Marginalism

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Marginalism is a current of economic thought that emerged in the mid-nineteenth century. In response to the Classical School and the labor-value theory, marginalism provides the law of diminishing marginal utility.

Marginalism, therefore, is the current of economic thought promoted by the Marginalist School. This school of economic thought has its origin in the mid-nineteenth century, in response to the Classical School and its theory on price formation. For the Classical School, prices are determined by the amount of social work required, this being the theory known as value-work theory.

However, for the Marginalist School this statement was not true. For León Walras, Carl Menger and William Jevons, main exponents of the Marginalist School, the explanation of the formation of prices was, rather than in the costs of producing said good, in the last unit produced or loss of said good. In this way, the theory of marginal utility was born, which gives so much recognition to these authors.

Decreasing marginal utility, which comes from the subjective value theory of the Austrian School, tells us that the value of a good is determined by the utility that consumers give to the last good produced or the last unit produced. Thus, this value decreases as the available units increase.

In other words, people do not place the same value on a good when they have one unit as when they have 100 units. Focusing on this last unit, the Marginalist School generates great contributions to economic science, at the same time that it strengthens that union between economic science and mathematics that, in its day, started the Classical School. To do this, he establishes a formalized language that allows him to explain his theories, as well as formulate them.

Characteristics of marginalism or Marginalist School

Among the main characteristics of marginalism, therefore, we can highlight the following:

  • It is a school of economic thought.
  • It arises in the 19th century.
  • Its main authors are Menger, Jevons and Walras.
  • It is born in opposition to the neoclassical synthesis.
  • To do this, he introduces the law of marginal utility.
  • In marginalism, the theory of price formation is based on subjective analysis.
  • Also, the marginalists were pioneers in the mathematization of economics.

Main economists of the Marginalist School

It is convenient to highlight, before continuing, the main authors that made up this school of economic thought.

Among these, the following stand out:

  • Carl Menger: Austrian Economist and Doctor of Law. He was the leader of the Austrian School of Economics. He contributed extensively to the development of marginalist theory. Among his followers was Friedrich von Wieser, who developed the theory of diminishing marginal utility.
  • William Stanley Jevons: English economist and philosopher. Along with Menger and Walras, he was one of the theorists who developed the theory of marginal utility. Jevons, moreover, was the forerunner of the Cambridge School.
  • León Walras: Economist of French origin, from the Lausanne School. Walras is considered a father of the mathematicians of economics. That is, of those who have tried to mathematize economic theories and relationships. His research focused on the theory of general equilibrium.

In addition to those mentioned, other economists also contributed to this school, being able to highlight among them the following:

  • Francis Edgeworth.
  • John Bates Clark.

Main contributions of marginalism or Marginalist School

Next, let us see the main contributions of these cited authors and, therefore, of the Marginalist School, to economic science.

Among the main contributions, we can find the following:

  • It was born as a response to the theory of value-work. To do this, he develops, from the theory of subjective value of the Austrian School, marginal analysis, and the theory of diminishing marginal utility.
  • Thanks to the Marginalist School, it is determined that price formation occurs based on marginal utility and not on the social work required for the production of the good in question. Thus, the heterodox theory is rejected.
  • The marginalists played a very important role in economics. Thanks to them, a formalized language was generated that made it possible to formulate many theories. Thanks to this mathematization of economics, economic science gained quite remarkable respect as a science.
  • Marginalists, in the same way, reject the classical theory that tries to collectivize individuals, believing that the joint action of one group motivates others to do the same. Therefore, marginalists consider that the phenomena that occur are explicable by the individual action of each one of them.
  • Finally, this mathematization gives marginalists that authorship when it comes to pointing out the "culprit" of the mathematization of economics. The marginalists promoted this attempt of the Classical School years ago, and generated numerous formulations that explain many phenomena.

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