The Significance of Penrose's Theory for the Development of Economics

Abstract

Adam Smith identified the division of labour as the prime source of growth, through the generation of differentiated knowledge; the co-ordination problem was a consequence of this causal sequence. But Jevons, Walras, and their successors isolated co-ordination from the growth of knowledge, and replaced causal sequences with formal proofs, despite Marshall's efforts to preserve Smith's theoretical system. Penrose reinvented the Smith-Marshall analysis of the growth of knowledge, centred on the firm, but explicitly endorsed the separation. Nevertheless her theory may permit a more convincing treatment of the co-ordination of differentiated knowledge than current models of rational choice equilibrium.