Alfred Marshall


Alfred Marshall

Alfred Marshall (July 26, 1842 – July 13, 1924), was one of the most influential economists of his time. He led the British neoclassical school of economics, and was responsible for the emergence of Cambridge University as a center of economic research in the early twentieth century. Through his work, applying mathematical principles to economic issues, economics became established as a scientific discipline. Marshall attempted to bring together the classical approach, in which value was determined by cost of production, with the idea of marginal utility developed both by his British predecessor William Stanley Jevons and the Austrian school in continental Europe, downplaying the revolutionary nature of their insights. He argued that supply and demand factors (cost of production and utility respectively) both determine price, suggesting that their relative importance is mostly a factor of the time period (long run or short run) under consideration. Although Marshall's views were never completely accepted by all economists, his ideas were influential in advancing understanding of economic relationships, which are fundamental to the successful development and maintenance of a stable, prosperous society that benefits all its members.

Contents

Life

Alfred Marshall was born on July 26, 1842, in Bermondsey, London, England, the son of a cashier at the Bank of England. He was educated at the Merchant Taylor's School, Northwood and St John's College, University of Cambridge, where he demonstrated an aptitude in mathematics. He achieved the rank of "second wrangler" on the Cambridge Mathematical Tripos. Although early on, at the behest of his father, he hoped to become a clergyman, his success at Cambridge led him to take an academic career. He first studied ethics for a year in Germany, and then psychology and economics.

He became a professor in 1868, specializing in political economy. He desired to improve the mathematical rigor of economics and transform it into a more scientific profession. In the 1870s he wrote a small number of tracts on international trade and the problems of protectionism. In 1879, many of these works were compiled together into a work entitled The Pure Theory of Foreign Trade: The Pure Theory of Domestic Values.

In 1877, Alfred married Mary Paley, who was a student in his political economy class at Cambridge. This forced Marshall to leave his position at Cambridge, in order to comply with the university's rules. He became a principal at University College, Bristol, again lecturing on political economy. He perfected his Economics of Industry and published it widely in England as an economics curriculum. Simple in form, it stood upon sophisticated theoretical foundations. Marshall achieved a measure of fame from this work, and upon the death of William Stanley Jevons in 1881, Marshall became the leading British economist of the scientific school in his time.

Marshall returned to Cambridge to take the chair as professor of political economy in 1884, after the death of Henry Fawcett. At Cambridge he endeavored to create a new "tripos" for economics, which he finally achieved in 1903. Until that time, economics was taught under the historical and moral sciences, which failed to provide Marshall the kind of energetic and specialized students he desired.

Marshall began his seminal work, the Principles of Economics, in 1881, and he spent much of the next decade at work on the treatise. His plan for the work gradually extended to a two-volume compilation on the whole of economic thought. The first volume was published in 1890, to worldwide acclaim. The second volume, which was to address foreign trade, money, trade fluctuations, taxation, and collectivism, was never published.

Over the following two decades he worked to complete his second volume of the Principles, but his unyielding attention to detail and ambition for completeness prevented him from mastering the work's breadth. The work was never finished and many other, lesser works he had begun work on—a memorandum on trade policy for the Chancellor of the Exchequer in the 1890s, for instance—were left incomplete for the same reasons.

Marshall’s health deteriorated in the 1880s, and in 1908 he retired from the university. He hoped to continue work on his Principles but his health worsened and the project continued to grow with each further investigation. The outbreak of World War I in 1914 prompted him to revise his examinations of the international economy, and in 1919 he published Industry and Trade. This work was a more empirical treatise than the largely theoretical Principles, and for that reason it failed to attract as much acclaim from theoretical economists. In 1923, he published Money, Credit, and Commerce, a broad amalgam of previous economic ideas, published and unpublished, stretching back one half century.

Alfred Marshall died at his home, Balliol Croft, in Cambridge, England on July 13, 1924, at the age of 81.

Work

Alfred Marshall turned to economics because "the study of the causes of poverty is the study of the causes of the degradation of a large part of mankind" (Marshall [1890] 1997). His work was influential in shaping mainstream economic thought for decades.

While Marshall took economics to a more mathematically rigorous level, he did not want mathematics to overshadow economics and thus make economics irrelevant to the layman. Accordingly, Marshall tailored the text of his books to laymen, and put the mathematical content in the footnotes and appendices for the professionals. In a letter to his protégée, Arthur Cecil Pigou, he laid out the following system:

(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This I do often. (Buchholz 1990, 151).

Marshall's influence on codifying economic thought is difficult to deny. He popularized the use of supply and demand functions as tools of price determination (previously discovered independently by Cournot); modern economists owe the linkage between price shifts and curve shifts to Marshall. Marshall contributed to the "marginalist revolution" with the idea that consumers attempt to equate prices to their marginal utility. The "price elasticity of demand" was presented by Marshall as an extension of these ideas. Economic welfare, divided into "producer surplus" and "consumer surplus," was contributed by Marshall, and indeed, the two are sometimes described as "Marshallian surplus." He used this idea of surplus to rigorously analyze the effect of taxes and price shifts on market welfare. Marshall also identified "quasi-rent."

