Alfred Marshall
[1842-1924]
English economist Alfred Marshall, b. July 26, 1842, d. July 13,
1924, received acclaim with the publication of his Principles of
Economics (1890), which integrated modern and classical economic
theory. The classicists believed that price was determined by the cost
of producing goods, and the modern school was of the opinion that
price was dependent on the usefulness (marginal utility) of the goods.
Marshall's theory is that price is determined by both cost and
utility. Because utility has now become synonymous with demand, he
essentially asserted that price is governed by cost of production and
the demand for the goods produced. Marshall taught at both Oxford and
Cambridge universities.
Excerpt from Wikipedia's listing on Marshall
Marshall began his seminal work, the
Principles of Economics, in 1881, and 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 that
established him as one of the leading economists of his time. The
second volume, which was to address foreign trade, money, trade
fluctuations, taxation, and collectivism, was never published.
Principles of Economics established his worldwide reputation. It
appeared in 8 editions, starting at 750 pages and growing to 870
pages. It decisively shaped the teaching of economics in
English-speaking countries. Its main technical contribution was a
masterful analysis of the issues of elasticity, consumer surplus,
increasing and diminishing returns, short and long terms, and marginal
utility; many of the ideas were original with Marshall, others were
improved version of ideas by W. S. Jevons and others.
In a broader sense Marshall hoped 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. 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 focused more on costs. He noted that, in the short
run, supply cannot be changed and market value depends mainly on
demand. In an intermediate time period, production can be expanded by
existing facilities, such as buildings and machinery; but since these
do not require renewal within this intermediate period their costs
(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 one of 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.
Alfred Marshall was the first to develop the standard supply and
demand graph demonstrating a number of fundamentals regarding supply
and demand including the supply and demand curves, market equilibrium,
the relationship between quantity and price in regards to supply and
demand, law of marginal utility, law diminishing returns, and the
ideas of consumer and producer surpluses. This model is now used by
economists in various forms using different variables to demonstrate
several other economic principles. Marshall's model allowed a visual
representation of complex economic fundamentals where before all the
ideas and theories were only capable of being explained through words.
These models are now critical throughout the study of economics
because it allows a clear and concise representation of the
fundamentals or theories being explained.
|