Marshall’s legacy

After 18 months of reading and commenting on every single chapter (except the mathematical appendix) Alfred Marshall’s (AM’s) Principles of Economics (1920), I read some essays on what others thought about AM.

NB: My overall impression is that PoE was worth my time, but probably not worth the time of anyone except those interested in the history of economic thought. Yes, it’s interesting to read how AM explained and explored elasticity, the role of time, the representative firm, and so on, but I doubt that those benefits justify the time it takes to read 70+ chapters on topics that can be found in (over)simplified forms in modern textbooks. That said, I think that anyone looking into canonical concepts in economics should read what AM had to say about them. (NB: AM sometimes uses different terms so “control F” won’t help you!)

Here are my notes and some excerpts from five commentaries:

J.M. Keynes (1924). “Alfred Marshall, 1842-1924” [pdf].
  • This 60-page biography, published a few months after AM’s death, offers many insights into AM’s upbringing and thinking. He was planning to become a priest but turned to mathematics and then economics. His respect for history and the idiosyncratic details of “the everyday business of life” meant, in today’s jargon, that AM was more institutionalist than modeller.
  • Every summer, AM walked in the Alps, to clear his head and strengthen his body. His long life attests to those vacations.
  • The socialists assumed human nature would change with the ownership of capital. AM was skeptical. He studied actual business and workers.
  • AM published very slowly. Most of his ideas were known (via his lectures) well before PoE appeared. Jevons (according to JMK) was impatient and shallow compared to AM. Mixed speeds and energies meant that some people misattributed discovery.
  • AM was first to popularise mathematical diagrams for explaining economic ideas, but he hesitated to lean too much on mathematical descriptions of real life:
  • Page 333:

    Marshall… always felt a slight contempt from the intellectual or aesthetic point of view for the rather “potty ” scraps of elementary algebra, geometry, and differential calculus which make up mathematical economics.1 Unlike physics, for example, such parts of the bare bones of economic theory as are expressible in mathematical form are extremely easy compared with the economic interpretation of the complex and incompletely known facts of experience,2 and lead one but a very little way towards establishing useful results.
    Footnote 1: Mathematical economics often exercise an excessive fascination and influence over students who approach the subject without much previous training in technical mathematics. They are so easy as to be within the grasp of almost anyone, yet do introduce the student, on a small scale, to the delights of perceiving constructions of pure form, and place toy bricks in his hands that he can manipulate for himself, which gives a new thrill to those who have had no glimpse of the sky-scraping architecture and minutely embellished monuments of modern mathematics.
    Footnote 2: Professor Planck of Berlin, the famous originator of the Quantum Theory, once remarked to me that in early life he, had thought of studying economics, but had found it too difficult! Professor Planck could easily master the whole corpus of mathematical economics in a few days. He did not mean that! But the amalgam of logic and intuition and the wide knowledge of facts, most of which are not precise, which is required for economic interpretation in its highest form, is, quite truly, overwhelmingly difficult for those whose gift mainly consists in the power to imagine and pursue to their furthest points the implications and prior conditions of comparatively simple facts which are known with a high degree of precision.

  • AM: “Economics is not a body of concrete truth, but an engine for the discovery of concrete truth.” But his desire to do good meant that (according to JMK) “he had an inclination to undervalue those intellectual parts of the subject which were not directly connected with human well-being or the condition of the working classes…” and thus slow intellectual progress [pp 344-5].
  • AM’s inclusion of time and (dis)economies of scale really fleshed out the reality of production in economics.
  • AM’s understated writing style reduced his wow-factor with some but also helped his ideas spread among non-academics and skeptics.
  • AM’s lecturing style was far less refined or formal than his writing style. AM  wanted students to “think with him” (page 359) rather than copy complete thoughts. This style challenged under-prepared students but spurred the curious to explore the material. (I try to teach in this way, but now it’s called “co-creation.”)
  • AM wrote in favor of allowing women to work and contribute to society but opposed giving them degrees (!). He also wrote in favor of economics as a separate study from politics, i.e., splitting departments of political economy. It’s easy to see the error in his perspective on women (or eugenics), but I am still in the minority in calling for more political economy.
  • AM was lucky to have a best-selling book in his final years, as he had not saved enough money to retire. (Pensions were not a thing in the early 20th century!)
J.A. Schumpeter (1940). “Alfred Marshall’s Principles: A Semi-Centennial Appraisal.
  • AM was one of the first economists to realize that economics is an evolutionary science” [p 237]. This observation or claim is important when it comes to understanding the differences between economists who focus on equilibrium [the destination] and those (like AM) who focus on the processes affecting movements (in any direction) and/or goals [the journey].
  • AM’s focus on the engine of analysis rather than the truth of the destination meant that his ideas could be used by anyone, at any time, to understand more about an economic topic.
  • AM, playing the role of guide, suggested ideas or paths worth pursuing. Those who followed him could fruitfully spend years tying up the loose ends he uncovered.
  • AM’s ideas on returns to scale, substitution, competition and time (evolution!) have endured. His focus on facts, quantification and results helped make economics useful.
G.F. Shove (1942). “The Place of Marshall’s Principles in the Development of Economic Theory.
  • AM wrote “an apologia for economics… a kind of Counter-Reformation” to demonstrate the underlying value of economics, which had been buried in obscure theories. AM wanted economics to “deal with man as he is, seen in the round” [p 310].
  • AM discussed long-term supply and demand, but he put little weight on equilibrium, since underlying tastes and technologies changed too fast for stability to endure.
  • AM established a third era of economic thought that built on earlier Classical (Smith) and Ricardian (Ricardo).
  • AM developed the idea of bidding for monopoly rights that is — in the case of water utilities — one way that markets can discipline monopolistic industries.
  • AM understood and discussed problems with imperfect markets, although later economists contributed more to this topic.
  • AM argued, from a biological-evolutionary perspective, that it was “better to be vaguely right than precisely wrong,” but later economists (see 1944 and 1946 links in the footnote at the end of this post) would revert to the security of precise (and wrong) mathematical equilibria.
  • That said, others have embraced AM’s manner of using statistics and data to check theory — methods that have exploded in popularity with econometrics and (better, IMO) experimental economics.
  • AM’s caution in regard to equilibrium would have been helpful in dealing with the Great Depression and WWII. Keynes escaped the suffocating assurance of supply=demand, but many other economists could not.
  • Post-AM economists brought much-needed attention to the dynamics inherent to negotiations among players with major market power and the role(s) of money and finance in the real economy. AM built the foundations they needed.
  • Plenty of other challenges (e.g., group-action, heterogeneous agents, collective control and mass bargaining) still need attention. It got attention from Samuelson (public goods, 1954), Vernon Smith (experimental markets, 1955/1964), Olson (collective action, 1965), and the Ostroms (common-pooled goods, 1977).
C.W. Guillebaud (1952) “Marshall’s Principles of Economics in the Light of Contemporary Economic Thought”.
    • AM’s PoE was “still a standard textbook” in 1952, but CWG advised students to skip most of AM’s (now outdated) moralising about behavior and society. This advice might have made reading less boring, but it seems to have been costly, if we look at the contemporary amorality of many economists. (I didn’t find AM’s writing too boorish, but the 1950s were go-go years…)
    • AM focussed on partial-equilibrium analysis because general-equilibrium was far too unstable to ever arrive:

