“It is common to distinguish necessaries, comforts, and luxuries,” wrote influential economist Alfred Marshall. “The first class including all things required to meet wants which must be satisfied, while the latter consist of things that meet wants of a less urgent character.” Marshall’s discernment between the various dimensions of the material economy – the influence of price, distinguishing human needs and wants, the utility of goods and services – allowed him to become not only an architect of neoclassical economics, but it allowed him to transform economics as a whole. For Alfred Marshall, immature economics had resulted in mass exploitation, plenty of poverty, and unequal distribution of wealth. This revealed much about the deficiencies in the study of economics as much as it did about its implementation: In his influential 1890 text The Principles of Economics, Marshall wrote about his urge to develop economics because “the study of the causes of poverty is the study of the causes of the degradation of a large part of mankind.” To understand economics required not only a moral dimension to be assigned to it, but it also required studying the political economy and social landscape of communities.
Although his drive was based on the inequality around him, Alfred Marshall was not a Marxist theorist in which he condemned the struggle between capitalism and the proletariat as a mythical battle between good and evil. Indeed, as an economist, Marshall never wanted to study the macro-level of state economies. Marshall’s influence on neoclassical economics arose from his study of the micro-level, or individual markets and industries. Any form of economics was not inherently good or evil; rather, it was human behavior and reactions that dictated the patterns of the market that gave it the meaning of being just and unjust.
Marshall and Neoclassical Economics
Marshall’s ambition as a political economist was to translate and ground economics into real meaning for the common working man. One important way he did this was attempting to understand the wants and potential of human nature. The criticism many have towards Marshall’s interpretation of the relationship between human nature and the free market was that it was only normative and based on limited empirical conclusions. However, the influence his conclusions had on the development of neoclassical economics could not be denied. For Marshall, resolving the malaise of poverty was not an issue of providing workers rights and distributing material goods to the poor. As an observer of micro-economics, Marshall believed that individuals influenced the institutions and broader attitudes towards economics. Typical of a neoclassical economist, Marshall stressed that humans were rational in that they always sought to maximize their utility and diminish their costs. Government intrusion into a free market would handicap people from fulfilling their potential and give them fewer avenues of maximizing utility and thus being truly complete human beings.
If he was so confident in the value of capitalism, how was Marshall disenchanted with the decadent economic environment around him? For starters, the economic climate was not as free as it could be, and so individuals were limited by the institutions. Institutions defined than the majority of individuals rather than them defining the institutions that would let them prosper in a free market. More importantly, however, was that as a political economist, Marshall made it his goal that the working-class should better understand the functions of economy so that they can lead and rebuild the market. To do so, Marshall grounded economics with mathematical models and popularized it as a study of human behavior as much as a science. Ignorance was allowing poverty and exploitation to flourish.
With this methodology, Alfred Marshall became among the greatest influences on neoclassical economics. Among his most prominent ideas included the economic model of supply and demand. This model states that in a free and competitive market, price is determined by a combination of the production (supply) and the population of customers at the individual prices (demand). If the quantity of the supplied product is high, price will be low, and vice versa. When supply and demand are equal, the economy reaches equilibrium and prices remain stable. Additionally, Marshall elaborated on the concept of marginal utility and its role on the economy. In economics, marginal utility signifies the quantitative increase of total utility, or value, with a correlating increase of one unit of the good or service, though marginal utility decreased with every additional unit. His research of the effect of taxes on utility and the spending of consumers held an influence on neoclassical economics long after he was gone.