MARSHALL ON LONG-PERIOD ECONOMIC CHANGE

Within the framework of neo-classical theory, long-period economic change had little place. Marshall addressed himself only briefly to the subject with a discussion of 'the secular period' of the economy.

From his vantage point in time Marshall could observe that the gloomier classical prognoses on the fate of the economy had not, in fact, been borne out. The stationary state had not emerged; despite increases in population, real incomes of workers had improved; capital accumulation had proceeded, but it had not been accompanied by a widespread displacement of labour. Nor had the growth in demand for foodstuffs given landlords a stranglehold over the economy. The expansion of international trade (and particularly the opening up of low cost sources of food supply) had been partially responsible for the outcome.

Despite all this, Marshall shared the general classical conclusion that rents would tend to rise during the course of sustained economic expansion. In his interpretation, however, this phenomenon was associated less with the natural limits to the fertility of the soil than with growth in demand for business and residential sites. Indeed, rising rents in urban situations had the more serious implications for the cost structure. The application of high technologies to agriculture held out prospects for productivity improvements that would forestall a re-distribution of income in favour of agricultural landowners.

Marshall's treatment of wages also departed substantially from the main classical line. He would have no part of the Malthusian 'iron laws'. On this point he followed the path charted by Mill by rejecting the view that population growth would necessarily frustrate sustained improvement in real wages.

of course, was on stronger ground when arguing this point than were the early classicists. The latter had assumed that real wages would always be so close to the subsistence level that there was little room in the worker's budget for goods produced by higher techniques (and thereby subject to price reduction). In Marshall's world, it could be more plausibly maintained that the benefits of lower price would be much more widely diffused.

Another prominent contrast between Marshall's conclusions and those of the classical orthodoxy concerned the doctrine of the falling rate of profit. This proposition, which had occupied a central position in classical thought supplied the underpinnings to fears about the ultimate emergence of the stationary state. Marshall's treatment c this question was, of course, adjusted to a different set c distributional categories. Profits could no longer be regarded in the classical sense (i.e. as the income of the capitalist class); instead the rate of interest was held to b a more appropriate measure of the return to the supplier of capital. Marshall acknowledged that the rate of interest would tend to fall as accumulation proceeded, but only to the extent that increments to the capital stock were subject to diminishing returns. Such tendencies, however might well be offset by technological progress. Marshal maintained that there was every reason to believe that technical improvement would proceed at faster rates that the classical economists had anticipated. In any event, the average rate of return on capital throughout the economy was not particularly pertinent to the investment decision. The carriers of economic progress were men who sough out avenues for reaping above-average returns on capital In short, it was the result of calculations at the margin that mattered.

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