----------------- HES POSTING ----------------- 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. Copyright (c) 2002 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ([log in to unmask]; Telephone: 513- 529-2850; Fax: 513-529-3308). Published by EH.Net (March 2002). All EH.Net reviews are archived at http://www.eh.net/BookReview ------------ FOOTER TO HES POSTING ------------ For information, send the message "info HES" to [log in to unmask]