Lesson 3. Alfred Marshall. Prince Theory Pioneer.

(1842-1924)

The topics discussed in this chapter had their origins in the writings of the great English economists Alfred Marshall. His textbook, Principles of Economics (1890), and the doctrines that it discussed, became the standard for the teaching of that subject until well into the 1940’s. Mashall spent most of his adult life as a professor of economics at Cambridge University. His most famous pupil, John Maynard Keynes, described

Marshall as “the greatest economist of the 19^th century.” Interestingly, Keynes went on to become the most influential economists of the 20^th century.

Marshall is best known for the order that he out of the theories of the earlier “classical economists” like Adam Smith, David Ricardo and John Stuart mill. (“Classical” is the name given by modern economists to the theories of those whose views were most widely held during the 75 years following the publication of the The Wealth of Nations.) Despite the passage of 100 years since the publication of his Principles, his analysis of market forces is still relied upon to explain economic events.

In Marshall’s world, economic events could be explained in terms of the equilibrium market price resulting from the interaction of supply and demand. One of Marshall’s lasting contributions was differentiating between supply and demand in the short run and the long run. Comparing the two forces to the blades of a scissors, he argued that neither could function without the other. But, just as (depending on how the scissors is held) one blade can be more active than the other, so supply

and demand vary in importance in the long and short run. In the short run, the quantity of available goods is more or less fixed (because crops have been planted, production schedules set, etc.). Therefore it is the demand for those items that will be most influential in determining their price. In the long run, he went on, the opposite is true. Both farmers and businesses can add to or reduce their production facilities as the needs dictate. In that way the supply side of the market becomes most influential in determining price.

Exercises

1. Questions for Understanding:

1. Where did Marshall work most of his life?

2. What is the name of his most famous pupil? What did he say about Marshall? Why?

3. What is Marshall best known for?

4. What is the title of his textbook? When was it published?

5. How did Marshall explain economic events?

6. What is one of Marshall’s lasting contributions?

7. What did he compare supply and demand (the two forces) with? Why?

8. What is the most influential thing in determining price? Why?

9. Is his analysis of market forces still relied upon to explain economic events?

10. Are market economics directed by prices?

11. Are prices determined by the interaction of the forces of supply and demand?

2. Match each item in Column A with its definition in Column B:

	Column A		Column B
	origin		to act on each other
	doctrine		state of being balanced
	market		starting point
	to rely (on)		to see as different
	equilibrium		body of teaching
	to interact		desire by people ready to buy, to employ
	to supply		to depend upon with confidence
	demand (for)		to give or provide
	to differentiate(from)		place were people meet to buy and sell goods
	blade		cutting instrument with two blades which cut as they come together
	scissors		cutting part of a knife

III. Complete the phrases with prepositions (where it is necessary) and say in what situations they are used in the text. Use them in sentences of your own.

1. standard…

2. professor… economics

3. to follow… smb., smth.

4. be explained…terms

5. interaction … supply and demand

6. differentiating … supply and demand

7. … comparing the two forces…

8. to vary … importance

9. … the short (long) run

10. …demand…

11. to be influential…

IV. Give Russian equivalents for the following words or word combinations from the text:

1. interestingly

2. the most influential economist

3. in terms of equilibrium

4. to result from the interaction of supply and demand

5. lasting contributions

6. in the short run

7. in the long run

8. blades of scissors

9. the quantity of available goods

10. to be the most influential in determining the price

11. to reduce their production

V. Say if you agree or disagree with the following statements and give your reasons:

1. Economic events could be explained in terms of the equilibrium market price resulting from

the interaction of supply and demand.

2. It is the demand that will be most influential in determining price.

VI. Complete the table. Work out your point of view on Marshall’s theory.

Appraisal Ideas and Beliefs	Still Relevant	Needs Modification	Should Be Rejected
1.See the model on p. 2….

Give your reasons.