Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist and 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, and brought the ideas of supply and demand, marginal utility, and costs of production into a coherent whole, popularizing the modern neoclassical approach which dominates microeconomics to this day. As a result, he is known as the father of scientific economics.
Marshall was born at Bermondsey in London, the second son of William Marshall (1812–1901), a clerk and cashier at the Bank of England, and Rebecca (1817–1878), daughter of butcher Thomas Oliver, from whom, on her mother's death, she inherited property. Marshall had two brothers and two sisters; a cousin was the economist Ralph Hawtrey. The Marshalls were a West Country clerical family; Marshall's great-great-grandfather was "the Reverend William Marshall, half-legendary Herculean parson of Devonshire", famous for "twisting horseshoes with his hands" to scare "local blacksmiths into fearing that they blew their bellows for the devil".
William Marshall was a devout strict Evangelical, "author of an Evangelical epic in a sort of Anglo-Saxon language of his own invention which found some favour in its appropriate circles" and of a tract titled Men's Rights and Women's Duties. Some scholars note this strict upbringing strongly influenced Marshall's work, citing the influence of philosophical idealism.
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 Triposlib. 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 economic 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. He taught Mary Paley who became a lecturer at the then embryonic Newnham College, Cambridge; their marriage in 1877 obliged Marshall to resign his position as a Fellow of St John's College, Cambridge. This coincided with his appointment as the first principal at University College, Bristol, which later became the University of Bristol, where he lectured on political economy and economics, alongside his wife, until he resigned in 1881. He returned as Professor of Political Economy in 1882, leaving Bristol for good in 1883 when he was appointed a tutorial fellow at Balliol College, University of Oxford. In 1885 he was appointed professor of political economy at Cambridge University, 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 academic leadership of the Cambridge economists was taken up by Arthur Cecil Pigou and John Maynard Keynes.
Marshall desired to improve the mathematical rigour of economics and transform it into a more scientific profession. In the 1870s he wrote a small number of tracts on international trade and the problems of protectionism. In 1879, many of these works were compiled into a work entitled The Theory of Foreign Trade: The Pure Theory of Domestic Values. In the same year (1879) he published The Economics of Industry with his wife Mary Paley Marshall.
Although Marshall took economics to a more mathematically rigorous level, he did not want mathematics to overshadow economics and thus make it irrelevant to the layman. Accordingly, Marshall tailored the text of his books to laymen and put the mathematical content in the footnotes and appendices for the professionals. In a letter to A. L. Bowley, he laid out the following system: (1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life (5) Burn the mathematics. (6) If you can't succeed in 4, burn 3. This I do often."
Together, he and his wife completed Economics of Industry while at Bristol, and after publication it was adopted widely in England as an economic curriculum; its simple form stood upon sophisticated theoretical foundations. Marshall achieved a measure of fame from this work, and upon the death of William Jevons in 1882, Marshall became the leading British economist of the scientific school of his time.
Marshall returned to Cambridge as Professor of Political Economy in 1884 on the death of Henry Fawcett. At Cambridge he endeavoured to create a new tripos for economics, a goal which he would achieve only in 1903. Until that time, economics was taught under the Historical and Moral Sciences Triposes which failed to provide Marshall the kind of energetic and specialised students he desired.
Along with Pigou and Hawtrey, Marshall developed the quantity theory of money or the income version of the money theory. In 1917, Marshall introduced the Cambridge version of the quantity theory of money and this was refined further by Pigou, Hawtrey, and Robertson. It became known as the Cambridge equation.
Principles of Economics (1890)
Marshall began his economic work, the Principles of Economics, in 1881, and spent much of the next decade at work on the treatise. His plan for the work gradually extended to a two-volume compilation on the whole of economic thought. The first volume was published in 1890 to worldwide acclaim, establishing him as one of the leading economists of his time. The second volume, which was to address foreign trade, money, trade fluctuations, taxation, and collectivism, was never published.
Principles of Economics established his worldwide reputation. It appeared in eight editions, starting at 750 pages and growing to 870 pages. It decisively shaped the teaching of economics in English-speaking countries. Its main technical contribution was a masterful analysis of the issues of elasticity, consumer surplus, increasing and diminishing returns, short and long terms, and marginal utility. Many of the ideas were original with Marshall; others were improved versions of the ideas by W. S. Jevons and others.
In a broader sense Marshall hoped to reconcile the classical and modern theories of value. John Stuart Mill had examined the relationship between the value of commodities and their production costs, on the theory that value depends on the effort expended in manufacture. Jevons and the marginal utility theorists had elaborated a theory of value based on the idea of maximising utility, holding that value depends on demand. Marshall's work used both these approaches, but he focused more on costs. He noted that, in the short run, supply cannot be changed and market value depends mainly on demand. In an intermediate time period, production can be expanded by existing facilities, such as buildings and machinery, but, since these do not require renewal within this intermediate period, their costs (called fixed, overhead, or supplementary costs) have little influence on the sale price of the product. Marshall pointed out that it is the prime or variable costs, which constantly recur, that influence the sale price most in this period. In a still longer period, machines and buildings wear out and have to be replaced, so that the sale price of the product must be high enough to cover such replacement costs. This classification of costs into fixed and variable and the emphasis given to the element of time probably represent one of Marshall's chief contributions to economic theory. He was committed to partial equilibrium models over general equilibrium on the grounds that the inherently dynamical nature of economics made the former more practically useful.