A system of econornic thought influenced by economists at the University of Cambridge, England. Alfred Marshall (1842-1924) held the Chair of Political Economy until 1908 and A. C. Pigou (1877-1959) until 1944, and during this period the school was characterized by the theory of late classical economics. After the end of the Second World War, the school refuted what became known as neo-classical economics and developed ideas based on those of J. M. Keynes (1883-1946), although linked also with the early classical period. The leading figures in the post-war debate were J. V. Robinson (1903- ) and N. Kaldor (1908- ). The Cambridge school emphasized a macroeconomic approach compared with the microeconomic approach of the-neo-classical school. The Cambridge school denied that there was a direct functional relationship between the rate of profit and the capita! intensity of an eeonomy. They have demonstrated the possibility of capital re-switching and have criticized the neo-classical school for leaping to conclusions about the aggregates derived from micro-analysis. For instance, they argue that the aggregate production function of the Cobb-Douglas type is not compatible in practice with the micro-functions from which it is derived. The neoclassical theory of distribution which relates relative factor prices to relative marginal revenue productivities is deficient in throwing light on aggregate factor distributed shares of product. Per contra, they themselves are criticized for neglectihg microeconomic theory. The Cambridge school has attempted to develop growth theory, following J. M. Keynes but assuming full employment, from which the distributed shares ofprofits and wages may be determined. Generally, however, the Keynesian approach assumes underemployment of resources, with investment as the motive force. This is in contrast to the neo-classical econornists who focus on full employmeni equilibrium so that savings rather than investment determines growth.
|Reference: The Penguin Dictionary of Economics, 3rd edt.|