Cambridge was a school which built by British economist Marshall at the 19th century and early 20th century. As Marshall and his faithful disciples—— Pigou and Robertson—— have taught in the University of Cambridge in the United Kingdom, so it was known as the Cambridge sect.
The views of this school were published in the book of "principles of economics" which was written by Marshall. In the book Marshall inherited the traditional vulgar economics, mixed supply and demand theory, the production costs, the marginal utility theory, and the marginal productivity theory together and built a vulgar economics system whose core was "equilibrium price". They used the price of different demand and the corresponding demand curves which were determined by the law of diminishing marginal utility, and supply and corresponding supply of different prices curves which were determined by the marginal production costs to illustrate the law of the price of a commodity. They measured the value of commodity by equilibrium price, which was to say, they used the equilibrium price to replace value theory.
On the basis of the equilibrium price, the Cambridge school set up their own distribution theory. They recognized that income was jointly created by various factors, and the share of various production factors in the national income was depending on their equilibrium price which was determined by the demand and supply. The demand for labor, capital, and land were determined by their marginal productivity. Labor supply depended on the labor of "negative utility ", while the supply of capital depended on the Capitalists ‘expecting of the future enjoyment. The Cambridge praised free competition, advocated freedom and recognized that market force could make the capitalist system automatically adjust to full employment. With regard to the actual existence of unemployment, they thought, it was mainly the result of the lack of scalability in wage rates.
In monetary theory, the Cambridge raised the quantity of money theory, and then Pigou firstly formulated this view in 1917. In 1922, Robertson published a book ——the "currency”, and Keynes in 1923 published the "monetary reform”, and both had the formula and monetary theory further elucidated.
In theoretical analyzed methodology, The Cambridge believed that there was no strict distinction between the economic phenomena and economic relations. The concept of equilibrium and increment was use to analyze supply and demand equilibrium and equilibrium price. In the analysis, they also assumed that other conditions remain unchanged, so that was partial equilibrium analysis. In the framework of static equilibrium analysis, time factor was introduced, so it could distinct different equilibrium state in different length of period. Besides, they believed that all behavīors of human beings are dominated by the pursuit of "satisfaction" and avoiding the "sacrifices". These two motives determined the demand and supply of goods and factors.
Marshall’s doctrine, spread by its loyal disciples, especially Pigou, in teaching and works, became a famous, which has a dominant position in capitalist economy in the 19th century and early 20th century. Since The World War I, Britain was becoming declined. In 20th early twenty century, Britain has a long-term economic depression, and unemployment was unprecedented. In 1929, the outbreak of the unprecedented worldwide economy crisis made the entire capitalist world a serious dilemma. The theory of the Cambridge can’t resolve it and can’t explain this phenomenon, so after the crisis, the theory of Cambridge go into bankruptcy. In this situation, Keynes, who formerly belonged to the Cambridge, issued the "General Theory of Employment Interest and Money," criticized Marshall and Pigou's views, and attempted to establish his own macroeconomic theory and found a new way out of crisis and rescue the capitalist system.
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