Marshall introduced the concept of time in the determination of price through his proposed different market "periods":

  1. Market period—goods produced for sale on the market are in fixed supply, for example in a fish market. Prices quickly adjust to clear markets.
  2. Short period—industrial capacity is taken as given. This is the time period in which the supply can be increased through additional labor and raw materials, but not capital improvements, in order to maximize profits.
  3. Long period—the time when capital "appliances," such as factories and machines, may be increased. Profit-maximizing equilibrium determines both industrial capacity and the level at which it is operated.
  4. Very long period—technology, population trends, habits, and customs may vary in very long period models.

Marshall took supply and demand as stable functions and extended supply and demand explanations of prices to all runs. He argued supply was easier to vary in longer runs, and thus became a more important determinate of price in the very long run.

Marshall's economics was advertised as extensions and refinements of the work of Adam Smith, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. But he extended economics away from its classical focus on the market economy and instead popularized it as a study of human behavior. He downplayed the contributions of certain other economists to his work, such as Leon Walras and Vilfredo Pareto, and only grudgingly acknowledged the influence of William Stanley Jevons.

The Cambridge Neoclassicals

Marshall did not regard the marginalist revolution as completely overturning the classical economics of Smith, Ricardo, and Mill. In developing the Cambridge "neoclassical" approach to economics, he believed in a compromise position:

We might as reasonably dispute whether it is the upper or the lower blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production. It is true that when one blade is held still, and the cutting is effected by moving the other, we may say with careless brevity that the cutting is done by the second; but the statement is not strictly accurate, and is to be excused only so long as it claims to be merely a popular and not a strictly scientific account of what happens (Marshall [1890] 1997, 290).

Marshall argued that while classical economists attempted to explain prices solely by the cost of production, ignoring other factors that play a role in price formation, the marginalists on the other side went too far in correcting this imbalance by overemphasizing utility and demand, ignoring supply factors. He therefore criticized both sides.

Marshall and his followers (later called Cambridge Neoclassicals or "Marshallians") attempted to reconcile the "marginalist revolution" of the continental tradition with the British classical school. Marshall conceived of his position as a continuation of the British classical position, rather than aligned with the continental schools, hence the name "neoclassical." Marshall thought that these two sides were more important in different periods—in the short term demand is the primary determinant of price; in the long term, however, the cost of production is more important. Thus he saw the classicals as more interested in factors involved in the long term.

However, his attempt to subsume utility factors was not acceptable to the Austrian school, which did not dispute the "two blades of the scissors" but rather that supply be determined solely as a cost of production.

Legacy

Marshall is often regarded as one of the respected fathers of modern economics. Under his guidance, the University of Cambridge grew into a world-renowned center for the study of economics. His students became leading figures in economics, including Herbert Foxwell, John Neville Keynes (father of John Maynard Keynes), and Arthur Cecil Pigou.

His most important legacy was creating a respected, academic, scientifically-founded profession for economists in the future that set the tone of the field for the remainder of the twentieth century. His economic theories involving supply and demand, the price-elasticity of demand, and even the concept of consumer surplus, are still alive today.

Marshall wrote in a style accessible to the layman, limiting the complex mathematical reasoning to footnotes and appendices. Thus, his publications brought sophisticated economic concepts to a broader readership. However, his attention to detail and his desire to cover all aspects of economics reduced his output, and his second volume of Principles was never completed.

Publications

  • Marshall, Alfred. 1879. Economics of Industry. Macmillan.
  • Marshall, Alfred. [1879] 1987. The Pure Theory of Foreign Trade: The Pure Theory of Domestic Values. A. M. Kelley. ISBN 067801194X
  • Marshall, Alfred. 1881. Review of F.Y. Edgeworth's Mathematical Psychics. The Academy, June 18, 457. Retrieved June 8, 2007.
  • Marshall, Alfred. 1885. Where to House the London Poor. W. Metcalfe and Son.
  • Marshall, Alfred. 1887. Contemporary Review.
  • Marshall, Alfred. [1890] 1997. Principles of Economics. Prometheus Books. ISBN 1573921408
  • Marshall, Alfred. 1891. Some Aspects of Competition. Report of British Association for Advancement of Science.
  • Marshall, Alfred. [1892] 2003. Elements of Economics of Industry. Simon Publications. ISBN 1932512136
  • Marshall, Alfred. [1919] 1932. Industry and Trade. Macmillan & Co.
  • Marshall, Alfred. [1923] 2003. Money, Credit, and Commerce. Prometheus Books. ISBN 1591020360

References

  • Blaug, Mark. 1992. Alfred Marshall (1842–1924). Edward Elgar Pub. ISBN 185278492X
  • Buchholz, Todd G. 1990. New Ideas from Dead Economists. Plume Books. ISBN 0452265339
  • Groenewegen, Peter. 1995. A Soaring Eagle: Alfred Marshall, 1842–1924. Edward Elgar Publishing. ISBN 1858981514
  • Groenewegen, Peter. 2002. Classics and Moderns in Economics: Essays on Nineteenth and Twentieth Century Economic Thought, vol. 1. Routledge. ISBN 0415301661
  • Macgregor, D. H. 1942. “Marshall and His Book.” Economica 9(36): 313–324.
  • Whitaker, J. K. 1990. Centenary Essays on Alfred Marshall. Cambridge University Press. ISBN 0521381339

External links

All links retrieved November 14, 2016.

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