In the last third of the XIX century. there was a new direction of economic thought – marginalism. The main idea of marginalism is the study of limiting economic values as interrelated phenomena of the economic system on a firm, industry, national economy scale. At the center of the new teaching was the subject with his needs.
The marginalists had predecessors: Johann von Tyunen (1783–1850) developed a theory of marginal productivity; Antoine Augustin Cournot (1801–1877) wrote the book The Mathematical Foundations of the Theory of Wealth; Jules Dupuy dealt with the problem of measuring the utility of public services; Hermann Gossen (1810-1858) formulated the laws of marginal utility.
Marginal revolution took place in 2 stages. The first stage covers the years 70-80. XIX century., The second stage (1890-ies.) Received the name of the neoclassical school.
Karl Menger (1840-1921) – the founder of the Austrian school of marginalism. Representatives of marginalism were Friedrich von Wieser (1851-1926), Eigen von Bem-Bawerk (1851-1914), William Stanley Jevons (1835-1882), Francis Edgeworth (1845-1926), Leon Walras (1834-1910), Wilfredo Pareto (1848-1923), John Bates Clark (1847-1910).
The essence of the marginalist revolution:
1. Implemented a coup in the methods of analysis. The center of gravity in the analysis was moved from costs to final results. The subjective motivation of the economic behavior of individuals was taken as a starting point for economic theory. The principle of limiting was first introduced into economics. There was a marginal analysis.
2. Changed task setting. Marginalists have focused on static tasks typical of short-term periods in which values do not have time to change. At the same time, various ways of using resources to meet needs are analyzed.
3. There was a revolution in the theory of value. The classic approach is rejected.
Karl Menger. The main element in Menger’s methodological toolkit is microeconomic analysis. He allowed, on the one hand, to contrast the analysis of economic relations and indicators at the level of an individual economic entity (in Menger’s terminology – “Robinson household”) to the doctrine of the “classics” on economic relations between classes, but on the other hand, to get involved in the statement that and it is possible to solve economic problems, considering them only at the level of the individual, at the micro level, taking into account the property phenomenon and due to the relative rarity of the benefits of human egoism.
In The Foundations of Political Economy, Menger turns to the theoretical concepts of political economy, including such as “value”, “exchange”, “goods”, “money” and others. He developed a theory of value (value), defined by marginal utility. The value of economic benefits is revealed by a person in the process of satisfying needs,
In addition, he explains that “value is not something inherent in benefits, not their property, but, on the contrary, only the value that we primarily attach to the satisfaction of our needs. “. To confirm this kind of judgment, Menger gives an example of an oasis, where water from a source covering all people’s needs for it has no value and, conversely, water becomes valuable for residents of an oasis when suddenly the flow of water from a source decreases so much that disposal of a certain amount water will be a prerequisite for meeting the specific needs of the inhabitants of the oasis.
“Value is a proposition that economic people have about the value of the benefits at their disposal for maintaining their lives and their well-being, and therefore does not exist outside their consciousness.”
According to Menger, “the cost of labor and its quantity or other goods for the production of the good, the value of which is referred to, are not in the necessary and direct connection with the value of value.” Menger uses “proof”, referring to the example of the value of a diamond and giving a comment, the essence of which is this: the value of this mineral does not depend on whether it was found “by chance” or “extracted from deposits by spending thousands of working days”, since the defining moment “when discussing its value” is the number of “services” that can be lost if it were not at our disposal.
In fact, according to this theory of the Austrian school, which was called the “imputation theory”, it is assumed that the share of the value (value) of the good of the “first order” is imputed to the benefits of the “subsequent order” used in its production. Under all conditions, the value of goods of a higher order is determined by the estimated value of goods of a lower order, for the production of which they are intended or supposedly intended by people.
The benefits of a higher order are viewed by Menger as an unavoidable prerequisite for the production of goods. And he suggests that they include not only a set of raw materials, labor, used plots of land, cars, tools, etc., but also “the use of capital and the activities of an entrepreneur”.
