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Alfred Marshall on the theory of capital

Author

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  • Cavalieri, Duccio

Abstract

Marshall's theory of capital was designed to serve two main purposes: an integration of the theory of income distribution into a general theory of value and the closing of the gap between economic theory and business practice. For the first purpose, capital was considered the reward for the services of a specific factor of production; for the second, a generic source of income, "all things other than land which yield income". This implied a certain ambiguity, because the two notions of capital were clearly inconsistent with each other. The final setting of the Marshallian system was characterized by the presence of three different theories of capital, kept together by a demand-and-supply determination of the rate of interest, which provided a link with the theory of money. Everything was granted a role - productiveness and prospectivess, efforts and waitings, real and subjective costs - but the result was still highly controversial. The principal merit of Marshall's theory of capital was the establishment of a functional link between the theory of value and the theory of money. As a quantity-theorist, Marshall held a "real" theory of the long-period determination of the rate of interest, in the absence of monetary policy; but he thought that the current level of the rate of interest could be influenced by monetary factors. An active monetary policy would both affect the "real" interest norm and produce occasional deviations from it. This position, quite new, was a significant advance towards an integration of real and monetary theory.

Suggested Citation

  • Cavalieri, Duccio, 1992. "Alfred Marshall on the theory of capital," MPRA Paper 43786, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:43786
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    More about this item

    Keywords

    Marshall; capital; value; interest; money; monetary policy;

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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