Our understanding of how markets and businesses operate was passed down to us more than a century ago by a handful of European economists — Alfred Marshall in England and a few of his contemporaries on the continent. It is an understanding based squarely upon the assumption of diminishing returns: products or companies that get ahead in a market eventually run into limitations, so that a predictable equilibrium of prices and market shares is reached. The theory was roughly valid for the bulk-processing, smokestack economy of Marshall’s day. And it still thrives in today’s economics textbooks. But steadily and continuously in this century, Western economies have undergone a transformation from bulk - material manufacturing to design and use of technology — from processing of resources to processing of information, from application of raw energy to application of ideas. As this shift has occurred, the underlying mechanisms that determine economic behavior have shifted from ones of diminishing to ones of increasing returns.
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About Alfred Marshall
Alfred Marshall was a 19th-century British economist. Alfred Marshall was an English economist and one of the most influential economists of his time. His book Principles of Economics (1890) was the dominant economic textbook in England for many years, and brought the ideas of supply and demand, marginal utility, and costs of production into a coherent whole, popularizing the modern neoclassical approach which dominates microeconomics to this day. Read more on Wikipedia →