Marginalism is an economic school of thought which emerged in the mid-19th century as a reaction to the classical school, also known as the neoclassical school. It concentrates on the last unit produced or on the loss of a given good. The main contribution of marginalism to the world was the law of decreasing marginal utility, which explains that the value of a good for its owner is determined by the utility of the last unit produced of that good, decreasing its utility depending on the number of units it possesses, the more units there are, the lower its utility will be. Marginalists introduced a formalized language, which led to the assimilation of mathematics in economics.
What is marginalism?
Marginalism is a school that focuses all its attention on analyzing the proper functioning of markets and the training in which they create the product prices. A current of economic thought whose main characteristic was the marginal analysis of economic problems.
Characteristics of marginalism
- Marginalism focuses mainly on the exchange and price setting of a company’s different products.
- It is considered as a completely new and innovative twist in the liberal vision that one has about the economy, in such a way that the problem of prices in the market is reasoned directly with its behavior.
- The analyses carried out in marginalism are based on and start from the demand, the consumer or the general consumption of the products.
- The concept of marginal analysis is more widely used in the world of commerce, and this is where the term marginalist economy comes from.
- Those interested in marginalism show a greater interest in allocating scarce resources for multiple and alternative
- It uses the term utility as an expression of value.
- It has two types of key concepts: marginal utility and marginal productivity.
- They have full confidence that, in the long run, achieving a full and overall balance of jobs is possible.
- They are not based on a rigorous laissez faire but admit the participation on a smaller scale by the State in crisis situations.
History of marginalism
The main exponents of the marginalist revolution were William S. Jevons (1835-1882), Cari Menger (1840-1921) and Léon Walras (1834-1910), who were in charge of representing a certain intellectual current or school: Jevons was in charge of the British marginalism school, Menger of the Austrian school and Walras of the Lausanne school.
The authors who focused on trying to impose this economic way of thinking during the 19th century continued the research of the French philosopher Condillac (1715-1780), who in his work “Treatise on Sensations” had outlined a subjective theory of value and for whom economic operations were based on the desires of individuals. Stanley Jevons (1835-1882), Lóon Walras of France (1834-1910) and Carl Menger, originally from Austria (1840-1921) led the main marginalist schools during the 1970s.
- It criticized the work-value that the classical school had proposed. The theory of subjective value is formed, which explains that a product’s price is determined by people’s perception of the product’s utility or benefit and according to the needs of these consumers.
- Marginalism’s followers and forerunners were the first to succeed in creating a formal language for the economy, and this language was essential in its path to becoming a science.
- Through the use of mathematics, it was possible to propose, study and generalize the relationships with clarity, rigor and simplicity that allow today, to test areas of great size and complexity, which, otherwise, would be very difficult.
- Thanks to them, the economic phenomena of structure and change can be explained through the actions of individuals, including their goals and beliefs.
Representatives of marginalism
The works of the following authors were characterized by the construction of abstract models developed with bases in mathematical techniques and by the importance they gave to marginal analysis, and its progressive application through microeconomic theory.
- William Petty: tried to introduce mathematical methods to economics.
- Antoine Augustin Cournot: used calculus to explain the behavior of buyers and firms.
- William Jevons: discovered the concept of marginal utility and the principle of marginal diminution of utility.
- Carl Menger: qualified the economy as a deductive
- León Walras: used concepts of average and total and proposed the theory of general equilibrium.
- John Bate Clarck: he studied the way in which the companies’ wages and profits are determined.
Written by Gabriela Briceño V.