Alfred Marshall, 1842-1924

Prominent English economist, one of the leading propagators of Neoclassical economics, founder of the "Cambridge" school of Neoclassicism and author of its most successful textbook, Principles of Economics (1890).

Early years

Alfred Marshall was born in London, of modest bourgeois background, the second son of William Marshall, a clerk at the Bank of England.  He was educated at Merchant Taylors, a non-residential private school, and acquired a school record of some distinction, demonstrating a strong early aptitude and skill for mathematics.   With the financial backing of an uncle, Marshall enrolled in St. John's College at Cambridge University in 1862, in order to pursue the Mathematical Tripos.  He ended up achieving "second wrangler"  (second highest score in Cambridge's mathematics exam) in 1865. After a short stint as a substitute teacher in Bristol, Marshall was elected a fellow of St John's at the end of 1865.  Marshall would spend the next few years as a tutor, and was finally appointed lecturer in moral sciences at St. John's in 1868. 

Marshall's intellectual interests shifted during this period.  He moved away from mathematics and grew interested in moral philosophy and ethics, then metaphysics, and eventually gravitated towards economics.  By his own account, Marshall was impelled to it by the repeated admonishment of a fellow student, in response to Marshall's grand schemes for social reform ("Ah! if you understood political economy, you would not say that.").  So, in 1867, Marshall delved into John Stuart Mill's 1848 Principles, "got much excited about it", and never looked back.  Marshall's reading in economics deepened during the late 1860s.  Among the Classicals, besides Mill, Marshall is certain to have gone through Adam Smith and David Ricardo.  He may also have possibly read the works of proto-marginalists Augustin Cournot (possibly)  and (less likely) Jacob von Thünen (although neither of these two are referenced in Marshall's lecture notes of this time). 

Marshall would later controversially claim (in a famous 1900 letter to J.B. Clark and still later in a 1919 fragment) that he had come up with the Neoclassical theory of value on his own during this time, before reading Jevons 1871 book. The latter is safely dated, as Marshall reviewed Jevons's treatise for the Academy in 1872. As a result, most historians have dismissed Marshall's claim as an exaggerated boast.  But it is not out of the question.  Marshall had already begun translating his economic thinking into diagrams and curves.  By Marshall's account, around 1869-70, he was working on a treatise on foreign trade (never published), in the process of which he introduced his famous supply-and-demand diagram in the traditional 'inverted' form we know it today (with price on vertical axis and quantity on the horizontal axis -  destined to confuse every beginning student of economics for the next century!).

Among the "moral sciences" students that passed through Marshall while he was a lecturer at St. John's College (1868-75), were Herbert S  Foxwell, John Neville Keynes, William Cunningham, John Shield  Nicholson, John Ward, Henry Cunynghame and F.W. Maitland.  From 1870, Marshall was also assigned to lecture female students at St. John's, and through that, he eventually met his future wife, Mary Paley (then a student at Newnham College).

 In 1875, Alfred Marshall took an extensive tour of the United States of America,  financed by a small inheritance left by his uncle.  He got engaged to Mary Paley upon his return in 1876, and they got married in 1877.  Under Cambridge regulations then in place, marriage meant both had to resign their positions at the university. The couple moved to Bristol, where Alfred secured the positions of Foundation Principal and Professor of Political Economy at the recently-created Bristol University College (f.1876).  Bogged down by his administrative duties, Alfred assigned Mary to take over most of the work for the economics class.  This would eventually produce, Economics of Industry in 1879, a textbook authored jointly by Alfred and Mary (but historians estimate to be primarily Mary).  That same year, at the instigation of Henry Sidgwick, Marshall had two of his small tracts, Pure Theory of Foreign Trade and Pure Theory of Domestic Values, privately printed for circulation among economists.  They are the first of Marshall's works to contain diagrams - the famous Marshallian "offer curves" are introduced in the first, and demand-and-supply diagrams and the theory of consumer's rent, introduced in the second.  

