The Marshallian demand curve revisited

Abstract

Did Marshall assume a compensated or an uncompensated demand curve? I argue that it was neither: I show that the Marshallian demand curve is a willingness-to-pay curve derived under the assumption that all prices and income are held constant. This curve approximates both compensated and uncompensated demand curves only if expenditure on the good in question represents a negligible part of the consumer budget. I argue that my interpretation, highlighting the approximate character of Marshall’s approach, provides a more accurate account of the Marshallian demand curve than do alternative interpretations that rely on the utility-maximization framework and mathematical exactness.