History of Economic Thought/Alfred Marshall

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Alfred Marshall, FBA (26 July 1842 – 13 July 1924) was one of the most influential economists of his time. His book, Principles of Economics (1890), was the dominant economic textbook in England for many years. It brings the ideas of supply and demand, marginal utility, and costs of production into a coherent whole. He is known as one of the founders of neoclassical economics. Although Marshall took economics to a more mathematically rigorous level, he did not want mathematics to overshadow economics and thus make economics irrelevant to the layman.

Life[edit | edit source]

Marshall was born in London. His father was a bank cashier and devout Evangelical. Marshall grew up in Clapham and was educated at the Merchant Taylors' School and St John's College, Cambridge, where he demonstrated an aptitude in mathematics, achieving the rank of Second Wrangler in the 1865 Cambridge Mathematical Tripos. Marshall experienced a mental crisis that led him to abandon physics and switch to philosophy. He began with metaphysics, specifically "the philosophical foundation of knowledge, especially in relation to theology.". Metaphysics led Marshall to ethics, specifically a Sidgwickian version of utilitarianism; ethics, in turn, led him to economics, because economics played an essential role in providing the preconditions for the improvement of the working class.

He saw that the duty of economics was to improve material conditions, but such improvement would occur, Marshall believed, only in connection with social and political forces. His interest in Georgism, liberalism, socialism, trade unions, women's education, poverty and progress reflect the influence of his early social philosophy on his later activities and writings.

Marshall was elected in 1865 to a fellowship at St John's College at Cambridge, and became lecturer in the moral sciences in 1868. In 1885 he became professor of political economy at Cambridge, where he remained until his retirement in 1908. Over the years he interacted with many British thinkers including Henry Sidgwick, W.K. Clifford, Benjamin Jowett, William Stanley Jevons, Francis Ysidro Edgeworth, John Neville Keynes and John Maynard Keynes. Marshall founded the Cambridge School which paid special attention to increasing returns, the theory of the firm, and welfare economics; after his retirement leaderships passed to Arthur Cecil Pigou and John Maynard Keynes.

Utility theory[edit | edit source]

The measurability of utility[edit | edit source]

Operational measurement of utility[edit | edit source]

The Bernoulli hypothesis[edit | edit source]

Gambling and insurance[edit | edit source]

The Bernoulli hypothesis and progressive taxation[edit | edit source]

Derivation of demand curves[edit | edit source]

The constancy of the marginal utility of money[edit | edit source]

Indifference-curve[edit | edit source]

Revealed preference[edit | edit source]

Marshallian demand curves[edit | edit source]

Subjective theory of value[edit | edit source]

Welfare economics[edit | edit source]

Consumer's surplus[edit | edit source]

Four consumer's surpluses[edit | edit source]

Tax-bounty analysis[edit | edit source]

Cost and supply[edit | edit source]

The short run[edit | edit source]

Quasi-rents[edit | edit source]

The long run[edit | edit source]

External economies[edit | edit source]

Producers' surplus[edit | edit source]

Asymmetrical welfare effect[edit | edit source]

Representative firm[edit | edit source]

Monopolistic competition[edit | edit source]