Alfred Marshall

Alfred Marshall (1842-1924) was the most influential economic theorist in the English speaking world in the late 19th and early 20th centuries, and his approach to microeconomics remains influential.

Marshall in 1921

Career

Marshall was born in Clapham, England, July 26, 1842. After studying mathematics, philosophy, and economics at Cambridge University, he became principal of University College, Bristol, and then taught economics at Oxford University. After his undergraduate training in mathematics was over, Marshall experienced a mental crisis that led him to abandon physics and switch to philosophy. He began with metaphysics, specifically "the philosophical foundation of knowledge, especially in relation to theology.". Metaphysics led Marshall to ethics, specifically a Sidgwickian utilitarianism, and ethics, in turn, led him to economics, because economics played an essential role in providing the preconditions for the improvement of the working class. Even as he turned to economics, his ethical views continued to be a dominant force in his thinking.

In 1885 he became professor of political economy at Cambridge, where he remained until his retirement in 1908. Over the years he interacted with many British thinkers including Henry Sidgwick, W.K. Clifford, Benjamin Jowett, William Stanley Jevons, Francis Ysidro Edgworth, John Neville Keynes and John Maynard Keynes. Marshall created the "Cambridge School" which paid special attention to increasing returns, the theory of the firm, and welfare economics; after his retirement leadership passed to Alfred Pigou and John Maynard Keynes.

Principles of Economics

Marshall's chief work, Principles of Economics (1890) established his reputation. It appeared in 8 editions and greatly great influenced the teaching of economics in English-speaking countries. In it he sought to reconcile the classical and modern theories of value. John Stuart Mill had examined the relationship between the value of commodities and their production costs, on the theory that value depends on effort expended in manufacture. W. S. Jevons and the Marginal Utility theorists had elaborated a theory of value based on the idea of maximizing utility, holding that value depends on demand. Marshall's work used both these approaches, but he particularly examined the factor of costs. He pointed out that, in the short run, supply cannot be changed and market value depends mainly on demand. In a period of intermediate length, production can be aided by existing facilities, such as buildings and machinery; but since these do not require renewal within this intermediate period their costs, which commonly are called fixed, overhead, or supplementary costs, have little influence on the sale price of the product. Marshall pointed out that it is the prime or variable costs, which constantly recur, that influence the sale price most in this period. In a still longer period, machines and buildings wear out and have to be replaced, so that the sale price of the product must be high enough to cover such replacement costs. This classification of costs into fixed and variable and the emphasis given to the element of time probably represent Marshall's chief contributions to economic theory. He was committed to partial equilibrium models over general equilibrium on the grounds that the inherently dynamical nature of economics made the former more practically useful.

Much of the success of Marshall's teaching and Principles book derived from his effective use of diagrams, which were soon emulated by other teachers worldwide.

Monetary theory

Marshall made important contributions through his exposition of the quantity theory of money and his distinction between the "real" rate of interest and the "money" rate. His views on currency, as expressed before government commissions in 1887 and 1899, are given in Official Papers by Alfred Marshall (1926). Noteworthy among his earlier works is The Pure Theory of Domestic Values (1879), Marshall died at Cambridge, July 13, 1924.

Marshall took a broad approach to social science in which economics plays an important but limited role. He recognized that in the real world, economic life is tightly bound up with ethical, social and political currents--currents he felt economists should not ignore. Marshall envisioned dramatic social change involving the elimination of poverty and a sharp reduction of inequality. He saw the duty of economics was to improve material conditions, but such improvement would occur, Marshall believed, only in connection with social and political forces. His interest in liberalism, socialism, trade unions, women's education, poverty and progress reflect the influence of his early social philosophy to his later activities and writings.

Bibliography

• Backhouse, Roger E. "Sidgwick, Marshall, and the Cambridge School of Economics." History of Political Economy 2006 38(1): 15-44. Issn: 0018-2702 Fulltext: Ebsco
• Groenewegen, Peter. A Soaring Eagle: Alfred Marshall: 1842-1924 (1995) 880pp, the major scholarly biography
• Keynes, John Maynard. "Alfred Marshall, 1842-1924," The Economic Journal 34#135 September, 1924 pp. 311-372 in JSTOR
• Raffaelli, Tiziano et al. The Elgar Companion to Alfred Marshall 2006. 752 ISBN: 1-84376-072-X.
• Cook, Simon. "Late Victorian Visual Reasoning and Alfred Marshall's Economic Science." British Journal for the History of Science 2005 38(2): 179-195. Issn: 0007-0874

• DNB article

Works by Marshall

• The Economics of Industry (1879), in collaboration with his wife
• The Pure Theory of Foreign Trade (1879)
• The Pure Theory of Domestic Values (1879)
• Principles of Economics (1890)
• Industry and Trade (1919)
• Money, Credit, and Commerce (1923)
• Official Papers by Alfred Marshall (1926).

See also

• History of modern economic thought
• Microeconomics