Overwork and a bout of ill-health prompted Marshall to resign from Bristol in 1880.  The couple sojourned to continental Europe, wintering in Palermo, Sicily, to help Marshal recover.  It was there that Marshall began writing what would eventually become his most famous work, the Principles of Economics, using his 1879 tract on domestic values as the kernel to a larger, wide-ranging treatise. But it would take a decade to complete.  In 1882, the Marshalls returned to England, and taught at Bristol for a year.  In 1883, Alfred Marshall was quickly appointed to replace the late Alfred Toynbee at Balliol College, Oxford.  He would remain at Oxford for two years, L.L. Price being perhaps his prize pupil there.

In 1885, Alfred Marshall was elected Professor of Political Economy at Cambridge University, replacing the recently-deceased Henry Fawcett.  From this perch, Marshall would preside over Cambridge economics for the next two decades.  Marshall helped designed Balliol House, which they moved into in 1886.

Marshall gave testimony to parliamentary commissions (Depression of Trade in 1886, Gold And Silver in 1887, Aged Poor in 1893, Local Finance in 1897 and Indian Currency in 1899).  He was a member of the Labour Commission (1891-94), and in 1903 wrote a significant memorandum of fiscal policy and trade (published 1908).

Marshall joined the Royal Statistical Society 1880, the Political Economy Club in 1886, was elected President of Section F of the BAAS in 1890, and was the prime force behind the foundation of the British Economic Association in 1890 (Royal Economic Society from 1902).

The Principles

Alfred Marshall's long-gestating Principles of Economics was finally published in July, 1890. As it happens, it was the first book published in Britain with a "net book agreement" - that is, the publisher Macmillan decided to force booksellers to agree not to discount its price at retail.  Marshall was wary, worried that without bookseller discounts, poorer students would not be able to buy the book.  But Macmillan asserted that without the agreement, the publishers' price would be much higher.  In the end, it was agreed to sell the Principles at a fixed price of 12s 6d.

The title page contained his famous epigram, "Natura non facit saltum" ("Nature does not make jumps") and, more perplexingly, the appellation "Vol. I".  Marshall envisaged this to be merely the theoretical part, that it would be followed up by other volumes applying the theory to specific topics - foreign trade, money and banking, business cycles, growth, taxation, regulation, trade unions etc.  The Principles itself was divided into six books. 

Book I ("Preliminary Survey") is merely introductory. In the original 1890 edition, its first chapter (I.1) sets out the scope and method of economics, with its famous opening definition: "Political Economy, or Economics, is the study of man's actions in the ordinary business of life" ( p.1, later changed in the 4th ed. to "the study of mankind", p.1).  Its second chapter (I.2) was a brief synopsis of general economic history, from ancient Mesopotamia to the French Revolution, the third (I.3) a narrower history of Britain's rise as a commercial and industrial power, including the emergence of the market system and capitalist enterprise.  The fourth chapter (I.4) contains a brief history of economic thought. Here, Marshall lionizes Adam Smith but is a bit critical of David Ricardo, whom he characterizes as "narrow". He lauds John Stuart Mill as the first to begin moving away from the mechanical view of man, incorporating the "pliability of human nature" and its dependence on economic circumstances, an insight for which Marshall credits the advances in "biological sciences" and the critiques by socialists.  He laments the dogmatism surrounding Mill and the Classical school, and acknowledges the recent opening of new avenues - explicitly mentioning the marginalism of W.S. Jevons, the historicism of T.E. Cliffe-Leslie and the contributions of Walter Bagehot and J.E. Cairnes. Among French economists, he lauds Cournot, ("a constructive thinker of the highest genius". p.67) and gives a tip of the hat to a bevy of French socialists.  He only mentions Carey among Americans, and only List among Germans - although he warmly lauds the German Historical School for overcoming the narrowness of economic theory and emphasizing the evolution of institutions ("one of the great achievements of our age", p.70).  He also refers to the ideas of Karl Marx (albeit not by name).   The fifth chapter (I.5) is on methodology, on the appropriate balance of facts and theory, inductive versus deductive methods, forwarding that  "facts by themselves are silent, they teach nothing until they are interpreted by reason" (p.74). The sixth chapter (I.6) engages in apologetics for "rational economic man", excusing the focus on the selfish motive as being merely due to measurability. The seventh chapter (I.7) continues on the methodological track, briefly explaining the meaning of "economic law", and reminding that it is morally neutral and only hypothetical.  In his summary eighth chapter (I.8), Marshall situates his Principles in the space between the narrowly theoretical Ricardian tradition and amorphous empirical Historicist tradition, he defends the need to first decipher economic laws before applying them to practical policy problems, and sets out two rather long list of questions (one theoretical, the other practical) which economics seeks to address (p.95ff). 

