Why Marshall achieved the second great synthesis in the history of economic doctrine

Marshall's economic doctrine was concentrated in the book Principles of Economics. The publication of this work, not only make him famous, but also along with his disciples also doubly favored. Because they successively taught at Cambridge University for a long time, so it is called the Cambridge school, Marshall is the founder of the Cambridge school. Among his disciples were Peguy, Robertson and Keynes. The Cambridge School is also known as the "neoclassical school". This is because bourgeois economists regarded Marshall's Principles of Economics as an epoch-making work on a par with Adam Smith's The Wealth of Nations and Ricardo's Principles of Political Economy and Taxation, and as a continuation and development of classical economics. Therefore, Marshall is called the founder and main representative of the "neoclassical school".

Marshall's greatest success in the field of economics lies in his eclecticism and synthesis. There are not many truly innovative ideas in his entire system of economics. It is mainly reflected in the methodology of the "principle of continuity" based on individual analysis and demand and supply theory of the "concept of elasticity", while other ideas are mainly the inheritance and development of the economic doctrine of previous economists. Of course, he got a lot of benefits from the debates of various schools of thought in his own time, which not only stimulated his personal wisdom, but also provided him with rich materials for a great synthesis. Thus. Understanding the views of the various schools of economics in Marshall's time is necessary to understand the compromise and synthesis made by Marshall.

Keywords: Marshall, compromise, neoclassical school

Marshall's economic doctrine is a summary of the development of Western economics since the mid-nineteenth century, is another synthesis since John Mueller. The most important characteristic of Marshall's economics is eclectic. It is manifested in the following aspects.

1. The problem of the object of study of economics. Marshall defined economics as the study of wealth, but also the study of human learning. Here essentially with the traditional economics is not different, but absorbed the marginal school of theoretical analysis. By the study of man, he meant the study of human motivation. He divided human motives into two categories: the pursuit of fulfillment and the avoidance of sacrifice. Human economic life is governed by these two types of motives. The former promotes a certain economic behavior of human beings and the latter constrains a certain economic behavior of human beings. People's motives are by their very nature unmeasurable. Economists cannot measure anything in the mind per se. But gratification and sacrifice can be measured in degree and quantity in an indirect way, i.e., by using money as a standard. Thus, economics is primarily an analysis of the motivation and resistance to activity in terms of money. In this way, Marshall made economics based on psychoanalysis. Not only that, Marshall also absorbed the historical school's broad definition of the object of study of economics and advocated the merging of economics with sociology.

2. Methodology. (1) Marshall advocated both the abstract method of deriving theoretical models and the descriptive method of historicism. His attitude toward the debate between the historical and Austrian schools over whether to adopt the historical inductive or abstract method of economic research was that each method of research has advantages and disadvantages, and that the various methods should therefore be appropriately coordinated and not mutually exclusive. (2) Absorbing the vulgar theory of evolution, the so-called "only gradual, no mutation" principle of continuity was put forward to analyze various commodity phenomena. (3) The method of analysis of quantitative relations evolved more clearly into the method of analysis of marginal increments, which was not only used to analyze the problem of value, but also extended to the analysis of other economic problems, such as the distribution of national income, the principle of substitution of combinations of factors of production, and the principle of the allocation of various types of resources in the process of production, and so on. (4) He introduced the equilibrium in mechanics into economic analysis and created the static partial equilibrium analysis method, which is used to analyze the relationship between opposite economic forces, such as the formation of equilibrium price. This method of analysis laid the foundation of modern microeconomics. (5) The use of mathematical formulas, geometric shapes and diagrams to explain various economic phenomena, such as supply and demand tables, supply and demand curves, elasticity formulas and so on.

3. Price theory. Marshall's price theory is also his theory of value. In the determination of value, Marshall combined the traditional economic determinism of supply (production costs) and the marginal school of determinism of demand (utility). He argued that both demand and supply are value determinants, and that they interact with each other to ultimately form an equilibrium price, so that Marshall both rejected the labor theory of value and modified the marginal utility theory of value. This price theory is still the basis of price theory in western economics.

4. Distributional theory. Marshall expanded Say's three factors of production into four factors of production, namely, labor, capital, land and organization (entrepreneurial talent). He used the equilibrium price analysis method to study each factor of production in turn, and the theory of distribution became the theory of the equilibrium price determination of the four factors of production, that is, the equilibrium formation of the price of demand and the price of supply of each factor of production. Their equilibrium prices - wages, interest, and profits.

Keynes's Theory

Keynes believed that the level of production and employment is determined by the level of aggregate demand. Aggregate demand is the total amount of demand for goods and services throughout the economic system. In microeconomic theory, automatic adjustments in prices, wages, and interest rates automatically tend to bring aggregate demand to the level of full employment. Keynes pointed to the rapidly deteriorating realities of production and employment at the time, and noted that while the theory was good, in fact this automatic adjustment mechanism did not work. The crux of the matter was the existence of "insufficient demand". According to classical economic theory - commonly used in practice before the General Theory - lack of demand is a symptom, not a cause, of recession and economic dislocation, and therefore does not occur in a properly functioning market.

Classical economic theory holds that the key to reaching full employment in an economic system is twofold: first, that the interaction of supply and demand determines the price of goods, and that constant changes in price lead in turn to an equilibrium between supply and demand; and second, that the new wealth created by the system may be saved for future consumption or used to invest in future production, and that again there is a mechanism of supply and demand that determines this choice. The rate of interest on deposits follows the same mechanism as prices, i.e. it is the price of money.

Even in the worst years of the Great Depression, this theory explained the collapse of the economy as a lack of a strong incentive to produce. So the appropriate approach was to reduce the price of labor to a subsistence level, causing prices to fall, and thus purchasing power (employment) would rebound. Money not paid as wages would be converted into investment, perhaps in other industries. Closing factories and laying off workers are also necessary. Other key policy measures would be to balance the national budget, either by increasing tax rates or by cutting fiscal spending .

The logic of Keynesian extrapolation

The logic of Keynesian extrapolation begins with full employment:

(1) The previous assumption of a full employment equilibrium based on Say's Law is based on a false premise, since the analysis of the aggregate supply and aggregate demand functions shows that the equilibrium in the usual case is a less-than-full-employment equilibrium;

(2) The existence of involuntary unemployment and an equilibrium with less than full employment is rooted in the lack of effective demand; since aggregate supply does not change significantly in the short run, the amount of employment depends on aggregate demand;

(3) The lack of effective demand is due to "three basic psychological factors, namely, the psychological propensity to consume, the psychological preference for flexibility, and the psychological preference for the future return on capital". Psychological expectations of future returns on capital";

(4) The government's failure to intervene is tantamount to letting the lack of effective demand continue, and letting unemployment and crises continue; the government must adopt a fiscal policy to stimulate the economy rather than a monetary policy, and increase investment to make up for the lack of effective demand in the private market.

The reason why Keynes from the macro point of view of a large number of macro concepts of generalization and integration, so that the development of economics began to jump out of the price analysis of the limitations of the 20th century, thus turning a new page of Western economics, because in the development of capitalism to the monopoly stage of the urgent need for a new point of view and a new theory of the defects of the decadence of the free capitalism to give explanations and make up.