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Alfred Marshall’s Economic Theories Research Paper

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Introduction

Alfred Marshall was born in July 1842, in Bermondsey, London. He was raised in a middle-class family to enter the clergy. Marshall studied at the Merchant Taylor School and had an extraordinary talent in mathematics. In 1865, he was the second in the first-class honors list after completing the Cambridge Mathematical Tripos (Groenewegen, 2003). After graduation, Marshall received a Fellowship at St. John’s College at Cambridge.

Gradually, he switched from mathematics to moral sciences which in turn motivated him to study economics. Such a switch occurred because Marshall considered economics to be crucial for the improvement of the life of the working class.

In 1868, Marshall became a lecturer in the moral sciences at St. John’s College. His devotion towards making breakthroughs in the field of economics saw him strive to make a political economy a serious subject at Cambridge. His first book Economics of Industry was co-written with his wife Mary Paley and published in 1879 (Groenewegen, 2003). In this book, Marshall added scientific value to economics by giving it a mathematical foundation. Five years later, in 1885, Marshall was promoted to Professor of Political Economy at St. John’s College.

Over the course of his tenure, he interacted with several renowned scholars, including Henry Sidgwick and John Neville Keynes. In 1881, Marshall’s second book Principles of Economics was published to revolutionize the way in which European students were taught economics. In 1890, Marshall established the British Economics Association that was soon renamed the Royal Economics Society. When his student succeeded him, Marshall retired from Cambridge and wrote supplementary volumes of his Principles of Economics that he never managed to complete due to unyielding attention to detail. During his later years, Marshall began to suffer from ill health, yet he continued his professional activity. He died in July 1924, at the age of 81.

Alfred Marshall’s School of Thought

Alfred Marshall is considered to be the founder of the neoclassical school of economics, the principles of which were described by him in Principles of Economics. Known as the marginal revolution, this school is a development of the classical approach by combining its study of wealth distribution with the marginalism of the Austrian school. It was the neoclassical school that initiated studying such concepts as utility maximization and cost minimization. The neoclassical approach in economics is based on the mathematical foundation to study various aspects of the discipline.

Contributions to the Field of Economics

Alfred Marshall was one of the most prominent economists of the twentieth century specializing in microeconomics, and his key ideas remain relevant even in the twenty-first century. His Principles of Economics established a worldwide reputation and shaped the perceptions of economics in European countries. Marshall gave exceptional clarity to existing economic terms and contributed to economics by developing new concepts.

In Principles of Economics, he described a number of new concepts, such as elasticity of demand and consumer surplus (“Alfred Marshall”, n.d.). In this work, Marshall claimed that the price of a product and output of a good is not defined by supply alone or by demand alone. Rather, they are defined both by supply and demand curves. These graphs were first developed by Marshall who demonstrated several fundamentals regarding supply and demand, market equilibrium, and laws of diminishing supply. This model is used by modern economists to study complex economic fundamentals.

Marshall was the first to use utility analysis in order to understand consumer behavior. The utility of satisfaction is closely related to the quantity of the product consumed by a customer. Therefore, the more items of a product the customer consumes, the less is the marginal utility of that product. Such an assumption allowed Marshall to develop the law of substitution and his scissors analysis that related demand and supply. Scissors analysis allowed for viewing the price of a product as a function of supply and demand.

The concept of consumer surplus gave insight into the nature of consumer behavior. Marshall stated that though the price is the same for each unit of a product, customer satisfaction from every additional unit of a product declines (Reisman, 2016). Therefore, the consumer buys products only to a point when the marginal utility of a product equals the price of that product. Measurement of consumer surplus and producer surplus allowed Marshall to study the effects of taxation and price changes on market welfare.

Marshall defined the concept of elasticity of demand as the change in the demand for the product depending on the change in the price of that product. He then identified five types of elasticity, such as absolutely elastic, highly elastic, elastic, less elastic, and inelastic (“Alfred Marshall”, n.d.). Depending on the number of substitutes for the products, the demand may change. It should be stated that Marshall was the first to define the price elasticity of demand. He then also determined which factors may influence the price elasticity of demand. Nowadays, these factors are still used by economists to investigate changes in the price and demand of a product.

Apart from analyzing the supply, Marshall conducted an analysis of the cost of a commodity to learn that marginal costs rise as the production of a commodity expands. He also distinguished between real and money cost of production and was the first to divide between primary and supplementary costs which are now regarded as fixed and variables costs. In his Principles of Economics, Marshall explained the differences between external and internal economies of scale to understand the nature of the long supply curve of an industry.

Conclusion

In summary, Alfred Marshall was a 20th-century British economist renowned as a father of the neoclassical school of thought. His book Principles of Economics is considered to be his major contribution to the economic literature which significantly changed the way in which economics was taught in Europe. A number of concepts firstly introduced and developed by Marshall played an important role in the further development of economics and are still relevant.

References

. (n.d.). Web.

Groenewegen, P. (2003). English marginalism: Jevons, Marshall, and Pigou. In W. J. Samuels, J. Biddle, & J. B. Davis (Eds.), A companion to the history of economic thought (pp. 246-261). Malden, MA: Blackwell.

Reisman, D. (2016). Alfred Marshall on social capital. In R. Arena & M. Quere (Eds.), The economics of Alfred Marshall: Revisiting Marshall’s legacy (pp. 53-67). New York, NY: Palgrave Macmillan.

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IvyPanda. 2021. "Alfred Marshall's Economic Theories." June 3, 2021. https://ivypanda.com/essays/alfred-marshalls-economic-theories/.

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IvyPanda. (2021) 'Alfred Marshall's Economic Theories'. 3 June.

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