Menger considers it a mistake to blame the social system for the alleged “opportunity. deprive the workers of the product of labor. ” He writes that labor is only one element of the production process, which “is no more an economic good than the elements of production.” Therefore, in his opinion, the owners of capital and land do not live at the expense of workers, but “at the expense of using land and capital, which for the individual and society has value as precisely as labor”.
Menger seriously criticizes the theory of wages of the classics, according to which the price of simple labor is to a minimum, but at the same time it must “feed” the worker and his family. In his opinion, such an approach is illegal, since the idea of wages as a source of “life support” will always lead to an increase in the number of workers and a reduction in the price of labor to the former (minimum) level. Therefore, in order to avoid regulating the price of simple labor on the principle of minimum means of subsistence, they are recommended to reduce the higher price of other types of labor on capital expenditures, on rent from talent, etc.
The essence of the exchange is reduced mainly to the individual act of the partners, the result of which is supposedly mutually beneficial, but not equivalent.
According to him, any economic exchange of goods for exchanging individuals means joining their property to a new property object, and therefore the exchange can be compared in the economic sense with the productivity of industrial and agricultural activities. At the same time, exchange is not only a profit, but also an economic sacrifice caused by a exchange operation, which takes away “a part of the economic benefits that can be extracted from the existing exchange relationship”, which often makes implementation impossible where it is still conceivable.
Everyone who promotes exchange
Friedrich von Wieser. He was a student of Menger. He developed the theory of value in his works “On the Origin and Basic Laws of Economic Value” (1884), “Natural Value” (1899), and “The Theory of Social Economy” (1914). He put into scientific terms such terms as “marginal utility,” “laws of Gossen,” “imputation.”
Wieser developed the theory of opportunity costs, suggesting alternative ways of using resources.
Eigen von Böhm-Bawerk. He was also a student of Menger, continued the development of marginalist theory in the books “Capital and Profit” (1884), “Positive Theory of Capital” (1889), “Fundamentals of the Theory of the Value of Economic Benefits” (1886).
He investigated not only individual exchange, but also a holistic market. Considered the problem of distribution as a problem of setting prices for factors of production. An important place in his works is occupied by the “theory of expectations”, the central idea of which is the emergence of profit (percent) on capital. Due to the length of time productive means turn into a product, there is a difference in the prices of these means and the product, in which the return on capital is hidden.
The English school of marginalism is represented by Jevons and Edgeworth.
William Stanley Jevons. His works: The Theory of Political Economy (1871) and The Principles of Science (1874).
Subjectivism of marginal ideas in the writings of Jevons is obvious from the following.
First, the maximum satisfaction of needs with a minimum of effort is, in his opinion, a purely economic task, not related to political, moral and other factors. At the same time, priority was given to them in terms of utility,
Secondly, considering the utility and value of functional dependence, Jevons believed that the price of a product functionally depends on marginal utility, and the latter, in turn, depends on commodity prices due to production costs. This means that he did not give an independent value to costs and marginal utility.
Thirdly, he shared the position of the “classics” on perfect competition, allowing sellers and buyers to have access to each other and to have complete mutual information. From here he came to the conclusion that the market entities ensure that a person receives such a combination of goods that most satisfy his needs. This is evidence of their comprehension of the principles of ultimate analysis (the “laws of Gossen”).
Jevons was among those scientists who were influenced by the utilitarian ideas of the English philosopher Jeremiah Bentham. He believed that his (Bentam) conviction about the calculation of pleasures and sufferings could be applied to an economic approach in understanding human behavior. In addition, his statement – “all goods as a result of the exchange are distributed in such a way as to deliver maximum benefits” – is almost consonant with the main postulate
Jevons formulated the law of diminishing marginal utility and with his help he came to the equation of exchange: in equilibrium, the ratio of the increments of consumed goods must be equal to the corresponding ratios of the intensity of needs that are satisfied last. In essence, this is a condition of consumer equilibrium: the proportionality of marginal utilities relative prices.
