Alfred Marshall The Problem With Time

Alfred Marshall, The Problem with Time

One of the chief difficulties in economic analysis is that causes take time to work out their effects. Any analysis or conclusion that correctly explains the short-run effects of a given cause may be incorrect in its conclusions with regard to long-run effects. Marshall's use of the ceteris paribus technique corresponds to his method of dealing with time. In the market period, sometimes called the immediate period or the very short run, many factors are held constant. More and more constants are permitted to vary as the time period is extended to the short run, the long run, and the secular period, which is also referred to as the very long run. The passage of time influences demand somewhat, but it can be far more disruptive to the analysis of supply.

To address the problems caused by time, Marshall defined four time periods. He acknowledged that his distinctions were purely artificial, for "nature has drawn no such lines in the economic conditions of actual life."12 Marshall's concept of time is not chronological time measured in clock hours; rather, it is an analytical construct. The various time periods are defined in terms of the economics of the firm and of supply. The market period is so short that supply is fixed, or perfectly inelastic. There is no reflex action of price on quantity supplied, as the period is too short for firms to be able to respond to price changes. The short run is a period in which the firm can change production and supply but cannot change plant size. Here there is a reflex action, as higher prices cause larger quantities to be supplied and the supply curve slopes upward. In the short run, the total costs of the firm can be divided into two components: costs that vary with output, which Marshall termed special, direct, or prime costs and modern texts call variable costs; and costs that do not vary with output, which Marshall termed supplementary costs and modern texts often call fixed costs. The distinction between variable and fixed costs in the short run was evidently drawn from Marshall's observation of the business world. It became an important analytical tool in analyzing the actions of the firm. In the long run, plant size can vary and all costs become variable. The supply curve becomes more elastic in the long run than in the short run, as firms are able to make full adjustment to changing prices by altering plant size. The long-run supply curve for an industry can take three general forms: it can slope up and to the right (costs may increase); it can be perfectly elastic (costs may be constant); or, in unusual situations, it can slope down and to the right (costs may decrease). The secular period, or very long run, permits technology and population to vary, so Marshall used this construct when he analyzed the movement of prices from one generation to another.

Clearly, Marshall's time periods are not measured in days but refer instead to conditions of supply for the firm and the industry. For example, the short run in a very capital-intensive industry in which plant size can be changed only very slowly, such as the steel industry, may be as long in chronological time as the long run in an industry in which plant size may be altered rather quickly. Although Marshall contributed to nearly every part of microeconomic theory, the major focus of his attention and the source of his greatest contributions was his analysis of the influence of time on supply. He found the chief difficulties in the analysis of price to be in determining the influence of time, and he asserted later in life that much more work needed to be done in this area. In a letter to J. B. Clark written in 1908, he listed five topics that still needed an immense quantity of work, and at the top of his list was "elaborating the influence of time."