G. L. S. Shackle, Marginalism: The Harvest

G. L. S. Shackle’s article, originally published in 1972 and republished in the supplied 1988 version, assesses marginalism as both an indispensable intellectual achievement and a framework whose completeness depends on excluding historical time. Its three sections move from marginalism’s nature and methodological appeal through its demanding presuppositions to its contribution to economic measurement, distribution theory, and monetary analysis. Shackle’s central question is how a theory that makes economic relationships intelligible can nevertheless misrepresent the conditions under which people actually choose.

Economics joins two inquiries: how individuals choose and what results when their choices interact. Marginalism promised to unify them through rational optimization. If reason determines conduct, the analyst can apparently deduce both individual decisions and their collective consequences. This prospect of a deductive science was particularly attractive where social experimentation was unavailable or incompatible with liberal individualism. Yet the achievement exceeded mathematical elegance. Marginalism helped shift economics from the technical properties of things toward the thoughts and desires through which people value them.

Shackle develops this shift through his criticism of cost-of-production theories. Technical conditions alone cannot determine both price and output when unit costs themselves depend on the scale of production. Demand supplies the missing relation: production costs and consumers’ desires jointly determine the result. Subjectivity also reaches into the definition of a commodity, since physically similar objects constitute the same good only when buyers treat them as interchangeable. Marginalism thus combines a psychological claim about diminishing marginal valuation with the general mathematical technique of finding maxima and minima.

Its explanatory power, however, rests on a stringent interpretation of rationality:

If conduct is to be rational in this sense, the individual's knowledge of his circumstances must be relevantly complete, and known by him to be complete.

This is stronger than practical deliberation or intelligent guesswork. Demonstrably optimal conduct requires certain knowledge of relevant circumstances, including other people’s choices. Each chooser must be free to decide while already knowing what everyone else decides. General equilibrium resolves this paradox through the pre-reconciliation of choices, but its solution imposes simultaneity:

Rationality and time are alien to each other.

The claim concerns rationality as demonstrable optimization, not the impossibility of sensible action in ordinary life. If every relevant choice must already be reconciled with every other, the system cannot accommodate genuine discovery. Partial equilibrium offers useful local insight but cannot evade this difficulty at the aggregate level: combining its separate adjustments abandons the ceteris paribus assumptions on which they depended. Marshall’s shifting assumptions and deliberate imprecision become, in Shackle’s reading, an effort to preserve insight without forcing every problem into one logically unified model.

The final section explains why these limitations do not erase marginalism’s harvest. Quesnay had represented society as a system of mutually sustaining activities, but technological interdependence alone could not determine its particular flows. Subjective tastes supplied the additional determination needed to turn the economic tableau into general equilibrium. Marginal adjustment also explains how heterogeneous goods and private valuations become publicly comparable:

The marginal principle will have conjured scalar objectivity and publicly accepted measure out of subjective diversity.

Individuals adjust quantities until their marginal rates of substitution coincide with market price ratios. Although valuation remains an act of individual minds, the resulting prices furnish common measures for accounts, national income, and growth. Shackle treats this transformation as a foundational achievement: economics needs a way to add together goods whose physical diversity otherwise defeats aggregation.

Marginal productivity theory extends this achievement to distribution. Under diminishing marginal products, constant returns to scale, and perfect competition, payments to factors at their marginal products exactly exhaust total output. Shackle explains the adding-up result through Irving Fisher’s three-dimensional geometry, in which a spider’s descent along the edges of a rectangular plate represents payment of the two factor bills. The result vindicates the coherence of the closed system within its stipulated conditions; it does not establish that those conditions describe economic experience.

Money exposes the tension most sharply. Shackle credits Hicks with integrating monetary theory and value theory through marginal analysis of the costs and dangers of holding income-earning assets instead of money. Yet this formal integration leaves money’s distinctive purpose unexplained within timeless equilibrium:

Money is that asset which enables a man to put off deciding what to buy.

Holding money separates selling from the later decision about what to purchase. Its usefulness therefore presupposes time, uncertain expectations, and decisions not already reconciled. Introducing those conditions restores the actual predicament of choice while undermining the completeness of knowledge required by determinate optimization.

Shackle consequently questions whether fine marginal adjustments remain useful when their conjectural foundations may shift abruptly. He nevertheless refuses to discard marginalism. Economic understanding requires a coherent picture of what an orderly system would be, even when practical conduct cannot follow its idealized paths. The article’s lasting methodological claim is that economics must retain both equilibrium’s illuminating structure and an account of discovery, uncertainty, and change, accepting that these perspectives cannot be fused into a single all-sufficient theory.