In the second half of the 19th century Ricardian Economics started decaying after J.S.Mill. This was due to the criticisms of Historical and Socialists School of thought. The year 1971 marked a turning point in the history of economic thought. It witnessed the end of classical economics and the rise of a new school of economic thought later on became popular as Neo-classical school. Alfred Marshall accepted induction as a method in the hight of historical criticism,utility as a element in value determination from Austrians and combined these ideas with English Classical theories. Thus he converted classicism into Neo-classicism. The characteristic feature of the new school of thought was the introduction of marginal analysis. Though Jevons ,Menger and Walras were pioneer of this field ,the real founder of new school of thought was Alfred Marshall.In Marshallian analysis,the central problem of economics was the determination of value. Value is determined by the equilibrium of demand and supply. They are just like the blades of a scissor. Both blades are equally useful in cutting the cloth. In the same manner ,in the determination of value, demand and supply have equal role. According to Marshall, demand depends on marginal utility,but cost of production determines supply. Unlike the Austrian school of thought ,the cost of production in Marshallian analysis is the sum of the cost of all factors is valued in the production process. The dispute weather cost or utility governs the value is useless because both are equally important element in the determination of value. It is an unnecessary dispute weather it is the upper or lower blade of a pair of scissors that cut cloth ,as weather value is governed by utility or cost of production.
Marshall’s theory of production was a synthesis of classical aand subjective ideas. The classical economics had emphasized the supply side or the cost of production in the determination of value. The Austrian school had emphasized the demand aspect by making utility the basis of value. Marshall compromised these two points, by giving equal importance to supply and demand ,as the two determinants whose mutual interaction resulted in value.
IMPORTANCE OF TIME ELEMENT IN THE DETERMINATION OF VALUE
According to Alfred Marshall,demand and supply determine the equi price. Time element effects the determination of price. How time element effects the determination of price depends upon how supply adjusts to a given change in demand over a period of time. In the market period, supply remains more or less fixed. Equi;price is affected by demand in the short period, supply can be adjusted to demand by changing the output within the limit set by the existing capacity of the industry. This time period is not long enough to permit any change in capacity. In the long period, supply can be adjusted to demand either by utilizing the existing capacity or by changing the capacity itself.