An important contribution to science is Jevons’s labor supply theory. With an increase in its supply, labor first decreases and then increases, while the marginal utility of a product produced by labor monotonously decreases. The worker, rationally behaving, will equalize the ultimate burden of labor and the marginal utility of the product.
Francis Edgeworth developed the ideas of Jevons. His main work “The Mathematical Psyche” (1881), which focuses on the problems of measuring utility and the mathematical definition of equilibrium. Equilibrium is considered on the basis of comparing the benefits of goods and labor.
Edgeworth established the law of growth of production of the company: this growth is advantageous to continue until marginal revenue equals marginal costs. He also introduced the concept of indifference curves.
Lausanne School presented
Leon Walras (1834-1910) showed an interest in economic theory thanks to his father, who drew his attention to the work
He first tried to apply a mathematical model to identify the problems of the existence of the equilibrium of the economic system and to give this system stability. But unlike market equilibrium models
The general economic equilibrium model developed by Walras reflects the interconnection between the markets for finished products and the markets for production factors under the market mechanism of economic management with perfect competition leading to a single equilibrium with many markets. It makes it possible to understand that the determination of prices for products and prices of production factors for a market can only be simultaneous and not alternate in one order or another, that partial equilibrium in a certain number of markets does not guarantee general equilibrium for the entire economy with a given number of markets.
Value is always relative, it is determined by comparing the intensity of a particular need for a product and the cost of its production. In a market economy, this is expressed through equality of supply and demand for all goods and services. The main regulatory mechanism for achieving equilibrium Walras considered changing the structure of equilibrium prices. Value becomes known only after equilibrium between utility and cost, supply and demand.
Among the simplifications made in the equations of the Walras model occurred:
given functions of marginal utility, which meant a given initial amount of goods and services that are sold on the market;
given functions of marginal productivity, which meant the assumption of identical costs,
price changes directly depend on the excess of demand over supply, etc.
Wilfredo Pareto is a major Italian representative of neoclassical economic theory, a successor of the traditions of the Lausanne school of marginalism. Along with economics, this scientist was also interested in politics and sociology, which was reflected in the diversity of his publications. To the main works
Relying not on the causal, but on the functional approach, Pareto overcame Walras’s subjectivism, which allowed him to abandon utility (need) as the only reason for the exchange and go on to characterize the economic system as a whole, where demand (consumption) and supply (production) considered as elements of equilibrium in the economy.
If, in the general economic equilibrium model of Walras, the criterion for achieving it was considered utility maximization, which cannot be measured, in the Pareto model this criterion is replaced by an estimate of the measurement of the ratio of preferences of a particular individual,
For research purposes, Pareto considers consumer choice depending on both the quantity of a given good and the quantity of all other resources, using “indifference curves”, which reflect the preservation of the total utility of goods in various combinations of their combinations and the preference of some combinations over others. As a result, Pareto three-dimensional diagrams appeared, on the axes of which the unequal quantities of one and another good being deposited with consumers are deposited. By applying them, one can trace the order in which an individual can rank his preferences, reveal his “indifference” at a particular point in time between two alternative benefits (
Pareto formulated the notion of public maximum utility,
The concept of “Pareto Optimum” thus makes it possible to take the optimal decision to maximize profits (and, accordingly, utility), if the theoretical argumentation is based on preconditions such as: only a personal assessment of one’s own well-being; the definition of public welfare through the welfare of individuals; incompatibility of the welfare of individuals.
In contrast to the Walras model, Pareto analyzes not only the economics of free competition, but also various types of monopolized markets, which became an independent object of research for economists only a few decades later,
Market equilibrium, achieved through free pricing and competition, according to some theories, is opposed to the role of the state in regulating the economy, which is regarded as an essential element of stability in other schools of economic thought.
In fact, governments of different countries differ in their economic policies, and accents are constantly shifting from state regulation of the economy based on an analysis of macroeconomic variables in terms of quantitative patterns in the ratios between them to the dominance of free competition. Thus, both Keynesianism, which proclaims the maintenance of effective demand and full employment, and the school of neoclassicism, and other areas that find their application and are synthesized into new theories, are reflected here.