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Published by EH.NET (March 2002) 
 
John Sutton, _Marshall's Tendencies: What Can Economists Know?_ Cambridge, MA: MIT Press,
2000. xvi + 122 pp. $22.95 (cloth), ISBN: 0-262-19442-2; $14.95 (paperback), ISBN: 0-262-
69279-1.
 
Reviewed for EH.NET by Bruce Larson, Department of Economics, University of North Carolina
at Asheville. <[log in to unmask]>
 
 
John Sutton teaches microeconomics and industrial organization at the London School of
Economics and Political Science. In his previous books, _Sunk Costs and Market Structure_
and _Technology and Market Structure_, he used game theory and history to explore a range
of industries from salt to sugar and from coffee to beer, as well as to develop the
"bounds approach" to market structure. In _Marshall's Tendencies_ , which is based upon
the Gaston Eyskens Lectures that Sutton gave at the University of Leuven in 1996, he
builds upon his previous work, while also providing a valuable perspective on the
emergence of the standard paradigm in economics and what other economists might do. In
relation to this, Sutton asks: "Is it possible to find economic models that work?"
 
The epigraph of _Sunk Costs and Market Structure_, taken from Joseph Schumpeter's _History
of Economic Analysis_, provides a useful framework for Sutton's work. It states:
 
There are such things as historical and theoretical temperaments.  
That is to say, there are types of mind that take delight in all the  
colors of historical processes. . . . There are other types that  
prefer a neat theorem to everything else. We have use for both. But  
they are not made to appreciate one another. 
 
The tension between these temperaments is clear. It is recognized, however, that an
appropriate division of scholarly labor might necessitate that those with exclusively
historical temperaments focus on history and those with exclusively theoretical
temperaments focus on theory. Still, there are those whose temperaments combine the
historical and the theoretical, and there is a use for them, too. Such a person is John
Sutton and such a person was Alfred Marshall. Such people will presumably seek to find an
appropriate blend of theory and history in their work.
 
_Marshall's Tendencies_ contains four chapters. In chapter 1 ("The Standard Paradigm")
Sutton discusses Marshall's analogy of the tides, first introduced in the third edition of
_Principles of Economics_. In contrast to planetary movements, which can be predicted very
accurately, tidal movements are hard to predict, for although both phenomena are primarily
affected by gravity, the tides are secondarily affected by meteorological factors. It is
due to these seemingly random secondary factors that tides are so hard to predict and it
is because economic life is subject to so many secondary factors that economic laws must
be expressed as tendencies.
 
Sutton notes that Marshall's distinction between primary factors and secondary factors was
given its first systematic use in the work of Trygve Haavelmo, in which the primary
factors comprise the "systematic part" of the econometric model and the secondary factors
are reflected in the "disturbance term." This, combined with the comparative statics of
Paul Samuelson, effectively comprises the standard paradigm. The thrust of chapter 2
("Some Models That Work") is to show that the standard paradigm works well when there is
no problem of model selection, that is, when the true model is known, as in option pricing
and some auctions.
 
But what if the true model isn't known? What if the problem of model selection is
intractable? That is the subject of chapter 3 ("Relaxing the Paradigm"). Its argument
unfolds in relation to the nineteenth century thermodynamics of Sadi Carnot, whose work
progressed when he greatly increased the level of its abstraction. In relation to this
Sutton indicates that even if one cannot write down a complete model of some phenomenon,
one might still be able to develop a theory that generates testable hypotheses. The
"bounds approach" exemplifies this. As he observes with respect to the usual cloud-like
relationship between concentration and R&D intensity, "Using a bounds approach . . . we
arrive at a clear and sharp characterization" (p. 84). Sutton is careful to note, however,
that the bounds approach should be seen as complementary to the standard paradigm and not
as a substitute for it -- the bounds approach bears fruit in cross-section studies because
all of the complicating factors that relate to them operate in the same direction (p. 85).
 
The bounds approach, then, provides a means for developing testable hypotheses beyond
those provided by the comparative static methods of the standard paradigm (please see
Hale, et al., for an overview of these methods). Sutton draws upon this in chapter 4
("Testing"). While recognizing the late-twentieth century worries about theory testing and
the pessimism which resulted from them, he indicates that there are economic models that
work and with imagination more can be developed. In relation to this Sutton simply notes:
"If we take such worries seriously, we will adopt a relaxed and eclectic view as to
research methods, and we will be the better for doing so." This is a view with which
Marshall would have surely agreed.
 
_Marshall's Tendencies_ builds upon John Sutton's previous work, while also providing a
valuable perspective on the emergence of the standard paradigm in economics and what other
economists might do. It is an extremely stimulating book worthy of the consideration of
anyone who is interested in the potential (and limits) of economic knowledge. His
characterization of the emergence of the standard paradigm is broadly correct and his
discussion of theory performance in relation to model selection rings true. Furthermore,
his bounds approach indicates one direction in which future work might be fruitfully done.
Finally, his example shows that, as paradoxical as it might seem, empirical advances can
sometimes be made through greater abstraction. Sutton's work clearly shows that an artful
blending of theory and history can take us places inaccessible solely by theory or
history, but it also indicates that further advance is unlikely to be easy. Few things
worth doing ever are.
 
References: 
 
Douglas Hale, George Lady, John Maybee, and John Quirk, _Nonparametric Comparative Statics
and Stability_. Princeton, NJ: Princeton University Press, 1999.
 
John Sutton, _Sunk Costs and Market Structure: Price Competition, Advertising, and the
Evolution of Concentration_. Cambridge, MA: MIT Press, 1991.
 
John Sutton, _Technology and Market Structure: Theory and History_. Cambridge, MA: MIT
Press, 1998.
 
 
Bruce Larson studies the history of mathematical economics, his most recent article being
"Canard on Direct Exchange and Taxation: A Perspective on Cournot," _History of Political
Economy_ 31, no. 1 (Spring 1999): 109-31.
 
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