[Changes: many of the original chapters of Book I were completely rewritten, and some purged in later editions of the book. By the final (8th, 1920) edition, Chs.2 & 3 had been moved to Appendix A, Ch. 4 became Appendix B, Ch. 5 was removed, and the discussion rewritten and expanded into two essays - one comparing economics to biology and other sciences (App  C) and another on abstraction ( App. D).  Chapters 6, 7 and 8 were completely rewritten and became Chs. 3 and 4. [Quick ref links: 1st 1890 ed: Book I chapters I.1, I.2, I.3, I.4, I.5, I.6, I.7, I.8; 8th 1920 ed. Book I chapters: I.1, I.2, I.3, I.4, App. A, App. B,  App. C, App. D]

Book II ("Some Fundamental Notions") is still preliminary, dedicated to providing definitions of economic terms.  Its opening chapter (II.1) is perhaps an overlong defense of the right to use economic terms and definitions.  The second chapter (II.2) gets to the various definitions of "wealth" - exchangeable vs. non-exchangeable, etc. Unlike prior economists (e.g. Senior), Marshall does not limit the scope of economics to any particular definition.  The third chapter (II.3) dismisses old distinctions between productive and unproductive labor or enterprise - all economic activity is productive of "utilities", albeit some more indirectly than others (e.g. building capital goods).  The fourth chapter (II.4) tries to define various types of consumer goods (necessaries for existence, for efficiency, by convention, luxuries, etc). The fifth chapter (II.5) defines "capital", including an extended bibliographical note (p.135) and the sixth chapter (II.6) defines "income".  

[Changes: By the final (8th, 1920) edition, Chs 3 & 4 are combined into Ch.3, and Chs. 5 & 6 flipped and combined into Ch. 4, with the bibliographical note on capital exiled to App. E.  Quick ref links:  1st 1890 ed: Book I chapters: II.1, II.2, II.3, II.4, II.5 II.6; 8th 1920 ed. Book II chapters: II.1, II.2, II.3, II.4, App. E]

