F.— ECONOMIC SCIENCE AND STATISTICS. 119 



necessarily a partial view. Certain aspects of those processes are 

 illuminated, while, for that very reason, certain other aspects, important 

 in relation to other problems, are obscured. This will be clear, I think, if 

 we observe that, although the internal economies of some firms producing, 

 let us say, materials or appliances may figure as the external economies 

 of other firms, not all of the economies which are properly to be called 

 external can be accounted for by adding up the internal economies of all 

 the separate firms. When we look at the internal economies of a particular 

 firm we envisage a condition of comparative stability. Year after year 

 the firm, like its competitors, is manufacturing a particular product or 

 group of products, or is confining itself to certain definite stages in the 

 work of forwarding the products towards their final form. Its operations 

 change in the sense that they are progressively adapted to an increasing 

 output, but they arc kept within definitely circumscribed bounds. Out 

 beyond, in that obscurer field from which it derives its external econoniies, 

 changes of another order are occurring. New products are appearing, 

 firms are assuming new tasks, and new industries are coming into being. 

 In short, change in this external field is qualitative as well as quantitative. 

 No analysis of the forces making for economic equilibrium, forces which 

 we might say are tangential at any moment of time, will serve to illumine 

 this field, for movements away from equilibrium, departures from previous 

 trends, are characteristic of it. Not much is to bo gained by probing into 

 it to see how increasing returns show themselves in the costs of individual 

 firms and in the prices at which they offer their products. _ 



Instead, we have to go back to a simpler and more inclusive view, such 

 as some of the older economists took when they contrasted the increasing 

 returns which they thought were characteristic of manufacturing industry 

 taken as a whole with the diminishing returns which they thought were 

 dominant in agriculture because of an increasingly unfavourable pro- 

 portioning of labour and land. Most of them were disappointingly vague 

 with respect to the origins and the precise nature of the ' improvements ' 

 which they counted upon to retard somewhat the operation of the tendency 

 towards diminishing returns in agriculture and to secure a progressively 

 more eSective use of labour in manufactures. Their opinions appear to 

 have rested partly upon an empirical generalisation. Improvements had 

 been made, they were still being made, and it might be assumed that they 

 would continue to be made. If they had looked back they would have 

 seen that there were centuries during which there were few significant 

 changes in either agricultural or industrial methods. But they were 

 living in an age when men had turned their faces in a new direction and 

 when economic progress was not only consciously sought but seemed in 

 some way to grow out of the nature of things. Improvements, then, were 

 not something to be explained. They were natural phenomena, like the 

 precession of the equinoxes. 



There were certain important exceptions, however, to this incurious 

 attitude towards what might seem to be one of the most important of all 

 economic problems. Senior's positive doctrine is well known, and there 

 were others who made note of the circumstance that with the growth of 

 population and of markets new opportunities for the division of labour 

 appear and new advantages attach to it. In this way, and in this way 



