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Economics · A History of Economic Thought by V Lokanathan

Chapter 21 : THE MARGINAL REVOLUTION

Table of contents36 sections
  1. 1.THE MARGINAL REVOLUTION
  2. 2.Introduction
  3. 3.Key Terms
  4. 4.📌 Exam Tidbits
  5. 5.Meaning of Marginal Revolution and its Implications for the Theory of Value
  6. 6.Classical vs Marginalist Theory of Value
  7. 7.Key Terms
  8. 8.📌 Exam Tidbits
  9. 9.Essential Ideas of the Marginalist School
  10. 10.Key Terms
  11. 11.📌 Exam Tidbits
  12. 12.Gossen (1810-1858)
  13. 13.Gossen's Classification of Goods
  14. 14.Key Terms
  15. 15.📌 Exam Tidbits
  16. 16.William Stanley Jevons (1835-1882)
  17. 17.Jevons' other Theories
  18. 18.Conclusion
  19. 19.Key Terms
  20. 20.📌 Exam Tidbits
  21. 21.Carl Menger (1840-1921)
  22. 22.Method
  23. 23.Money
  24. 24.Pure Theory: Theory of Value
  25. 25.Conclusion
  26. 26.Key Terms
  27. 27.📌 Exam Tidbits
  28. 28.Leon Walras (1834-1910)
  29. 29.Method
  30. 30.General Exchange Equilibrium
  31. 31.Key Terms
  32. 32.📌 Exam Tidbits
  33. 33.An Estimate of Marginal Utility School
  34. 34.Key Terms
  35. 35.📌 Exam Tidbits
  36. 36.Quick-Recall Box

Chapter preview

THE MARGINAL REVOLUTION

Introduction

The Marginal Revolution occurred in the latter half of the 19th century, fundamentally changing the apparatus of economic analysis. The marginalist school developed simultaneously across multiple countries through the independent work of several economists.

  • Founders: Stanley Jevons (England), Carl Menger (Austria), and Leon Walras (Lausanne, Switzerland).
  • Anticipator: Hermann Heinrich Gossen (Germany).
  • Scope: Shifted focus to micro-economics (analyzing the single firm and its behaviour, consumer behaviour, the market for a single product, and the formation of individual prices).
  • Decline: Dominated Western economic thought for nearly a century until it was challenged by the Keynesian attack in 1936, which shifted the sphere of enquiry back to macro-economics (the economy as a whole).

Provocation for the Marginalist School The emergence of the marginalist school was a direct reaction to socialists interpreting classical doctrines to attack capitalism:

  • Karl Marx used the classical Labour Theory of Value to attack the foundations of capitalism.
  • Henry George used the Ricardian theory of rent to describe rent as an "unearned increment" and advocated a tax on land rent (socialization of rent).
  • Marginalist Response: Leading early marginalists felt the need to thoroughly revise classical doctrines to strike at the theoretical basis of socialism. They did this by rejecting the labour theory of value and advocating the marginal utility theory of value.

Key Terms

ConceptDefinition
Marginal RevolutionThe fundamental shift in economic analysis in the late 19th century that replaced the classical labour theory of value with the marginal utility theory of value.
Labour Theory of ValueThe classical doctrine (used by Marx) asserting that the value of a good is determined by the amount of labour expended in its production.
Ricardian theory of rentThe classical doctrine used by Henry George to advocate for the socialization of rent, describing it as an unearned increment.
macro-economicsThe sphere of enquiry where the problems of the economy as a whole are analysed.

📌 Exam Tidbits

  • Stanley Jevons, Carl Menger, Leon Walras: Founders of the Marginalist school.
  • Hermann Heinrich Gossen: Anticipator of the Marginalist school.
  • Karl Marx :…
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Chapter 22 : THE AUSTRIAN SCHOOL