Mountifort Longfield's Supply-and-Demand Theory of Price and Its Place in the Development of British Economic Theory

A correct assessment of Longfield's place in the development of economic thought depends rather crucially on dismantling the myth, perpetuated by Schumpeter as well as other historians of economic thought, that Longfield was an archfoe of the labor theory of value who set out to establish a marginal utility tradition at Trinity College, Dublin. What I shall indicate, in the course of this study, is that it was Thomas R. Malthus, rather than the utility theorist Jean Baptiste Say, who furnished Longfield with the tools he needed to combat Ricardo's cost-of-production theory of market price. I shall argue that in the area of value theory, Longfield's disagreement with Ricardo revolved about the problem of explaining market price. On the issue of the source and measure of exchange value, Longfield did not depart substantially from Ricardo's teachings. Longfield's analysis of market price must be regarded as one of the early attempts to develop the supply-and-demand theory into a more powerful tool of market analysis and to go beyond the vague but popular notion of his day that it is the ratio between demand and supply which determines market price. He did this by introducing the concept of marginal demand into the sphere of price determination. This permitted him to develop the notion of a demand schedule and thereby analyze in much detail the economics of what Alfred Marshall later called the "very short period." A summary of Longfield's price theory is presented in Section I of this article. (1) In Section II, I critically reexamine the existing body of Longfieldian literature and offer an alternative assessment of the significance of Longfield's price theory and its place in the history of economic thought. Section III is a discussion of the extent to which Longfield's theory of price actually influenced subsequent thought in Ireland, and a concluding Section IV follows. I Longfield's Theory of Market Price Longfield developed a supply-and-demand explanation of market price at a time when the Ricardians complained that supply-and-demand explanations were vague and misleading. According to Ricardo, it is "cost of production" that is the "real and ultimate regulator" of the prices of reproducible commodities sold in competitive markets. Supply and demand account only for temporary deviations in a commodity's market price around what it costs to produce it, but in the long run (i.e., "ultimately") it is the cost of production which determines price. (2) Ricardo was aware of the fact that his "law of market value" did not apply to all commodities traded. Non-reproducible commodities such as old paintings and rare wines, as well as monopolized goods and internationally traded commodities, would sell at market prices totally divorced from their original cost. This, however, did not impair the usefulness of his "law" because, as Ricardo explained, these commodities "form a very small part of the mass of commodities daily exchanged in the market" (Principles, p. 12). Apparently, Ricardo was not driven by an aesthetic passion to develop a unified theory to explain market price at all times and for all commodities. As one commentator pointed out, Ricardo preferred "a clear and simple law which is not quite universal to a universal law which is not so clear and simple." (3) It is important to note that Ricardo's criticisms of the supply-and-demand theory are in most cases directed against a single version of that theory which, he believed, had become "almost an axiom" in economics at the time he was writing. (4) This was the view that it is the proportion between demand and supply that explains either the level of or changes in market price. (5) Ricardo found this theory the "source of much error in the science," since he could name instances where both demand and supply increase at the same rate while the market price falls. (6) In addition, and perhaps more important, Ricardo found this supply-and-demand explanation unsatisfactory because it did not explain the level of market price, only its short-run variations. …