      The Marshallian world is a more complex matter. It is not in the least static – it is in fact a world of ceaseless movement and change. Population is increasing (or it might be diminishing), capital is growing, tastes are changing, technique is altering. Some industries are expanding, while others are contracting, and the same is true of the individual firms within each industry. Not only is there seasonal and frictional unemployment of labour (the ins and outs) but there is also structural unemployment due to changes in tastes and demand on the one side, and in technique and inventions on the other. But the aggregate volume of unemployment is not so large as to indicate an overall shortag of effective demand. [p 115]

    • CWG gives (p 123) a nice summary of the short vs long run:

      In the case of the market we are dealing with a stock of goods that are already in existence and which are the fruits of past production.
      In the case of the short period we are dealing with a flow of output from a substantially fixed stock of specialised instruments of production.
      In the case of the long period we are dealing with a flow of output from a flow of all the factors of production that are required to produce that output.

      R.H. Coase (1975). “Marshall on Method
    • As promised, Coase uses most of this (short) article to discuss AM’s methods, which were mostly NON-methods, i.e., AM “would have nothing to do with controversies between deductive schools, inductive schools, historical schools and so on. There was work for all, and he welcomed all. Constructive work was what he wanted” [p 27].
    • What about inductive vs deductive? AM states his ideas in a letter (~1903) to Keynes’s father [pp 26-7]:

      … You make all your contrasts rather too sharply for me. You talk of the inductive & the deductive methods: where as I contend that each involves the other, & that historians are always deducing, & that even the most deductive writers are always implicitly at least basing themselves on observed facts… It is a mere question of arrangement: but I think it is a very important one practically. I think the right order is first to emphasize the mutual dependence of induction & deduction, & afterwards to show in what kinds of inquiry the economist has to spend the greater part of his time in collecting arranging & narrating facts, & in what kinds he is chiefly occupied in reasoning about them & trying to evolve general processes of analysis & general theories which shall show the Many in the One & The One in the Many.

      My second point is that you continually use the word theory where I shd use analysis. This seems to me in itself to cause confusion wh is increased by the fact that later on you exclude modern facts from history; & yet you do not boldly say that theyare part of theory. If they are then I agree with you that a study of theory shd come before a study of history. But I do not myself like to put the case in this way.

      My own notion is [and here Marshall is I take it describing how economics should be presented to students]

      i. Begin with analysis, which is an essential introduction to all study of facts whether of past or present time, with perhaps a very short historical introduction.
      ii. Go on to call to mind the students knowledge of the economic conditions wh he lives. Show the relations in wh they severally stand to one another & carry analysis further, making it more real & concrete.
      iii. Build up a general theory or process of reasoning applicable to Value Money Foreign Trade etc, with special reference to the conditions in wh the student lives, & pointing out how far & in what ways, it can be made to bear on other conditions.
      iv. Give a general course of economic history.
      vi. Consider economical conditions in relation to other aspects of social life.
      vii. Treat of the economic aspects of practical of practical questions in general & social reform in particular.

    • As Coase observes, AM was primarily concerned with understanding and explaining the real economic system that people live, not the abstract, theoretical system beloved by academics. Indeed: “Though a skilled mathematician, he used mathematics sparingly. He saw that excessive reliance on this instrument might lead us astray in pursuit of intellectual toys, imaginary problems not conforming to the conditions of real life: and, further, might distort our sense of proportion by causing us to neglect factors that could not easily be worked up in the mathematical machine” [p 30].
    • Thus, Coase arrives [p 30] at my favorite advice from AM (1906):
        1. Use mathematics as a 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 last, I did often.

…and that ends my summary of commentary by five major economists on Alfred Marshall.

My one-handed conclusion, after 18 months of reading Marshall, is that he was one of the truly great thinkers, practitioners and expositors of economics.

This post is the last in a series for the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

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Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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