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

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.