EDWARD S. MASON 171 



acteristics of raw materials supply and demand create "problems" that 

 constitute an important part of the political economy of natural re- 

 source use. 



External Economies and Diseconomies in Natural Resource Use 



The concept of external economies entered economics with Alfred 

 Marshall's analysis of decreasing cost industries. An expansion of out- 

 put in certain industries might bring about economies independent of 

 the action of any firm but accessible to all.^^ The inability of particular 

 firms to secure these economies by their own action supposedly indi- 

 cated a failure of the "price system" that might be considered to jus- 

 tify government intervention in favor of decreasing cost industries. So 

 defined, external economies have no particular reference to natural 

 resource industries. Nor have they, on examination, revealed them- 

 selves to be of any particular importance. 



Since Marshall's time the concept has been extended to include a 

 larger class of interdependencies in the economic system; pecuniary 

 interdependencies have been distinguished from technological; and 

 static technological interdependencies have been differentiated from 

 the external economies and diseconomies of economic growth. 



A generalized definition of external economies would embrace all 

 economies accruing to a particular firm (or household) by reason of 

 the expansion of output by other firms in the economy and which are 

 independent of their own individual outputs.^" The expansion of a 

 group of industries, say petro-chemicals and steel, may bring econo- 

 mies to the individual firms in those industries that are impossible to 

 achieve through their own expansion. The expansion of a metropoli- 

 tan area may bring similar effects. There are fikewise economies — and 



i^The Marshallian usage is defined by Viner as follows: "External economies 

 are those which accrue to particular concerns as the result of the expansion of 

 output by their industries as a whole, and which are independent of their own 

 individual outputs." Jacob Viner, "Cost Curves and Supply Curves," Zeitschrijt 

 fur National-okonomie, 1931. 



1^ Cf. an unpublished paper by Svend Laursen prepared for the Center for 

 International Studies at MIT, "External Economies in Economic Development." 



