economies of scope The cost advantages
that may arise when performing two or more
activities together within a single firm rather
than performing them separately. When econ-
omies of scope exist, firms have an incentive to
internalize (i.e. perform in-house) the produc-
tion of goods or services that otherwise would
be acquired through transactions with external
suppliers (seetransactional analysis). This
incentive is normally expressed in terms of
reductions in production costs as result of
internalization (see transaction costs).
Hence, economies of scope may arise where
the goods or services in question share inputs
to their production (e.g. by using excess
capacity in power generation or indivisible
machinery), are related to one another
through input–outputrelations (one good
being an input to the production of the other
good), draw upon common technical or man-
ual skills for their production, or can be most
efficiently produced at roughly the same scale
of output. This concept, when combined with
the idea ofeconomies of scale, provides an
understanding of the forces that determine
firm size and the nature of inter-firm relations
in localized clusters of producers (Scott,
1988c). (See alsoproduction complex.)msg
economy Economy is practice and object.
As human practice, Aristotle definedoikosas
operating the household (on patriarchal prin-
ciples) to meet daily needs. Over time, as the
meaning of economy migrated from the
domestic to the public sphere withinpolitical
economy, it came to mean ‘seeking a desired
end with the least possible expenditure of
means’. As object, it refers to the hypothesis
that practices of economy, now in the public
domain, can be separated from the remainder
of societal endeavour: as the economy.
Economy has become central to socialdis-
courseas a result of this separation: human
practices are thought of as reducible to means/
ends rationality, and the (capitalist) economy is
thought of as central to human well-being.
Thegenealogyof this separation of econ-
omy from related societal and biophysical pro-
cesses is not yet clear. The question of how to
organize society on secular principles, as a
substitute for (Christian) religious mores,
was a preoccupation of theenlightenment
in France and Scotland. French Physiocrats
constructed the first model of an economy as
a self-sustaining entity. In 1758, Franc ̧ois
Quesnay built atableau e ́conomique, forerunner
of Marx’s theory of the circulation of capital
and of post-1945 input–output models,
depicting the flow of net product from its pre-
sumed agricultural source, via landlords,
‘unproductive’ industrialists, and back to agri-
culture. British political economists concerned
themselves with the benefits of organizingsoci-
etyaround economy. It was held that thestate
could not rein in human passions, implying
that the key was harnessing self-interest for this
purpose. Avarice became constructed as a
beneficial and mild interest rather than a pas-
sion, capable of taming other passions deleteri-
ous to society. Adam Smith solved the puzzle of
how self-interest could create a society benefi-
cial to all. He reduced self-interest to economic
calculation, and articulated the principle of the
invisible hand, wherebymarketcompetition
would translate individual self-interested prac-
tices of economy into mutual benefit. Smith’s
argument was geographical: the invisible hand
and free trade would benefit Britain. These
justifications gradually transformed into the
abstract argument that self-interested practices
of economy were universal, and generally
socially beneficial.
Seventeenth- and eighteenth-century polit-
ical economy focused on the relationship
between economic processes and the national
polity. Karl Polanyi (1944) argues that the
economy wasdisembeddedfrom society during
Britain’s ‘Great Transformation’ to liberal
capitalismin the early nineteenth century,
and increasingly, the economy was placed in
a national frame. By 1841 Friedrich List,
influenced by American economic policy, was
proposing protectionist policies for the German
national economy, facing the debilitating
consequences of free trade with Britain.
After the 1890s, European and then
American economists completed a marginalist,
subsequently neo-classical, revolution reinfor-
cing the principle of the invisible hand.
Assuming a world of autonomous self-
interested individuals of equal political power
engaged in perfect competition,neo-classical
economicscreated a level playing field, on
which equilibrium market prices would track
the marginal utility of eachcommodity; ensure
that capitalists, landlords and workers are fairly
paid (reflecting their marginal contribution to
production); and maximize social utility, in a
self-regulating market. It was also extended as a
normative principle to broad areas of social life.
rational choice theory, the broadly influen-
tial idea that social structures and dynamics are
the result of the rational economic choices of
autonomous self-interested individuals, essen-
tially grounds all social processes in practices of
economy – and equates such actions withGregory / The Dictionary of Human Geography 9781405132879_4_E Final Proof page 184 1.4.2009 3:17pmECONOMIES OF SCOPE