Alfred Marshall and Neoclassical Economics, Alfred Marshall Economic

Alfred Marshall (1842-1924) is considered one of two contenders for the title of father of neoclassical microeconomic theory (the other being Leon Walras). Building on the work of Smith, Ricardo, and J. S. Mill, Marshall developed an analytical framework that still serves today as the structural basis of current undergraduate economic theory and much economic policy. A truly thorough examination of his ideas would include nearly all of present-day partial equilibrium microeconomic theory; what follows in this chapter should be viewed as the barest introduction to the works of this great thinker.

Marshall’s Claim To Being The Father Of Neoclassicism

Marshall came to economics with an undergraduate training in mathematics and with strong humanitarian feelings about improving the quality of life of the poor. His early education and home environment disposed him toward ordination in the Anglican church, but his undergraduate study at Cambridge revealed a strong preference and aptitude for mathematics. He therefore remained at Cambridge after graduation to teach mathematics. Soon, however, he was caught up in reading metaphysics, ethics, and economics. By the late 1860s he had developed such a consuming interest in economics that he decided to become a scholar-teacher rather than a clergyman. He began teaching economics at Cambridge; and under the influence of the writings of two early mathematical economists, Cournot and von Thiinen, he began to translate Ricardo's and J. S. Mill's economics into mathematics.

Marshall began his study of economics at a historically propitious time. We have already noted the crumbling of the foundations of classical theory. Malthu-sian population doctrine maintained that real wages would fall as population increased, but English economic history continued to demonstrate the contrary. J. S. Mill had become so dissatisfied with the wages fund theory that by 1869 he had expressly rejected it. Karl Marx had constructed a novel analysis on a foundation of classical theory and invoked revolution. The German historical school and certain English writers, such as Leslie and Bagehot, had taken exception to several fundamental tenets of classical economic theory. In 1871 Jevons and Menger attacked classical theory's almost exclusive emphasis on supply. The policies arising from classical theory were also under siege. Laissez faire, for example, seemed hardly appropriate in light of the poor living and working conditions of the growing population of English factory workers. Thus, the time was ripe for the appearance of Alfred Marshall, a man of immense scholarship and wisdom who from 1867 to 1890 carefully forged the principles of supply-and-demand analysis.

Jevons rushed into print claiming to have destroyed the classical theory of value and to have revolutionized economic theory; but Marshall tried his ideas on his students and colleagues for more than twenty years before cautiously presenting them in 1890 in his Principles of Economics. As Keynes has aptly said, "Jevons saw the kettle boil and cried out with the delighted voice of a child; Marshall too had seen the kettle boil and sat down silently to build an engine."1 The engine of analysis that Marshall built reflects both his personality and the environment in which he was reared. His early religious beliefs, later expressed as a mellow humanitarianism, evoked in him a deep concern for the poor as well as an optimistic conviction that the study of the economy might provide the means of improving the well-being of the entire society. His scholarship had familiarized him with the attacks of the historically oriented economists, who objected to the notion that economic theory was a body of absolute truths applicable to all times and places. In an inaugural lecture given on his election to professorship at Cambridge in 1885, he addressed himself to this criticism: "For that part of economic doctrine, which can alone claim universality, has no dogmas. It is not a body of concrete truth, but an engine for the discovery of concrete truth."

Marshall was trying to combine his early mathematical training with his background in history to construct an engine of inquiry that would be adaptable to the changing times. Yet, being aware of J. S. Mill's hasty conclusion in 1848 that the theory of value was complete, Marshall expected his own contributions to economics to become obsolete as new theories arose to meet the needs of a continually changing society. He was aware, too, of Jevons's claim to originality and belief that he had replaced the classical cost of production theory of value with a theory that value depends entirely upon demand. Marshall hoped, of course, that his own ideas might be both original and enduring, but most of all he wanted to be understood—not only by his fellow economists but by the community at large, particularly those in business. Thus, even though he had begun to work out the fundamental mathematical structure of his theory by 1870 and later developed the basic technique for illustrating supply-and-demand analysis with graphs, he did not actually publish his findings until 1890—and then only with the mathematics and graphs in footnotes and appendixes. Marshall, a strange admixture of theoretician, humanitarian, mathematician, and historian, tried to point the way out of the methodological controversy of his time while simultaneously tempering the best of classical analysis with the new tools of the marginalists to explain the forces that determine prices and the allocation of resources.

Although Marshall is a towering figure in the development of economic theory, his refusal to take rigid positions on theoretical and methodological issues has caused succeeding generations of economists a good deal of pain. In attempting to achieve balanced judgments, he was sometimes vague and indeci­sive. He often seemed to be saying that it all depends: Ricardo was right but also wrong; abstract theory is good and bad; the historical method can be help­ful, but theory is needed, too; payments to the factors of production are price-determining from one point of view but price-determined from another. Some readers see this flexibility with regard to issues of theory and method as a sign of true wisdom, but others, particularly the more abstract mathematical econo­mists, chafe at what they regard as indecisiveness in Marshall's economics.

Nevertheless his style has given rise to a vast body of literature that tries to uncover what Marshall "really meant."
Although Marshall made his contributions to economic thought more than one hundred years ago, he still interests many historians of economic thought. We have listed some writings of two of the preeminent Marshallian scholars, Peter Groenewegen and John Whitaker, in the suggested readings at the end of this chapter. We would particularly suggest perusal of Groenewegen's excellent biography of Marshall, published in 1995.