Neo Classicism - The Cambridge School

Neo-Classicism; the Cambridge School,

Economic History Of England

Without any great methodological quarrel, or any destructive revolution in economic doctrine, the Cambridge School came into existence with the advent of Alfred Marshall. This school may be briefly characterized as standing for the existence of "laws," or relatively fixed "tendencies," in economic life; its members hold that causal forces are working toward a normal equilibrium. These forces are largely capable of being summed up under the heads of supply (costs and natural scarcity) and demand (human desires and purchasing power). Their system thus centers in objective exchange value, which is partly explained by subjective factors. Cost, however, is never forgotten. The relation between value and the distribution of income is partly seen, but not fully. Competition is generally assumed, but it is to be modified and supplemented by socio-legal arrangements.

Indeed, their utilitarian concept of social welfare allows considerable interference by the state. They make large use of mathematics, but, unless it be Edgeworth, their mathematics is not an essential part of the system, for they seek to explain value and the determination of equilibrium levels.

Alfred Marshall (d. 1924), until 1908 Professor of Political Economy at Cambridge, was admittedly the greatest English economist after Mill. Indeed, there is, perhaps, no economist who surpasses him in constructive general theory. His chief works are Economics of Industry (1879) — with Mrs. Marshall as joint author — and Principles of Economics, 1890 (8th ed., 1920).
Marshall's great work was to take the English Classical economics at a time when it had fallen into considerable disrepute, and, by interpretation and modification, so to round it out and adjust it as to place it abreast of the best recent thought, and regain for it the respect of the world. An acute criticism of economic theories has a chapter headed, "The Attempt at Reconciliation; Marshall," and this is a fairly good characterization. "Marshall's synthesis" might have been better.

Being a Neo-Classicist, his most frequent logical weapon was deduction. But he sought the truth in the golden mean. He called a halt to mere historical grubbing and organic metaphors, asking for careful and rigorous reasoning, and declaring that "the growing prominence of what has been called the biological view of the science has tended to throw the notions of economic law and measurement into the background." Yet he accepted the idea of relativity, and recognized the contributions of biological sciences. He rejected Comte's idea, according to which economics would be fused in a general social science, and defined economics as dealing with those motives and desires of man which can be measured by money. On the other hand, he wrote: "Even for the narrower uses of economic studies, it is important to know whether the desires which prevail are such as will help to build up a strong and righteous character," and he did due homage to German analysis of motives. Both induction and deduction are recognized as having their places, and Schmoller is quoted with approval. Simply, where there is still uncertainty as to causes, analysis and deduction are needed. History shows that one event follows another; but the historical method does not show the causal connection. Marshall held that enough of generality exists in certain economic characteristics to base general laws upon: that, making the usual allowance for equahty in conditions, there are laws or tendencies which resemble the secondary laws of natural science. But in economics they must be handled with peculiar care.

Marshall's economics, with its background of rational utilitarianism, certainly has a practical element in it; nor is it free from "preaching" and advocacy of reforms. This side, however, does not seem to warp the scientific character of the conclusions.

Marshall brought together in a masterly way the Austrian analysis and the cost concepts of his English predecessors. Utility is one side of the arch whose keystone is value, or one blade of the pair of scissors, with cost as the other. Both blades cut. They mutually determine. Thus he showed how to avoid the one-sided emphasis of either school, and treated marginal utility as the two-sided thing that it is.

In the light of developments in thought concerning differential returns, Marshall broadened the Classical theory of rent along lines already suggested by J. S. Mill. He by no means saw the necessity or expediency of abandoning a recognition of the peculiarity of land rent, but adopted the term, "quasi-rent," to denote those less permanent differentials which may be yielded by the superior productivity of units of capital or labor. Marshall's contemporary, F. Y. Edgeworth (1845-1926), was for some time considered the leader of the Cambridge School after the master's death. Edgeworth made a more extreme and abstract use of mathematics than Marshall, and his work, which has been translated into Italian, influenced Pareto. While he developed no general system of theory, he is well known for his studies in the determination of price under different conditions of monopoly. His method also revealed the difficulty of applying the marginal analysis to the determination of profits. He was inclined to widen the field within which monopoly may be considered socially desirable.

Edgeworth's death left Professor A. C. Pigou (b. 1877) easily the outstanding economic theorist in England from 1924 to 1936. Pigou was Marshall's pupil, and succeeded him at Cambridge. While more abstract and mathematical than his predecessor, his general attitude is much the same. Yet it seems that the idea of objective value is somewhat less central in Pigou's thought than in Marshall's, and that a more idealistic concept of social welfare is more prominent. He regards social welfare, however, as consisting in the sum of individual welfares, which depend upon a balance between individual satisfactions and dissatisfactions. These are psychic, but largely measurable through choices expressed in money payments.. The national income (Marshall's "national dividend") is the sum of individual incomes, and represents the general welfare. This is affected, however, by the degree of equality in distribution, and Pigou goes somewhat further than Marshall in suggesting government intervention. He clearly shows the influence of Sidgwick's ethical utilitarianism.

Pigou has developed a notable theory of business cycles based upon the subjective factor of business sentiment.

Other members of the Cambridge School who have followed Marshall rather closely have been Wicksteed, Flux, and Chapman. P. H. Wicksteed (1844-1927) was more subjective in his thought, and more influenced by the Austrian School. His concept of "proportional utility" contributed to a better understanding of the significance of marginal utility, and he made progress toward correlating value and distribution. A. W. Flux (1867-1938) followed Marshall closely, but gave more emphasis to marginal utility. S. J. Chapman presents a concise statement of Marshall's system, notable for its grasp of the nature of economics and its elementry concepts, and for a fairly consistent application of a social point of view.

Others who began their work in the Cambridge School, but who have departed from it more or less widely are: H. D. Henderson, D. H. Robertson, R. F. Kahn, J. M. Keynes, R. F. Har-rod, G. F. Shove, P. Sraffa, M. Dobb, and Joan Robinson — a distinguished but variegated list!