In the economy, the concept of equilibrium has consistently been an object of debate and caused numerous disputes. Therefore, it is crucial to constantly enhance and shed light on the interpretation within the historical age. Especially, if the discourse around the notion of equilibrium is in the context of the theoretical mathematical deliberations and the dominant perception of humanity in various historical periods. Significant examples are, for instance, the generating wealth during the classical era (1750-1820) by Adam Smith´s "An Inquiry into the Nature and Causes of the Wealth of Nations" (1776) and maximizing utility through subjective assessment during the neoclassical era. The neoclassical concept of the omniscient human being and the classical concept of homo economicus, who is primarily self-interested but also socially useful, are based on contrasting assumptions about human behaviour. The principles for the construction of an equilibrium vary in the short- or long-term perspective and the impact of the quantity or price. Additionally, the establishment of an equilibrium concept can prioritize the interconnections among markets (general equilibrium) or the notion of progress in particular fields (partial equilibrium).
It will be intriguing to analyze the impact or methodological resemblance of previous ideas in contemporary economics. The proposed research addresses the concepts of Alfred Marshall (1842-1924). Once Marshall's economic concepts have been thoroughly articulated, it is necessary to inquire about the extent to which these ideas are included in modern economics and their significance for the field. This research will examine this subject using the Sraffian critique as its foundation. The question of whether Marshall is a modern classic or a classic of modernity must be dealt with in any case (see Rieter 2008 in Starbatty 2008, pp. 135-158). Furthermore, it will explore how Marshall's ideas can contribute to the development of contemporary economic theories and their impact on present-day economics.
Table of Contents
1. Introduction
2. Economic equilibrium
2.1 Marshall's perspective of the market mechanism
2.2 Short- and long-term equilibrium
2.3 Summary
3. Critique of Marshall's theory of equilibrium
3.1 Critical appraisals
4. Conclusion and outlook
Objectives and Topics
This thesis examines the equilibrium theory of Alfred Marshall and assesses its relevance within modern economics by analyzing its foundational assumptions and testing them against the Sraffian critique.
- Characterization of Marshall's fundamental assumptions and his view of the economic actor.
- Analysis of market mechanisms and the differentiation between short-term and long-term equilibria.
- Evaluation of Piero Sraffa's critique regarding Marshall's theory of returns and market competition.
- Discussion on the consistency of Marshall's partial equilibrium concept in light of contemporary economic challenges.
Excerpt from the Book
2.1 Marshall's perspective of the market mechanism
To create the conditions for a balance between supply and demand, it is imperative to introduce the market into the considerations, which must be regarded as the place of trade and thus the meeting of supply and demand. Unlike Walras, Marshall does not use an auctioneer to call out prices to clear the market. Rather, Marshall assumes that retailers are active on the market and vary the supply quantity: “the simplest cases of a true equilibrium value are found in the markets of a more advanced state of civilization" (ibid., p. 276). Here, then, we once again encounter the aggregation level of the market, which goes one step further than Walras' individualistic view, for example.
Marshall remarks: "When demand and supply are spoken of in relation to one market another, it is of course necessary that the markets to which they refer should be the same" (ibid., p. 270). It is intuitively clear that an equilibrium cannot arise if there is a demand for grain and a supply of fish (cf. Vaggi 2003, pp. 229). However, it is not enough to interpret the market as a meeting place for supply and demand. Rather, Marshall assumes competition in all markets, which, in Caspari's opinion, cannot be regarded as complete competition: "Thus we assume that the forces of demand and supply have free play; that there is no close combination among dealers on either side, but each act for himself, and there is much free competition; that is, buyers generally compete freely with buyers, and sellers compete freely with sellers. But though everyone acts for himself, his knowledge of what others are doing is supposed to be generally sufficient to prevent him from taking a lower or paying a higher price than others are doing. This is assumed provisionally to be true both of finished goods and of their factors of production, of the hire of labor and of the borrowing of capital" (ibid., p. 284).
Summary of Chapters
1. Introduction: Outlines the historical debate surrounding the concept of economic equilibrium and introduces the objective to evaluate Marshall's relevance using the Sraffian critique.
2. Economic equilibrium: Details Marshall's core concepts, including his definition of economic science, his view of man, and the distinction between market periods.
2.1 Marshall's perspective of the market mechanism: Examines Marshall’s interpretation of competition and market dynamics, specifically highlighting his deviation from Walrasian atomistic models.
2.2 Short- and long-term equilibrium: Discusses how time periods influence equilibrium, where supply is fixed in the short run and becomes increasingly elastic due to production costs in the long run.
2.3 Summary: Provides a recap of the Marshallian model, focusing on the transition from short-term to long-term adjustment mechanisms and the concept of quasi-rent.
3. Critique of Marshall's theory of equilibrium: Presents Piero Sraffa's fundamental criticism of Marshall's value theory and his skepticism regarding the consistency of supply and demand curves.
3.1 Critical appraisals: Offers a final assessment of Marshall's theories, considering modern factors like external shocks and technical progress that were not part of the original model.
4. Conclusion and outlook: Synthesizes the findings, confirming Marshall's status as a "modern classic" while noting the necessity of adapting these theories to globalized, dynamic markets.
Keywords
Alfred Marshall, Equilibrium Theory, Neoclassicism, Classical Economics, Piero Sraffa, Supply and Demand, Market Competition, Long-term Equilibrium, Short-term Equilibrium, Quasi-rent, Production Costs, Economic History, Value Theory, Market Mechanism, Modern Economics
Frequently Asked Questions
What is the central focus of this thesis?
The thesis provides a critical analysis of Alfred Marshall's equilibrium theory, exploring its theoretical structure and examining its applicability to modern economic conditions.
What are the primary themes discussed?
The work covers Marshall's view of human action, his differentiation of economic time periods, the role of competition, and the theoretical challenges posed by Piero Sraffa.
What is the primary research goal?
The research aims to determine the extent to which Marshall's economic concepts are reflected in modern economics and whether he can be classified as a "modern classic".
Which scientific method is utilized?
The thesis utilizes a comparative and critical literature analysis, specifically using the Sraffian critique as a foundation to evaluate Marshall's system.
What does the main body cover?
The main body breaks down Marshall's concepts of wealth and action, analyzes his market mechanisms under varying time horizons, and contrasts his work with Sraffa's criticisms.
Which keywords define this work?
Key terms include Alfred Marshall, equilibrium, supply and demand, Sraffian critique, neoclassicism, and market mechanisms.
How does Marshall differ from Walras regarding price?
Unlike Walras, who views price as an independent variable determined by an auctioneer, Marshall views quantity as the primary adjustment factor in a monetary economy.
What does the "quasi-rent" represent in Marshall's model?
Quasi-rent is a temporary surplus that occurs in the short run when market prices exceed prime costs, representing an income that does not correspond to standard production costs.
Why is Sraffa's critique significant for this analysis?
Sraffa’s critique highlights potential inconsistencies in Marshall's "long-period" analysis, particularly challenging the independence of supply and demand curves in the presence of constant returns to scale.
- Arbeit zitieren
- Thomas Berg (Autor:in), 2024, Alfred Marshall's equilibrium theory. A critical analysis of its relevance for modern economics, München, GRIN Verlag, https://www.grin.com/document/1673204
