The neoclassical school of economics includes Cambridge and Anglo-American. The first is considered the most important direction in the development of discipline. The formation of this school of economics is associated with the names of prominent scientists. Among them are Walras, Clark, Pigou. One of the key figures in the development of new ideas was Alfred Marshall (1842-1924). The system, which was developed by him together with his colleagues, became a continuation of the development of classical provisions with the inclusion of a new method and limit analysis. It was his work that largely determined the further direction of world thought.
Alfred Marshall: biography
This figure was born in the 19th century in London. He graduated from Cambridge University. In 1877, he began his administrative activities at the Bristol Institute. Between 1883 and 1884 he lectured at Oxford. After that, he returned to Cambridge University and from 1885 to 1903 worked there as a professor. In the early 90s of the 19th century, he carried out activities as a member of the Royal Labor Commission. In 1908, he left the Department of Political Economy in Cambridge. From that moment until the end of his life, he conducted his own research.
Alfred Marshall: Contribution to the Economy
This figure is considered one of the founders of the neoclassical trend. He introduced the concept of "economics" into the discipline, thus emphasizing his own understanding of the subject of study. He believed that this very concept most accurately and fully reflects the object of study. In the framework of science, the economic conditions and aspects of social life, the prerequisites for economic activity are investigated. It is an applied discipline and cannot but consider practical issues. However, the problems of economic policy are not related to its subject. Economic life, according to Marshall, should be considered outside of political influence and government intervention. He believed that the truths that have been put forward by the classics, will remain valid throughout the entire period of the existence of the world. However, many of the provisions developed earlier should be clarified and interpreted in accordance with the changed conditions. Leading scholars have debated what exactly is considered the source of value: production factors, labor costs, or utility. The economist Alfred Marshall was able to take the discussion on a different plane. He concluded that there was no need to determine the source of value. It is more advisable to study the factors affecting the cost, its level and dynamics.
Supply and demand
First of all, it is necessary to determine which research method Alfred Marshall chose. The main ideas of the activist were based on a controversy surrounding cost issues. In his works, he defined a clear way out of this discussion. Considering the theory of factors of production, he preferred one of its variants - the concept of victims of these elements. In the course of research, a peculiar compromise was found between different lines of thought. The key idea was to shift the center of gravity in the writings of bourgeois scholars from disputes over value issues to the study of the laws of formation and interaction of supply and demand. Based on this, in turn, it was possible to form a concept of price. Thus, a compromise combination of the most important categories and concepts from different theoretical directions was proposed. A number of concepts on production factors were included in the system of substantiating the laws governing the formation of product offerings. The ideas of the theory of marginal utility, like herself, were included, in turn, in the structure of explaining the laws of the formation of consumer demand. In the course of research, several new approaches were put forward, categories and concepts were introduced, which later became firmly entrenched in the discipline.
Time factor
The need to include it in price analysis was emphasized in his research by Alfred Marshall. The main aspect, in his opinion, was the interaction between production costs and value creation. This interaction depended on the nature of the approach laid down in the analysis. In the short term, with a significant increase in demand over supply, the inability to eliminate this superiority through existing capacities, the so-called quasi-rent mechanism is launched. Those entrepreneurs who produce scarce products, before the introduction of new facilities have the ability to significantly increase prices. Due to this, they receive additional, “quasi-competitive” income by generating such a profit. Alfred Marshall described the reaction of market forces to fluctuations in supply and demand in the short term.
The essence of compromise
Marshall's economic theory was supported by his contemporaries. The compromise he proposed was aimed at breaking the discipline from the impasse in which it found itself towards the end of the 19th century. His theory of price was further developed and began to make up that part of political economy, which is called the microeconomic section. The scientist saw bourgeois society as a rather harmonious system, which was devoid of any significant social and economic contradictions. Alfred Marshall conducted a thorough analysis of the formation and interaction of key categories, introduced new concepts. Discipline, in his opinion, explores not only the very nature of wealth. First of all, the study concerns the motives of economic activity. Stimulus intensity is measured in money, Alfred Marshall thought. The principles of economic science, therefore, were based on an analysis of the behavior of individuals.
