Consequently, it would be possible to increase the national dividend by shifting resources from one group of industries to another. This thesis, however, was dubbed unacceptable by Professor Knight on the ground that its underlying assumptions (referring specifically to the two-roads case) diverge in essential respects from the facts of real economic situations.' Scarcity of examples dealing with external economies has been a constant stumbling block that prevented the full development of the ideas embodied in the thesis and our understanding of it. We intend to show in this paper that examples of external economies are difficult to find, not because they are really rare but because we are looking on the wrong shelves. When we examine the right shelves by squarely facing the realities of external economies in land and inquire why such external economies arise, the tax-bounty thesis and its variants will become much more meaningful and the role of land economics in the contemporary society will become much more illuminating. Let us begin with a brief review of Marshall's concept of external economies for it seems it is this concept which has led us into one of the worst muddles in the history of economic analysis. Marshall and External Economies. Given the tempo of the time, Marshall had to face the reality of the law of increasing return in dealing with many manufacturing industries. As he puts it: