Alfred Marshall Theory Marshall Theories

Marshall on Method, Alfred Marshall Theory

Marshall's training and background are also reflected in his views on methodol­ogy. His mathematical ability made him fully aware of the power of mathematics as a tool in the hands of the economist, and his close study of Ricardo revealed the insights to be gained by building abstract models. His wide reading of history and of the historical economists convinced him of the value of their approach and the validity of their attacks on classical theory. He realized that the chief fault of classical economics, especially Ricardian economics, was its failure to recog­nize that society changes. . Marshall's own methodology attempts to blend the theoretical, mathe­matical, and historical approaches. He acknowledged that some economists prefer to rely heavily on a single methodology, and he did not object to this. For Marshall, the use of a different methodology did not imply conflict or opposition, because all economists are engaged in a common task. Each methodology will throw its particular light on the working of the economy and thus increase our understanding of it.

Marshall's attempt to reconcile the methodological controversies of his time made him vulnerable from all sides. The historically oriented economists of Germany and England found his economic methodology too abstract and rigid. In the twentieth century a strong attack against his method was led by an American, Thorstein Veblen, and the so-called institutionalists who followed him. The advocates of an abstract mathematical methodology were irritated by his praise of the historical method and his pointed remarks concerning the limitations of theory and mathematics. In a letter written in 1906 to A. L. Bowley, a friend who was very involved with the use of mathematics and statistics in economic research, Marshall made a comment that hit at the heart of the abstract mathematical approach:

I have not been able to lay my hands on any notes as to Mathematico-economics that would be of any use to you: and I have very indistinct memories of what I used to think on the subject. I never read mathematics now: in fact I have forgotten how to integrate a good many things.

But I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules—(1) Use mathematics as a shorthand language, rather than as an engine of inquiry. (2) Keep to them until 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 last I did often.

Marshall's Principles includes steps (3) and (4) and is written in a style intended not for his fellow economists but for any educated'reader. His mathe­matics are placed either in footnotes or in a mathematical appendix. Even though Marshall went to great lengths to avoid the jargon of economics and illustrated each principle with examples from either current or historical eco­nomic experience, underneath it all is a strong, tight, highly abstract theoretical structure.

Just as Marshall refused to provide a neat and tidy definition of economics, so he generally avoided precise definitions of a number of economic concepts. Classical economics had given the concepts of land, labor, and capital, the so-called factors of production, a much more precise meaning than was appro­priate. In the economy, land, labor, and capital are often so intermingled that only a gross abstraction can disentangle them. Marshall therefore suggested that "we . . . arrange the things that are required for making a commodity into whatever groups are convenient, and call them its factors of production. " No hard and fast definition is laid down: the problem at hand dictates how the factors will be defined. Similarly, in analyzing supply, Marshall had to address the issue of costs. If supply depends upon the normal costs of a firm, which firm is to be selected as normal? Here again Marshall demonstrated his flexibility, stating that "for this purpose we shall have to study the expenses of a representative producer for that aggregate volume." His concept of the average, or representative, firm is not a statistical one, such as an arithmetic mean, mode, or median. Rather, he suggested that an industry be surveyed to locate firms managed by people of normal or average ability, firms that are neither newcomers to the industry nor old and established, firms whose costs disclose that they have normal access to the available technology.

It is important to recognize that Marshall's seeming vagueness, changeability, and occasional lack of theoretical rigor do not result from a disorderly mind. His is a carefully considered methodological position. Marshall's understanding of microeconomic theory and his mathematical ability would'have enabled him to present his Principles, which is some seven hundred pages long, in a much more concise form. He did this, in fact, in his mathematical appendix. But the economy is actually far more complex than can be shown by mathematical economics. Marshall worked out the pure theory of a market economy early in his career; it was reasonably complete by about 1870. Mathematical Note XXI is a one-page version of a general equilibrium model showing the relationships among the demand for final products, the supply of final products, the demand for factors of production, and the supply of factors of production. In 1908 Marshall wrote to J. B. Clark: "My whole life has been and will be given to presenting in realistic form as much as I can of my Note XXI."9 In his Principles, Marshall explicitly defended his lack of exactness. After spelling out briefly the conditions that would exist in an economy in long-run equilibrium, Marshall went on to point out that

nothing of this is true in the world in which we live. Here every economic force is constantly changing its action, under the influence of other forces which are acting around it. Here changes in the volume of production, in its method, and its cost are ever mutually modifying one another; they are always affecting and being affected by the character and the extent of demand. Further all these mutual influences take time to work themselves out, and, as a rule, no two influences move at an equal pace. In this world therefore every plain and simple doctrine as to the relations between costs of production, demand and value is necessarily false: and the greater the appearance of lucidity which is given to it by skillful exposition, the more mischievous it is. A man is likely to be a better economist if he trusts to his common sense, and practical instincts, than if he professes to study the theory of value and is resolved to find it easy.