The Institutionalization of Economics and the Economics of Marshall

Abstract

This paper examines how the economics of Marshall was pushed out of the mainstream of economics after his death.
We firstly try to comfirm that the compatibility problem between competition and increasing returns was the main concern of Marshall from the early days of his career up to his Principles. Three new analytical tools he introduced into the Principles were intended to answer this problem. These are the distinction between internal and external economics, the period analysis, and the representative firm. The vision of the market as an organic system, we contend, is the key to understanding these three tools.
Because economists at the early stage of institutionalization of the profession were eager to secure reliable analytical methods, the assessment of the economics of Marshall centered around the consistency of his analytical tools with the partial equilibrium method. Consequently, not enough attention was paid to the vision underlying his analytical tools. The same logic explains the gradual displacement of partial equilibrium method by general equilibrium method which started shortly after the assessment of Marshall by the Cambridge economists during the 1930s.