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Alfred Marshall’s cardinal theory of value: the strong law of demand

Author

Listed:
  • Donald J. Brown

    (Yale University)

  • Caterina Calsamiglia

    (Universitat Autonoma de Barcelona)

Abstract

We show that all the fundamental properties of competitive equilibrium in Marshall’s cardinal theory of value, as presented in Note XXI of the mathematical appendix to his Principles of Economics (1890), derive from the Strong Law of Demand. That is, existence, uniqueness, optimality, and global stability of equilibrium prices with respect to tatonnement price adjustment follow from the cyclical monotonicity of the market demand function in the Marshallian general equilibrium model. We propose a refutable model of Marshall’s cardinal theory of value: the Marshallian equilibrium inequalities. We show that the Marshallian equilibrium inequalities have a solution iff the finite market data set consisting of observations on market prices and social endowments is cyclically monotone.

Suggested Citation

  • Donald J. Brown & Caterina Calsamiglia, 2014. "Alfred Marshall’s cardinal theory of value: the strong law of demand," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(1), pages 65-76, April.
    • Handle: RePEc:spr:etbull:v:2:y:2014:i:1:d:10.1007_s40505-014-0029-5
    DOI: 10.1007/s40505-014-0029-5
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    References listed on IDEAS

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    1. Donald J. Brown & Caterina Calsamiglia, 2008. "The Nonparametric Approach to Applied Welfare Analysis," Lecture Notes in Economics and Mathematical Systems, in: Computational Aspects of General Equilibrium Theory, pages 41-46, Springer.
    2. John K.-H. Quah, 2000. "The Monotonicity of Individual and Market Demand," Econometrica, Econometric Society, vol. 68(4), pages 911-930, July.
    3. Donald J. Brown & Rosa L. Matzkin, 2008. "Testable Restrictions on the Equilibrium Manifold," Lecture Notes in Economics and Mathematical Systems, in: Computational Aspects of General Equilibrium Theory, pages 11-25, Springer.
    4. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    5. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    6. Bewley, Truman, 1980. "The permanent income hypothesis and short-run price stability," Journal of Economic Theory, Elsevier, vol. 23(3), pages 323-333, December.
    7. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July.
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    Cited by:

    1. Yann Rébillé, 2017. "An axiomatization of continuous quasilinear utility," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 40(1), pages 301-315, November.
    2. Rafael Barreiros Porto & Gordon Robert Foxall, 2022. "The marketing‐finance interface and national well‐being: An operant behavioral economics analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2941-2954, October.

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    More about this item

    Keywords

    Cardinal utility; Quasilinear utility; Cyclical monotonicity;
    All these keywords.

    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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