Marshall’s Time and Thought

Marshall's Time and Thought, Monopolistic Competition Price

Meanwhile, developments in the business world were affecting competition and the condi­tions of economic theory. The growth of "trusts" and cartels attracted attention. Associations of businessmen and trade unions multiplied and grew in power. Advertising and selling technique became increasingly important. And government regulation was invoked to protect consumers and competitors alike. Agreements and bargains came to play a larger part in the determination of prices.

Of course, these conditions affected the theories of the econ­omist, and this effect became most influential through the writ­ing and'teaching of Marshall, which played an important part in the history of limited-competition theory. This is true in two respects: (1) Marshall directly kept the idea of limitations on competition alive, and called attention to Cournot's thought. He pointed to the possibility that diminishing unit costs might lead to cut-throat competition and monopoly. He probed into a number of difficulties in the assumption of a tendency toward equilibrium under competition. (2) Indirectly, too, the unsatis­factory character of some of Marshall's doctrines contributed to encourage a reconsideration of the monopoly approach to price problems. Thus he failed to keep demand conditions sufficiently independent of supply conditions to avoid circularity. This is the great defect of "price economics," which leaves "value" undetermined and indeterminate. (When "demand" and "supply" are both considered as dependent upon "price," what becomes of a law of supply and demand as governing the deter­mination of price?) To make things worse, the value of money was assumed by Marshall, both in the demand schedule and in the supply schedule, under the guise of marginal utility. Prob­ably Marshall's unfortunate attempt to separate long and short time periods contributed also to a tendency to ignore time alto­gether, which is characteristic of monopolistic competition theory. Add his inadequate treatment of the margin and the "representative firm," and the lack of a definite concept of the enterpriser and his function, and the reason for saying that Marshall's thought left the door open for monopoly or imperfect competition theories is apparent.