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
- References
Objectives & Thematic Focuses
This bachelor thesis critically analyzes Alfred Marshall's equilibrium theory to assess its continued relevance in modern economics. It aims to articulate Marshall's concepts, evaluate their integration into contemporary economic thought, and explore their potential contributions to current theories, particularly through the lens of Sraffa's critique.
- Alfred Marshall's equilibrium theory
- Relevance for modern economics
- Sraffian critique of Marshall's theory
- Short-term and long-term equilibrium concepts
- Marshall's perspective on the market mechanism
- Assumptions about human behavior in economics
Excerpt from the Book
Economic equilibrium
In this section, Marshall's thinking will be characterized and his ideas on equilibrium will be presented in detail. The main source for this is his "Principles of Economics", the first edition which was published in 1890. This section will form the basis for further discussions of Marshallian assumptions. These include his view of man, his interpretation of the economic task and the assumptions for action.
By way of introduction, it may be useful to set out Marshall's definition of economic science. He states the following in his principles: "Political economy or economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing. Thus, it is on the one side a study of wealth; and on the other, hand more important side, a part of the study of man" (Marshall 2013, p. 1). It is already clear that Marshall moved a little further away from the focus of classical theory - production - and placed more emphasis on human action. However, it is not human needs that are of primary interest to him: "But if either, more than the other, may claim to be the Interpreter of the history of man, whether on the economic side or any other, it is the science of activities and not that of wants" (ibid., p. 76).
Accordingly, Marshall is not interested in seeing people as homo economicus. Although he admitted that weighing up advantages and disadvantages is most common in the economic context of life and action, this is not because the individual is entirely homo economicus, but because he follows habit and custom: "When he does follow habit and custom, and proceeds for that the moment without calculation, the habits and customs themselves are most nearly sure to have arisen from a close and careful watching the advantages and disadvantages of the different courses of conduct" (ibid., p. 17).
In line with this, Marshall replaces the neoclassical ideal of self-interest with the value of deliberateness. He says: "It is deliberateness, and not selfishness, that is the characteristic of the modern age" (ibid., p. 5).
His concept of action was aimed more at actual, observable action and not at pure decision-making logic: "For in this, as in every other respect, economics takes man just as he is in ordinary life: and in ordinary life people do not weigh beforehand the results of every action, whether the impulses to it come from their higher nature or their lower" (ibid.).
However, to develop thoughts on the balance between supply and demand, it is not enough to describe the rationality of the underlying conception of man. Rather, it is also of crucial importance how Marshall defines the needs of the people acting in an economy, despite his definition of economic science.
His concept of wealth is important in determining these needs: "All wealth consists of desirable things; that is, things which satisfy human wants directly and indirectly: but not all desirable things are reckoned as wealth. The affection of friends, for instance, is an important element of wellbeing, but it is not reckoned as wealth, except by a poetic license" (ibid., p. 45). People, therefore, experience wealth in direct and indirect forms, although things such as friendship are not included.
Chapter Summaries
1. Introduction: This chapter sets the stage by highlighting the historical debate surrounding the concept of equilibrium in economics and outlines the thesis's goal to critically analyze Alfred Marshall's equilibrium theory, its relevance to modern economics, and its contribution to contemporary thought through the lens of Sraffa's critique.
2. Economic equilibrium: This section provides a detailed characterization of Marshall's thinking and his ideas on equilibrium, primarily drawing from his "Principles of Economics," covering his view of man, interpretation of the economic task, and assumptions for action, including the distinction between short- and long-term equilibrium.
3. Critique of Marshall's theory of equilibrium: This chapter focuses on the criticisms leveled against Marshall's equilibrium theory, particularly utilizing Piero Sraffa's critique from his 1926 essay "Laws of returns under competitive conditions," to assess the theory's reflection in modern economics.
4. Conclusion and outlook: This concluding chapter summarizes Marshall's equilibrium concepts, the influencing factors, and the author's and Sraffa's critiques, reflecting on Marshall's place between classicism and neoclassicism and the future relevance of his ideas in dynamic global markets.
Keywords
Alfred Marshall, equilibrium theory, modern economics, Sraffa's critique, neoclassical economics, classical economics, market mechanism, supply and demand, short-term equilibrium, long-term equilibrium, homo economicus, production costs, utility, economic thought, market competition
Frequently Asked Questions
What is this thesis fundamentally about?
This thesis provides a critical analysis of Alfred Marshall's equilibrium theory and evaluates its relevance for modern economics, comparing it with contemporary economic thought.
What are the central thematic fields?
The central themes include Alfred Marshall's economic equilibrium theory, the market mechanism, short-term and long-term equilibrium, the Sraffian critique of Marshall, and the evolution of economic thought from classical to neoclassical perspectives.
What is the primary objective or research question?
The primary objective is to articulate Marshall's equilibrium concepts, assess their integration and significance within modern economics, and determine how his ideas can contribute to current economic theories, particularly using the Sraffian critique as a foundation.
Which scientific method is used?
The thesis employs a critical analytical approach, delving into historical economic theory and applying a comparative analysis, particularly through the lens of Sraffa's critique, to evaluate Marshall's concepts.
What is covered in the main part?
The main part details Marshall's ideas on economic equilibrium, including his view of the market mechanism and the distinction between short- and long-term equilibrium, followed by a comprehensive critique of his theory, primarily from Sraffa's perspective.
What keywords characterize this work?
Keywords include Alfred Marshall, equilibrium theory, modern economics, Sraffa's critique, neoclassical economics, classical economics, market mechanism, supply and demand, short-term equilibrium, long-term equilibrium, production costs, utility, economic thought, market competition.
How does Marshall's concept of "economic man" differ from "homo economicus"?
Marshall moved away from the purely self-interested homo economicus, emphasizing human action driven by deliberateness and custom rather than just wants or immediate calculation, which are shaped by observing advantages and disadvantages over time.
What is the "scissors analogy" used by Marshall to explain equilibrium?
Marshall uses the analogy of a pair of scissors, where one blade represents supply and the other demand, to illustrate that neither alone determines value, but both are essential for cutting a piece of paper (representing price formation).
What is the core of Sraffa's critique of Marshall's theory?
Sraffa primarily criticized Marshall's analysis of the long period, arguing that it is only consistent under constant returns to scale, which limits price determination by supply and demand forces. He also highlighted inconsistencies regarding market entry barriers and the independence of supply and demand curves.
How does the thesis classify Marshall regarding classicism and neoclassicism?
The thesis classifies Marshall as a "modern classic" or a "bridge builder," recognizing his ambivalence; while his short-period thinking leans towards neoclassicism, his long-period focus on production strongly reflects classical elements, placing him at the cusp of both traditions.
- 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