Victims of labor and capital
Alfred Marshall addressed issues related to the formation of the final price and sources of profit. In these studies, he continued the traditions of the English direction. The formulation of the concept was influenced by the work of the Senior and a number of his followers. Alfred Marshall believed that real costs are hidden behind cash production costs. It is they who ultimately determine the exchange proportions of the circulation of goods. Real costs in the capitalist system are formed at the expense of capital and labor victims. Fixed costs and rents were excluded from the concept. Explaining the concept of victims of labor, Alfred Marshall almost completely followed the Senior's dogma. He interpreted this category as subjective negative emotions that were associated with labor efforts. The Marshall capital victim is abstinence from immediate personal consumption of funds.
The relationship of cause and effect
Alfred Marshall in his writings pointed to her mobility and polysemy. In addition, he drew attention to the specificity of patterns, which usually acted in the form of trends. The scientist spoke about the specificity of economic laws. It was she who complicated the search for truth and required the use of appropriate analytical techniques. The theory was based on the proposition that any person seeks pleasure and good, avoids trouble. In each circumstance, people tend to get the maximum of one thing with the minimum of the other. Alfred Marshall proposed a method by which it is first necessary to highlight the key reasons, excluding the impact of other factors. He suggested that the influence of the main circumstances stands apart and will lead to specific consequences. However, this situation occurs if a hypothesis is accepted in advance for which no reason other than that clearly indicated by the doctrine will be taken into account. At the next stage, new factors are taken into account and studied. For example, changes in supply and demand for different product categories are taken into account. Fluctuations are studied in dynamics, but not in statistics. The forces that affect the movement of prices and demand are considered.
Partial equilibrium
Alfred Marshall understood by him a certain convention and a certain limitation of the approach, which involves the removal of factors that are not currently decisive. Secondary circumstances that distort the general idea, are transferred to a separate, special "storeroom". It is called "ceteris paribus." With this reservation, Alfred Marshall excludes the influence of other factors, not considering them to be inert. He ignores their effect only on time. Thus, there is only one reason left - price. She acts as a kind of magnet. The economic world is developing under the influence of a single regulator, all incentives and forces affect the supply and demand system.
Problem analysis
Alfred Marshall sought to study current issues in the plane of the real conditions of economic life. His work is filled with numerous comparisons, examples that he took from practice. The scientist is trying to combine theoretical and historical approaches. At the same time, in some cases, his methods schematize and simplify reality. Alfred Marshall wrote that discipline aims, first of all, to acquire knowledge for itself. The second task is to clarify practical issues. However, this does not mean that it is necessary to focus directly on the vital application of the results of the study. The construction of surveys must be based not on the basis of practical goals, but according to the content of the subject of analysis. Marshall spoke out against Ricardo's ideas about over-focusing on manufacturing costs and moving to a secondary position in demand analysis. This was one of the reasons for underestimating the importance of research on issues that are related to the study of human needs.
Demand curve
It is related to utility rating. Marshall put forward the pattern of saturation or decrease in value as a habitual, fundamental property of human nature. According to the scientist, the demand curve usually has a negative slope. An increase in the amount of good reduces the utility of its marginal unit. The law of demand is interpreted by Marshall in the following form: "The number of goods for which demand is presented increases with a decrease in price and decreases with its increase."
The steepness of the curve for different products is not the same. For some benefits, it decreases sharply, for others - relatively smoothly. The degree of steepness (slope) will vary in accordance with changes in demand under the influence of price fluctuations. If this happens quickly, then it will be elastic, if slowly, then inelastic. These concepts were new to economic analysis, and it was Marshall who introduced them into theory.
Supply and manufacturing costs
Exploring these categories, Marshall divides the costs into additional and core. In modern terminology, these are fixed and variable costs. Some costs in the short term cannot be changed. The indicator of variable costs affects the volume of output. The optimal amount of product is achieved if marginal costs are equated with marginal revenue.
