Alfred Marshall’s Time and Ceteris Paribus Theory

One of the most confusing aspects of economic analysis is the wide range of interrelated forces that can affect the behavior of an individual or firm over extended periods. Alfred Marshall (1842-1924) constructed an ingenious methodology for isolating the influence that these forces could exert over periods and which could be used to treat these variables separately (Ekelund & Hébert, 1990). Marshall proposed that one variable could be examined in isolation, while other variables were assumed constant. This new methodological construct called Ceteris Paribus, meaning other things being equal, allowed the researcher, who often had limited data, resources, and analytical tools at his disposal to study a phenomenon by breaking a problem into its component parts. The effect of each component part could then be ruled out in having an effect on the variable under study.

Ceteris Paribus was a breakthrough because it provided a clear name and methodology to a technique that had been employed somewhat sporadically in classical economic analysis. The Historicists among others rejected classical economic analysis in favor of their own holistic views because of the very point that economic forces were too complex overall to comprehend. Marshall’s advancement of Ceteris Paribus shattered the notion that internal and external forces exerted on both the firm and the industry were always too complex for analysis.

Marshall’s own example of the fishing firm within the context of the fishing industry gives clear examples of the importance of judicious application of Ceteris Paribus. Seasons and weather affect the demand for fish in the short run. Availability of substitutes and changes in consumer tastes affect the long run demand. Underemployed anglers and existing boats being used for other nautical purposes could then fish existing waters to help allow for responses to short-run demand. Training new anglers and building new boats allow for long-run response to increased demand. Clearly, isolating these forces allows one to choreograph changes in competitive equilibrium with some sort of rational explanation. With Ceteris Paribus, Marshall demonstrated in his example of the fishing industry that some long run and short-run factors that do affect the fishing trade can be ignored or assumed constant for short periods.

Through application of Ceteris Paribus, one can understand the problems of continuous change over time on various forces that affect demand and supply. Marshall applied Ceteris Paribus to define the relationship between changing demand and production costs with normal price and competitive equilibrium. Marshall further noted that variables held constant under a Ceteris Paribus assumption are done so on a provisional basis only—problems unfolding over long periods of time could make special study of some variables necessary to determine the validity of holding the variables constant with Ceteris Paribus.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.