Book III ("Demand or Consumption", later re-titled "On Wants and Their Satisfaction") is the beginning of the actual economics. The core of this book was already in his 1879 Theory of Domestic Values.  The first chapter (III.1) justifies treating demand first, emphasizing the over-arching importance given to utility by the recent marginalist revolution, and how it was neglected in classical economics. The second chapter (III.2) gives the "Law of Demand" - finally introducing "desirability or utility", and inserts diminishing marginal utility without much fanfare.  He avoids "utils" as a measure, and instead uses a monetary stick, the "willingness to pay", as a measure of marginal utility. He notes that this varies across people and incomes - although asserts these differences can be buried in averages. He makes special note of impatience and utility discounting over time. Curiously, while Marshall starts out by explaining how demand is a quantity conditional on price, he goes on to draw a demand curve with quantity on the horizontal axis and price on the vertical axis (p.157), and states the general definition in the inverse form ("a person's demand for a thing as represented by a schedule of prices at which he is willing to buy different amounts of it").  He makes note of shifts, and explains the importance of substitute goods. Marshall calls its downward-sloping shape the "Law of Diminution of Marginal Demand Price" and explains it inversely ("the greater the amount to be sold, the smaller will be the price at which it will find purchasers"). Thus his diagram is  justified by his use of an inverse demand function. Marshall's unintuitive reversal of the axes shall be the bane of every beginning economics student for the next century.   In this chapter, Marshall mainly references Bentham, Jevons and Edgeworth, but eventually gets around to also mentioning Gossen, Menger and Böhm-Bawerk.  Surprisingly, Cournot is not credited for the demand curve, and instead Marshall prefers to discuss Mill and a confused note in Cairnes.   In the third chapter (III.3) Marshall introduces the "elasticity of demand". He notes how elasticity varies along the demand curve - asserting it is inelastic at very high and very low prices, and quite elastic at intermediary prices..He also explains the relative inelasticity of necessary goods.  At one point, Marshall makes uses the numerical example of Gregory King (p.167), and goes into discussion on the difficulties of collecting demand statistics.  In the fourth chapter (III.4), Marshall  introduces his 1879 "consumers' surplus", or as he calls it here, "Consumers' Rent" ("the excess of the price which he would be willing to pay rather than go without it, over that which he actually does pay", p.175).  He goes on to connect this measure with the utility of Jevons (and makes note of Bernoulli's contribution)

[Changes: In the later editions, Marshall inserts a discussion on socio-cultural basis of wants (essentially a reiteration of his earlier "necessaries") as Ch.2, thus pushing Ch.2 (demand) forward to Ch.3.  The old Ch.3 (elasticity) becomes Ch. 4, while the discussion on current versus deferred uses is spinned off and expanded into its own Ch.5.  Old Ch. 4 (consumers surplus) now becomes Ch. 6.  Quick ref links:  1st 1890 ed: Book III chapters:  III.1, III.2, III.3, III.4; 8th 1920 ed. Book III chapters: III.1, III.2, III.3, III.4, III.5, III.6]

Book IV ("Production, or Supply", later re-titled "Agents of Production: Land, Labour, Capital and Organization"), (IV.1)  (to be completed)

[Changes: Quick ref links:  1st 1890 ed: Book IV chapters:; 8th 1920 ed. Book IV chapters: IV.1]

Book V ("The Theory of Equilibrium of Demand and Supply", later re-titled "General Relations of Demand, Supply and Price")

[Book VI ("Cost of Production Further Considered" and Book VII "Value, or Distribution and Exchange")

Book VI ("X", "The Distribution of the National Income")

Second edition of the Principles came out in June 1891, with some chapter rearrangements.  Among the significant changes in the second edition (1891) is the introduction of the "representative firm".  It would go through more changes, passing through eight editions overall.

The Principles was not written as a textbook, nor was not pedagogically-geared towards classroom instruction. Marshall subsequently put out his Elements of of Economics of Industry in 1892, essentially an abridged and simplified version of the Principles, geared for beginning students and the wider public.  But it was the Principles that would become the major treatise and bring English Neoclassicism to universities everywhere.

Later years

At Cambridge University, Marshall increased the prominence of economics in the Moral Sciences Tripos and the History Tripos, and later pushed Cambridge to create the separate "Economics and Political Sciences" Tripos.  The new tripos was approved by the university in 1903, and began in 1905.

Marshall retired in 1908.  Against expectations, Marshall recommended Arthur Cecil Pigou rather than Herbert Foxwell as his successor as Professor of Political Economy at Cambridge..

In retirement, Marshall set about completing his long-planned companion volumes of the Principles, applying the basic theory to specific areas.  But increasing illness and other distractions, progress was slow.   The first companion volume, Industry and Trade, only appeared in 1919.  The second, Money, Credit and Commerce, in 1923.  But by this time, Marshall was already thoroughly incapacitated, senility (possibly Alzheimer's) having set in firmly by 1921, it is suspected the latter volume (if not also the first) was in fact cobbled together by Mary Paley.   A third contemplated volume, on economic progress, never went beyond a rough draft.   Marshall died on July 13, 1924.

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