rote learning, and strong social sanctions may result in inflexibility thereby hindering change. On the other hand, codification and low costs of transmission may reduce the incentives for costly innovation since easy copying may make it difficult for the innovator to recover costs. Patent systems provide incentives for innovation but patents may be costly to police. Furthermore, since they slow down the diffusion of innovation, they may in turn slow down innovation itself.

The knowledge accumulation framework can also help to throw light on the relationship between the ways in which knowledge is stored, transmitted, and deployed and the kinds of the social relations of production that are possible or allow for further development. Although the division of labour within the workshop that developed in the late 18th century could, in principle, have been achieved through a social division of labour by independent producers, this was no longer the case once the of the social knowledge required for production was embodied in expensive machinery. This had implications for the forms of ownership which most economists in the19th century assumed were possible and hence also for the disposition of bargaining power and the nature of the possible ideological claims and counterclaims. However, further transformations in the 20th century involving greater embodiment of knowledge in human and organisational capital have made the importance of knowledge more salient. These bring to our attention the shortcomings of analytical structures that neglect technical change as authors such as Pasinetti (1999) and Arthur (1994) have highlighted.

Finally, it is worth reminding ourselves of Bacon’s dictum that truth is the daughter of time and that knowledge is the work of many hands and not individual genius. Knowledge is inherently social. As Hume wrote of the poets: Their fire … . burns brightest, where the materials are best prepared’ (Hume 1742[1777], pp. 114–115). Marshall echoing Hume noted, that part of the entrepreneur’s influence which is not superficial or transitory will be ‘found on inquiry to have done little more than bring to a head a broad constructive movement which had long been in preparation’ (Marshall 1860[1961], I, p. xiii).

Acknowledgements

I would like to use this opportunity to acknowledge and thank the reviewers who reviewed this article and aided in its publication. I am also grateful for comments received from members of the 2022 STOREP conference. In particular, I would like to thank Enrico Bellini and Paolo Trabucchi for drawing my attention to relevant work by Luigi Passsinetti and Carlo Cattaneo.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Similar views were expressed in Turgot’s Plan of the Discourses on Universal History where he  referred to man transmitting his acquired ideas to his successors ‘as a heritage which is always being augmented’(Meek 1973, p. 63; Turgot 1751[1808], p. 212).

2 Technical progress in manufactures was not ruled out but it had no impact on the conclusions in Ricardo’s theoretical model.

3 Both Bentham and James Mill had been influenced by Helvetius who had emphasised that men were products of their environment and that differences between people could be explained by differences in their education in its broadest sense.

4 Cited in Cattaneo 1861[2007], pp. 54–55.

5 The attribution of this point of view to Smith was unfair since Smith had taken an inclusive view of capital including within it the natural and acquired abilities of the inhabitants. However, many of Smith’s successors took a narrow view focused almost entirely on fixed capital (Shield Nicholson 1916, p. xviii).

6 As Babbage reported, the work was divided into three sections. The first required able mathematicians to decide on the appropriate functional forms. The second involved people with a good knowledge of mathematics who converted the formulae into numbers. The only skill required of the third and largest group was the ability to do simple addition and subtraction (Babbage 1832[1835], pp. 194–196). As might be expected, Babbage saw the potential for the mechanization of the routine work conducted in the final stage and he devoted much of life to the invention and construction of difference and analytical engines with this purpose in mind.

7 The arguments are reminiscent of Hume whose case for free trade was that it was conducive to the diffusion of knowledge. After Smith, the contribution of free trade to growth tended to focus more on capital accumulation, See Prendergast (2010).

8 Although he cast doubt on the extent of Hegel’s influence on Marx, Schumpeter recognised that Hegel’s vision was essentially evolutionary (Schumpeter 1961b, p. 437). For a discussion of Hegel’s influence on Schumpeter’s own thought, See Usher (1951) and Prendergast (2006).

9 That said, Marshall did not reject the idea that there could be periods of complacency if not stagnation. For example, he was concerned that by the end of the 19th century, Britain had lost much of the entrepreneurial energy that had sustained its earlier development. ‘Rich old firms could thrive by their mere momentum, even if they had lost the springs of energy and initiative’ (Marshall 1890[1919], p. 91).

10 The difference with Cattaneo on this matter might not be as significant as it appears on first sight because, to use a phrase coined by Schumpeter with reference to the entrepreneur, the Hegelian ‘great man of world history’ is merely ‘the bearer of the mechanism of change’ (Schumpeter 1961a, p. 61, n.1). See also Prendergast (2006, pp. 259–266).

11 Capital was described as consisting in a great part of knowledge and organisation both of which are the result of the work of man aided by nature.

12 Between 1950 and 2010 the share of the world population with at least some secondary education increased from 13 to 51 per cent while the share of those with some tertiary education increased sevenfold. In the United States, education spending increased from 3.1 per cent of GDP in 1950 to 7.1 per cent in 2018 (Deming 2022).