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Oh, the beauty of searchable electronic texts!! 
 
A quick search of Marshall's Principles of Economics on-line at 
http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/marshall/ produced the 
following -- the final paragraph in chapter 9 of Book IV. As Marshall 
indicates in the last sentence, chapter 10 discusses external economies at 
some length. 
 
"We may divide the economies arising from an increase in the scale of 
production of any kind of goods, into two classes -- firstly, those 
dependent on the general development of the industry; and, secondly, those 
dependent on the resources of the individual houses of business engaged in 
it, on their organization and the efficiency of their management. We may 
call the former external economies, and the latter internal economies. In 
the present chapter we have been chiefly discussing internal economies; 
but we now proceed to examine those very important external economies 
which can often be secured by the concentration of many small businesses 
of a similar character in particular localities: or, as is commonly said, 
by the localization of industry." 
 
So, can we take this notion back before Marshall? 
 
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