Increasing Returns and Industrial Clustering: From Daniel Defoe to Alfred Marshall

Abstract

Spatial concentrations of firms in a peculiar regions, or industrial cluster, were described by many economists in the 18th and 19th Century. Beginning with early classical economists like William Petty and Daniel Defoe, there have been various attempts to link the advantages of localization economies with growth theory. Charles Babbage and Andrew Ure stressed the significance of clustering within the new factory system, which influenced the work of John S. Mill, J. Ramsay McCulloch, Karl Marx and even late-classical economists as Henry George and Henry Sidgwick. These contributions were used by Alfred Marshall, who implemented industrial clustering as a crucial element of his theory of price and equilibrium.