The contribution of Alfred Marshall to the history of economic thought
Marshall’s work ‘Principles of economic’ published in 1890 proved to be an important landmark in the history of economic thought. His synthesis and restatement of existing economic ideas established neo-classical economic which made him the greatest economist of his generation. Marshall main contribution to the economic theory can be discussed in the following heads:
1. The substance of economic: To Marshall, economics is primarily concerned with men, wealth is secondary. It deals with material well being of men.
2. Method of economic: Marshall was the great interpreter of the partial equilibrium method of analysis. According to this methods, the relationship between few variables is studied, which keeping all other forces at rest.
3. Principles of continuity: According to Marshall, the growth of economic sciences is slow and continues. The theories of the past are supplementary to those of the present theories in economics.
4. Value: Marshall opines that price of the commodity is determined not by supply alone, not by demand alone, but by the interaction of demand and supply forces. Demand is more important in the short run, while supply is more important in the long run.
5. Distribution: the prices of the productive services, i.e. rent, wages, interest and profits are determined by the forces of demand and supply. On the demand side, a factor prices is governed by the marginal productivity of that factor and on the supply side, it is governed by the supply of that factor.
6. Utility and Demand: Marshall first of all takes up the theories of demand . Demand theory is based on the study of consumer behavior. By demand, Marshall means the quality of a commodity demanded at a certain price other things remaining the same. Like that of marginal utility curve , the slope of the demand curve is also negative.
7. Consumer surplus: It is a new concept which Marshall gave to the science of economics. According to Marshall the satisfaction which a consumer derives from the purchases of a commodity exceeds the money value he pays for it. The consumer thus derives a surplus satisfaction. It may be called consumer surplus.
8. The elasticity of demand: It is another concept Marshall gave to the sciences of economics. In his words. “The elasticity of demand in a market is great or small according as amount demanded increases much or little for a given fall in price and diminishes much or little for a given fall in price.” Marshall distinguished elasticity of demand in five categories – elastic, inelastic, infinitely elastic, infinitely inelastic and unit elastic.
9. Quasi rent: Marshall introduced another term quasi rent in economic . According to Marshall, quasi rent refers to that additional income to a factor other than land which is similar to rent and it is generated in the short period over it’s running costs.
10. Representative Firm: This concept for the first time was brought to light by Marshall to explain the process of valuation the goods, produced under the various laws of returns. In an industry, there may be many firms producing the same commodity with different cost of production. The problem appears to choose one firm out of them, the average cost of production which should be considered for the basis of value determination. Marshall used the term representative firm to solve this difficulty.
11. Internal and external economics: According to Marshall economics are of two types – Internal and external economics. Internal economics arise within a firm when it’s production increases. External economics are external to a firm and accrue to it when the size of the industry expands.
Limitation of Marshallian economic thought
1. We completely neglected monetary theory in his principles.
2. His analysis was partial and not general equilibrium analysis.
3. His concept of Representative firm and consumer surplus were vague and imaginary.
4. His treatment of the subjects of value and distribution essentially static and not dynamic.
5. His synthesis of the marginal utility and the cost theory seems incomplete.
In spite of these weaknesses Marshall’s principles of economic is a mastery expansion and a modern version of the old doctrine interpreted under changed condition .
0 Comments